Fintech’s take on the banking crisis that switches accounts | Payment source

JINNIFER DOUGLASS

Hours after Silicon Valley Bank’s crisis made headlines on March 9, a New York-based startup that streamlines salary verification and direct deposit account switching saw the first indicators of unusual activity among its fintech and banking customers.

Over the next few days, Pinwheel observed a series of spikes in traffic from customers using the Direct Deposit Switch digital tool to move their salary deposits to more stable institutions, said Kurt Lin, Pinwheel’s co-founder and CEO.

“When the bank run scare started to happen, there was a lot of movement and people were switching accounts,” Lin said, noting that the increase peaked on Friday the 10th. March, before gradually returning to normal levels on Wednesday 15 March.

Among fintechs — where the firm has a heavier mix of customers — Pinwheel tracked a 78% increase in account-switching traffic, Lin said. On the banking side, Pinwheel observed an overall 20% increase in usage of its account switching service in the days surrounding the banking crisis.

Pinwheel’s Direct Deposit Switch product, used by hundreds of fintechs like Block’s Cash App and dozens of financial institutions including Citizens Bank, weathered the surge without incident. Users relied on Pinwheel’s technology to push and pull the necessary data to complete a direct deposit account switch within a minute or two, according to Lin.

The incident underscored the growing demand for faster account switching infrastructure as the speed of money movement increases steadily with faster payments, Lin said.

“Without an intermediary service that we provide, it can be very difficult to switch account deposits. You either have to submit a form to the HR department or do a self-service approach through a payroll company portal, which can be complex,” said Lin.

Pinwheel’s technology automates these processes with a permission-based API that has real-time links to millions of consumers’ income and employment data.

Analysts say direct deposit account switching services are getting more attention from banks of all sizes.

“Getting a new account holder to update their direct deposit is challenging, and many new customers never follow the process,” said David Shipper, a strategic advisor in Aite-Novarica’s banking and payments practice.

While deposit-switching services like Pinwheel — and rival services like Clickswitch and Atomic — aren’t new, they’re gaining favor with organizations struggling with attrition as they add new customers, he said.

“I’ve heard retention rates for new current account promotions as low as 10% because the process of switching direct deposit and billing from a previous bank is seamless, so these services can be extremely valuable to both traditional financial institutions and smaller challenger banks and neobanks,” said Shipper.

Before the banking crisis, Pinwheel was preparing to roll out a new tool in late March called Smart Branch, which enables branch staff to help customers handle direct deposit account switching in person.

“More than 60% of consumers still visit the 70,000 brick-and-mortar branches across the US, and more than 75% of account opening still happens in branches,” Lin said, noting that Pinwheel has recently intensified its marketing focus on banks. after primarily serving fintechs with its salary verification service launched in 2018.

This month, Citizens began using Pinwheel’s digital and Smart Branch approach, and several other banks are set to add the service in the coming months, Lin said.

Pinwheel, which has raised $77 million to date, plans to roll out a new version of its digital Direct Deposit Switch tool aimed specifically at credit unions and community banks, the company said.

“Banks are increasingly interested in streamlining the direct deposit account switching process for customer convenience, and we expect to see the same kind of results as we add more financial institutions to our mix,” Lin said.