Fintech Payments

The Slow Death Of Checking Accounts (Ron Shelvin,


I recently spoke to First National Horse and Buggy about their innovation efforts. Here are two innovative ways the company is planning to improve their customers’:

  • Convenience. As they age, people find it harder to climb the stairs to get into a buggy. So FNHB will be deploying mini-escalators attached to the side of the buggy to make it easier for customers to get in.
  • Security. Customers were reporting that bad actors were stealing buggies at night, using them to go places, then returning them before daybreak. So FNHB is installing combination locks on the buggies’ wheels. If you don’t know the combination to the lock, you can’t use the buggy!

It’s Like Installing an Escalator on a Horse Buggy

I didn’t really talk with FNHB, of course, because there is no FNHB—horse buggies are all but extinct (except in a couple of places in the US).

Improving the experience of an extinct (or soon-to-be extinct) product is like installing an escalator on a horse buggy. It may add convenience for existing users, but there are better places to put your money.

Yet, that’s exactly what banks and credit unions are doing.

Product Innovation Versus Customer Experience Improvement

In its State Of The Financial Services Industry 2020 study, Oliver Wyman presents an analysis of how banks allocate their investments for change initiatives. According to the consulting firm, banks allocate an equal amount—10%—to customer experience improvement and innovation/scaling up new businesses.

Change Portfolio Allocation
Change Portfolio Allocation OLIVER WYMAN

Today In: Money

I don’t think this is right.

First off, in Cornerstone Advisors’ What’s Going On in Banking 2020 study, nearly eight in 10 financial institutions said that “improving the customer experience” was a very important priority for their fintech partnership and collaboration efforts, while just three in 10 said that expanding their product line was a very important objective.


In addition, drawing on a study from the University of Cambridge about the use of AI in financial services, Finextra reported:

“A higher share of fintechs tend to be creating AI-based products and services, employing autonomous decision-making systems, and relying on cloud-based systems. Whereas incumbents appear to focus on harnessing AI to improve existing products.”

It’s hard to believe, based on these data points, that banks put as much money in “scaling up new businesses” are they do in enhancing the customer experience of their existing products—e.g., checking accounts.

Checking Accounts Are On Their Way to Extinction

Considering that the FDIC’s last measurement of unbanked consumers in the US—i.e., consumers without a checking account—was just 6.5% of the population, it’s hard to believe that checking accounts are on their way to extinction.

But they are.

I’ve said it before and I’ll say it again: Checking accounts have become paycheck motels—temporary places for people’s money to stay before it moves on to bigger and better places.

The features and functionality of today’s checking accounts aren’t good enough. Feature like viewing balances without logging in and turning the debit card on and off through the mobile app are nice but they’re like the escalator on the horse buggy.

The problem is that—despite the slew of mobile banking features that keep coming out—the value that a checking account provides falls short of what consumers want and need.

The New Checking Account Must Be Service-Focused

What most consumers need is a brain.

Feel free to interpret that as you like, but what I mean is that they need a “financial brain”—a way to manage the transactional aspects of their financial life.

Apple’s mobile wallet is kind of a brain. It provides payment conveniences and offers some “intelligence” (e.g., PFM-like capabilities), but it: 1) Doesn’t enable direct payroll deposit, and 2) Is closed-loop (i.e., rewards are in the form of Apple Cash and other cards the consumer owns isn’t integrated).

The bigger issue with Apple’s—and other providers’—mobile wallets is that they’re too payment-focused. The successor to the checking account will be service-focused, not just transaction-focused.

What kind of services? In a study conducted by Cornerstone Advisors, more than half of Millennials expressed interest in getting subscription cancelling, bill negotiation, and purchase protection services bundled with a checking account from a bank or credit union. And more than seven in 10 are interested in price match guarantees bundled with a checking account.

Millennials, checking accounts, banking, fintech, price match guarantee, purchase protection, bill negotiation, subscriptions
Millennials’ Interest in Checking Account Add-Ons CORNERSTONE ADVISORS

In some respects, this is 20th century thinking.

Today, however, the only way they (and the banks) can conceive of receiving (and providing) those services is by having them “bundled” into the construct we call a checking account.

Too many bankers think that consumers value having more data about their financial lives thrown at them. Maybe some do, but most just want the “job to be done” done.

The successor to the checking account will have: 1) universal payments (B2C, P2P, bill pay) capability; 2) rewards optimization; 3) account-to-account money movement; 4) receipt management; and 5) value-added service provisioning (see above for examples).

No one in the US market is even close to having something like this.

Other pundits and experts have beaten me to the punch on the “autonomous finance” label (see here and here), but everyone seems to think that AI and machine learning hold the keys to making this a reality.

I’m not so sure about that. Connectivity and integration is the bigger barrier and enabler. This vision ain’t becoming a reality via screen scraping.

And it’s another reason why the Visa acquisition of Plaid is so important. The realization of this vision requires integration with merchants and other non-financial services players. Can FDX accomplish that?

Payroll Processing is the Key to Disruption

Remember our discussion at the beginning of the year about moats? A moat is a Buffettism (Warren, not Jimmy) for a competitive advantage.

Checking accounts’ moat is the paycheck. As long paychecks can’t be deposited directly into a (non-bank) mobile wallet, checking accounts will fight off extinction.

(FYI, there’s one Quora user who believes that there is a workaround available to directly deposit a paycheck directly into Apple Pay.)

This won’t last.

Look for Amazon or some other Big Tech firm to acquire a payroll processor like ADP and seek to control funds at the source: the paycheck. When that happens, the checking account’s days are numbered.

The Slow Death of Checking Accounts

The dying out of checking accounts will be a decade-long process. Here’s how it will play out:

  • A few small tech vendors will develop new solutions to provide this new “autonomous” finance account. A small number of aggressive, innovative-minded financial institutions will deploy the service and begin to see success with it over a two to three year time period.
  • The larger tech vendors (i.e., the large cores) will acquire these smaller vendors to help accelerate the growth (i.e., deployment) of the new service. As their client banks and credit unions have broader and easier access to this service, consumer adoption will accelerate.

Expect this process to take 10 to 15 years. By the way, this process should sound familiar to bankers, as it’s exactly what happened with mobile banking.

Final word: This new replacement to checking accounts could be a great opportunity for the emerging set of core app providers like Finxact, Neocova, Nymbus, and Technisys to leverage cloud-based technologies and create a competitive advantage over the existing core providers.

Ron Shevlin is the Managing Director of Fintech Research at Cornerstone Advisors. Author of the book Smarter Bank and the Fintech Snark Tank on Forbes, Ron is ranked among the top fintech influencers globally, and is a frequent keynote speaker at banking and fintech industry events.

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