Fintech companies like Payactiv have gotten a lot of attention lately from banks, especially from the traditional, brick-and-mortar kind of banks. It seems like a David and Goliath kind of story.
Except it’s really not.
Payactiv connects people’s earnings with a digital wallet and an exclusive ecosystem of discounts and services all in one app. We help people get access to their earned wages when they need them and give them more flexibility and insights with their spending, saving and budgeting.
Millions of people are sending their direct deposits to apps like Payactiv for the convenience of on-demand pay and digital financial services as opposed to traditional banks. The banks are noticing. More than two-thirds of bank leaders said they experience competitive pressure from fintechs, and 55% said they plan to collaborate with a fintech in the near future.
Banks, in a traditional sense, have existed since ancient times, and their primary purpose has always been to keep people’s money safe and to issue credit or loans. While this basic functionality is still true today, many things in the banking experience have changed dramatically.
While back in the day it was common to go to the bank to deposit checks and get cash, today people rarely have a need to go to the actual physical bank location, unless they are applying for a new account or a loan. Since the invention of the debit card in 1966 by the Bank of Delaware, banking has come a long way. Americans are not only making most of their purchases using debit cards today, but they are also going completely cardless with their smartphones by using digital wallets, such as the one from Payactiv.
Waiting in line at the bank to deposit a check has become less and less common, much the same way as having a landline or a CD collection. It was okay back in the day, but now that we have smartphones that allow us to listen to music, make video calls, and transfer money with a touch of a button, who wants to spend their time at the bank?
With the evolution of the Internet came the online banking revolution as well. Initially only a few banks offered online banking but by 2006, it was offered by 80% of US banks. It wasn’t long before digital only or “neobanks” appeared and started changing the way we think about banking altogether.
Some people worry if they can really trust these digital-only banks. It’s a fair question and one should always make sure that the business that you entrust your money with is legitimate and FDIC-insured. The reality is that most digital-only banks and fintechs, like Payactiv, are actually partnered with a traditional bank and card processor for all the back end processes and compliance. Because of this partnership, they are able to focus on the digital banking experience and deliver extraordinary new in-app financial services like bill management, peer-to-peer payments, and smart saving and budgeting tools.
Some mistrust in traditional banks is understandable.
In 2020, American banks collected more than $30 billion in overdraft fees. At their core, banks are lenders. They make their money from interest income, capital markets income, or fees.
The largest bank in the US, JP Morgan Chase, made $129.5 billion in revenue in 2020. The largest percentage share of this revenue was from their Consumer & Community Banking segment which includes things like deposit and investment products, mortgage origination and servicing, and auto loans. Banks are making sky-high profits on collecting interest on our mortgages and loans.
During the pandemic, overdraft fees actually plunged 49% in Q2 of 2020, due to a drop in consumer spending combined with stimulus checks.
But sadly by the end of 2020, overdraft, maintenance, and ATM fees – collectively known as consumer deposit fees – were back to their pre-pandemic levels.
The big name banks led the top 20 list of banks with the most service charges collected over a span of 12 months. Bank of America reported $2.57 billion, JP Morgan Chase $2.52 billion, followed by Wells Fargo with $2.15 billion in service charge fees.
Surprisingly, when looking at the percentage share of total operating revenue, it was the smaller banks that relied the most on service charges. The Woodlands, Texas-based Woodforest National Bank topped the list of banks most reliant on service charges, with 31.7% of its operating revenue from such fees over the last 12 months.
Unfortunately, for some, even access to basic banking services is still not an option. About 5.4% of American households, or approximately 7.1 million households were still unbanked in 2019 because they couldn’t qualify. Unbanked rates were higher in low income, Black, Hispanic, and Native American households. The top reason for being unbanked was not having enough money to meet the minimum balance requirements.
Digital banking has eliminated these archaic banking requirements along with the unnecessary fees and opened up doors to more people. The new generation is looking for more flexibility and convenience with their financial management from apps like Payactiv. Millennials have made on-demand access to money a must in today’s world. They might not write checks or balance a checkbook, but they sure can Venmo money to a friend.
Today, 63% of consumers say they would consider banking with a nontraditional bank. A lot of this demand is driven by the new generations, with two-thirds of Gen Z-ers and three-quarters of Millennials saying they would make the switch for a better app with better financial services.
While Payactiv doesn’t claim to be a bank, we are partnered with one and honored to provide some extraordinary financial services to millions of people and help them live the life they earned. So, it’s really a story where David and Goliath become friends and do some great things together.
Happy National Online Bank Day 2021!
To learn more about Payactiv’s services, get in touch with us, and let’s talk.
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*The Payactiv Visa Prepaid Card is issued by Central Bank of Kansas City, Member FDIC, pursuant to a license from Visa U.S.A. Inc. Certain fees, terms, and conditions are associated with the approval, maintenance, and use of the Card. You should consult your Cardholder Agreement and the Fee Schedule at payactiv.com/card411. If you have questions regarding the Card or such fees, terms, and conditions, you can contact us toll-free at 877-747-5862, 24 hours a day, 7 days a week.
1 Many (but not all) employers, government benefits providers, and other originators send direct deposits early with an effective of 1-2 days later. Beginning with your second direct deposit of at least $5 from the same source, Central Bank of Kansas City (CBKC) will post the funds to your Payactiv Visa Card when we receive it, rather than on the effective date. This may result in your having access to the funds sooner. The date CBKC receives your direct deposit and the effective date are controlled by the originator.