Neobanks have found their customers, thanks for customer-friendly tones, lower (or no) fees, and—particularly during the pandemic—quicker access to federal stimulus funds. What they don’t have, with about 70% of those customers, is a primary banking relationship. Those folks are doing their primary banking at large U.S. institutions. For neobanks, gaining those richer relationships is a matter of survival, and they’re going after direct deposit in an effort to build them. For traditional FIs, there is an opportunity and a challenge here. Those institutions would do well to adopt some of the features of neobanks, such as early direct deposit and the reduction (or elimination) of overdraft fees. But it would be a mistake to overplay with regard to early direct deposit, a feature that doesn’t actually condense the period between paychecks. Of greater import to customers is a bank that equips them with tools to avoid the kind of missteps that result in a need for early access to pay and overdraft protection. Further, by expanding the notion of direct deposit as a way of bolstering savings, traditional FIs can help customers improve their financial lives.

Companies Mentioned: 

Citizens Bank, Fifth Third, Huntington Bank, PNC, Varo Bank