A lot has already been written about the recent closure of Finn by Chase so I won’t belabor the point and rehash the major points of the closure. For your convenience, here is a good piece by Ron Shevlin and another by Penny Crossman which do a great job of breaking down the closure and what potentially went wrong. So, what can be learned from closures such as this and others, especially as they relate to large regional banks and credit unions? There’s a lot to unpack here.
Does it make sense for your institution?
The idea of a digital only brand makes can make perfect sense on paper for many financial institutions. As for execution and success, that number likely dwindles quickly. For a digital only spin-off to be successful, the audience has to be right, the product has to be differentiated and most importantly, there has to be a deep, data-backed understanding of the target market. While Ray (Kevin Costner) may have been successful with the “If you build it, they will come” philosophy in Field of Dreams, financial institutions creating a digital only band aren’t going to be quite as successful.
The idea that Millennials and or Gen Z will open a digital only account for the simple fact that it has an attractive, ‘cool’ UI and it’s the channel they prefer is, to be frank, wrong. Being a Millennial myself that is in the process of moving from a traditional banking service to a digital only solution, the offering has to provide a concrete value add, something I wasn’t previously receiving from my traditional institution. In the case of Finn, short of a few minor features such as automatic savings plan, the offering wasn’t different enough to attract new customers. What each segment wants will vary. For older Millennials (like me), it’s better interest rates and some financial management tools, while younger Millennials or Gen Z will care more about the best management tools possible in a digital offering.
What’s the Opportunity Cost?
In the case of Finn, over 50% of their users were current Chase customers, and those in a primary Chase market couldn’t open a Finn account; instead, they were directed to the traditional Chase offering. This doesn’t seem to make much sense; if someone is looking to open a digital only bank account, regardless of what market they’re in, why shouldn’t they be able to? The bank has the opportunity to still hold the money and gain those deposits, but by pushing the customer to a traditional offering, the bank risks losing them entirely.
For a bank or credit union looking to open a digital only spin-off, it’s vital to understand the opportunity cost and establish a clear plan of attack. To cement this idea further, a quick story on my experience opening a digital only account. To protect the guilty, let’s call my bank’s digital offering ABC.
As I was shopping around for various digital only banks, I never came across the ABC digital only offering, nor was it communicated via my app, online banking or newsletters. In the process of moving to my new digital only bank with Discover, I initiated a transfer of a few thousand dollars which triggered a fraud call from my bank. While this was great, my bank never offered to open an ABC account, or even mentioned its existence. Now, it’s entirely possible that the ABC offering wasn’t intended for customers who live in the traditional bank’s primary market, but again, who cares? I no longer bank with my traditional bank and they have lost the ability to manage my money at all.
What’s the right focus?
This question is going to be different for every individual bank and credit union. But when you look at closures such as Finn, or HSBC UK dropping their Connected Money app, it begs the question, should these banks be putting more focus into their current digital offerings? As has been documented, to be successful, options such as Finn have must deliver something unique and valuable; it can’t simply be a new logo and design on their current app.
As these digital only banks continue to pop-up, and in some cases, continue to fail, we must ask if the focus is in the right place. For some of the larger banks, it’s almost as if these digital only offerings are serving as beta tests for new digital features. Does the time, money, and effort of creating a digital only brand outweigh the cost of innovating faster and more often for their current customers? Or, are they trying to solve a different problem altogether? One thing is for sure – the majority of institutions, the regional and community players, can’t afford to create a separate digital brand, only to watch it fail.
There is no easy answer to these questions. Finn by Chase is not the first digital only spin-off to fail and it certainly won’t be the last. For financial institutions that are looking to open up their own digital only offerings, these announcements should at the very least be an eye opener, and maybe even an opportunity to revisit the value proposition and strategically evaluate the options to ensure they don’t experience a similar fate.