How do banks react to Fintech?

• Several consumers turn to fintech banking companies to meet their needs.
• A FICO report from 2022 found that consumers’ expectations are also changing.
• Some traditional banks have responded by reviewing policies or services for overdraft facilities.

Fintech banking platforms such as Chime and Current are becoming increasingly popular with consumers.

What does this mean for the banking system? We will explain how consumers’ expectations change

the banking industry

and what this might mean for you.

Why fintech is becoming more popular

According to a Cornerstone Advisors report from 2022 commissioned by FICO, consumer behavior and expectations of banking are changing, and traditional banks need to adapt to these needs.

The research found that younger generations – especially Millennials and Gen Z – are more likely to use digital banking as a primary

check account

than a joint bank or credit union. The report also shows that the percentage of Gen Z who reported having a current account with a national bank, dropped from 35% in 2020 to 25% recently.

“The biggest thing I think consumers need to understand is that it’s actually very easy to manage many of these fintech relationships,” said Darryl Knopp, FICO’s senior director of portfolio marketing.

Knopp points out that fintech banking platforms resonate with consumers because they have products that are easy to understand and different.

Because products and services are web-based, managing an account is easy. Some fintech platforms also offer 24/7 customer support or live chat features to communicate.

How banks react to fintech companies

According to the mentioned FICO report, there are two areas where

fintech companies

can stand out for consumers for often offering free overdraft protection or savings tools.

Here’s how traditional banks respond to meet consumer needs.

Overdraft fees

Several large banks are rolling out changes in overdraft policies in 2022. The Consumer Protection Bureau also monitors these changes and ensures that changes result in lower fees for consumers.

Here’s how 10 of the largest physical banks approach overdrafts and overdrafts.

• chase: Chase has changed its overdraft policy so that customers can withdraw up to $ 50 from their bank account without having to pay the $ 34 overdraft fee. If you overdraw more than $ 50 from an account, you also have until the next business day to recover your balance to avoid paying a fee.
• Bank of America: In May, Bank of America reduced its $ 35 overdraft to $ 10. The bank also got rid of the fee for using overdraft security services when transferring money from another bank account.
• Wells Fargo: Wells Fargo no longer charges a fee for using overdraft protection if you have an associated bank account. During the third quarter of 2022, Wells Fargo will also change its guidelines for overdraft facilities. If you overdraw from your account, you have 24 hours to recover the account without having to pay a fee.
• Citi: In February, Citi announced that it would get rid of overdraft and overdraft fees. These changes will take place this summer.
• American bank: In January, US Bank cleared some of its overdraft fees. US Bank now allows you to withdraw up to $ 50 from a bank account without paying a fee. If you have overdrawn by more than $ 50, you also have until 23.00 A subsequent business day to recover the account balance without being charged.
• Truist Bank: In January, Truist announced that it would eliminate overdrafts protection fees. The bank will also offer a new checking account that does not charge overdraft fees and allows customers to overdraw up to $ 100 from one account. The inspection is expected to be available sometime during the summer.
• TD Bank: In February, TD Bank stated that it would make several changes to its overdraft policy during 2022. TD Bank will eliminate transfer fees for overdraft facilities. Customers will be able to withdraw up to $ 50 from their bank account without having to pay an overdraft fee. If you overdraw more than $ 50 from an account, you also have 24 hours to recover your balance to avoid paying a fee.
• Fifth third bank: Fifth Third Bank does not allow you to overdraw up to $ 5 without paying a fee. The bank also offers “extra time” with the fifth third bank momentum checking account. If you recover an overdraft balance before midnight ON the following business day after your account is overdrawn, you will not have to pay an overdraft fee.
• Citizens Bank: This month, Citizens Bank announced that it would eliminate overdraft protection fees if you have an affiliate savings account. The change will take place in mid-2022.

Tips for choosing where to bank

With more banking options, Knopp says consumers can start learning more about specific banking products and services.

For example, you can look at both fintech companies and traditional banks and find out if certain features – such as early direct deposit or budgeting tools – stand out for you.

Alina Leon, an umbrella planner at Beacon Financial Planning, Inc., says that local financial institutions may be worth considering if you have already established a good relationship with a banker or are planning to apply for a mortgage or loan in the future.

“If you feel good about having everything online, an online account can work for you. But it will also be more difficult to perform certain activities if you need to get a bank check or exchange currency,” Leon adds.

Knopp also advises people to carefully review new fintech platforms and be aware of the exact services and products offered.

“If a group is very new, you will definitely want to consider their stability,” says Knopp. “Are they going to be around? How easy is it to get involved with them? Look closely at that.”