- 08.22.13
- 6:30 AM
Photo: Ariel Zambelich/Wired
When you swipe your debit card at the grocery store, no one walks into a bank vault looking for a box with your name on it.
If you’re among the 90 percent of Americans with a bank account, you’re not exactly storing a personal stack of bills under lock and key. Your money is data — a series of ones and zeros. Sometimes, you convert these numbers into greenbacks at a nearby ATM, but mostly, you just shuffle them in and out of your account, with things like electronic bill payments, direct deposits, debit card transactions, PayPal trades, and maybe — if you’re old school — the occasional paper check.
Banks provide other things too, including, well, a guarantee that your money is safe. But the thing to realize is that so much banking happens digitally, and in many cases, the world’s digital banking services aren’t even operated by banks.
‘After being in the business of serving banks for the better part of a decade, this has got to be one of the worst industries on the planet for innovation’
— Joe Polverari
For more than a decade, a company called Yodlee has helped big banks power their online services, including Citibank and Bank of America. And other new-age companies, such as Movenand Simple, now offer banking services you can use even if you don’t have a direct relationship with a traditional bank. Which makes you wonder: Do we even need banks?
The reality is that we still need them quite a bit, not least because that’s the way the government regulates the financial industry. But their influence on our personal lives is waning, in large part because they haven’t kept up with the times. “After being in the business of serving banks for the better part of a decade, this has got to be one of the worst industries on the planet for innovation,” says Yodlee chief strategy officer Joe Polverari. “The banks were not willing to enable access to stuff that people wanted as fast as people wanted.”
What this means is banks will gradually disappear into the background of our financial lives. In the future, your bank will look less like your bank — and more like Google or Facebook or Apple.
Despite his criticisms of the banking industry, Polverari isn’t anti-bank. Banks are his biggest customers. When you use an online banking site, you may well be using Yodlee software. According to Polverari, the company’s tools ultimately touch about 50 million consumers, though most wouldn’t know it. “We are the most silent of the big data companies out there,” he says.
But now that they’ve got a foot in the door, Polverari and company are going even further, giving people services that banks can’t — or won’t. Yodlee software also powers personal finance apps such as Learnvest1, which pairs your bank accounts with your car loan, mortgage, and retirement accounts, digitally aggregating the most all the data that constitutes your financial existence. And, more recently, Yodlee began offering application programming interfaces, or APIs, for its software platform, letting all other companies and software developers build new applications that juggle your financial data (provided you opt in to such things).
Meanwhile, a similar endeavor is underway at Moven and Simple. These companies offer banking apps that combine Learnvest-style planning, tracking, and goal-setting with traditional online checking and savings account services. They even send you a debit card. When you use these apps, you treat them as you would a bank.
Yes, the old-school banks are still very much part of the equation. Most people use Yodlee through institutions like Citibank, and both Moven and Simple are backed by chartered, FDIC-insured banks that hold your money and issue the debit cards. “There is a safety and soundness issue,” says Jennifer Tescher, CEO and president of the Center for Financial Services Innovation. “Banks are regulated.”
But with the Movens and the Simples, you — the customer — have no relationship with the traditional bank, much like a Dropbox user has no relationship with Amazon Web Services, the company that actually stores all their files. That is where the world is moving.
R.I.P., the Local Branch
Just as Amazon replaced so many local book stores, Moven and Simple will move in on the local bank branches — the brick-and-mortar offices where you chat about money with someone who acts like they know you.
This will take a while, says Simple CEO Josh Reich, but he sees hands-on banking strategies as unsustainable in a digital-first future. “There’s some demographics where they’ll always want to go to the branch,” Reich says. “But that’s becoming less and less relevant.”
‘There’s some demographics where they’ll always want to go to the branch. But that’s becoming less and less relevant’
— Josh Reich
Banks see this a little differently. They realize the world is changing. And thanks in part to Yodlee, they’re moving into the digital world too. They may even say they can tackle the brave new financial world without the help of outside innovators. Brian Pearce, head of retail mobile banking at Wells Fargo, points out that the company has been offering cutting-edge banking services since it rolled out an app for the Palm VII back in 2001. But, as you’d expect, the banks also believe the local branch is here is to stay.
Pearce says that many consumers still need hand-holding: Wells Fargo’s call centers receive a half-billion calls each year, and the human interaction afforded by branches still matters. Rather than go all digital, Pearce says, Wells Fargo is taking an “omnichannel” approach, similar to the way brick-and-mortar retailers are striving to compete with Amazon through a mix of complementary physical and digital options.
If you’re a bank, that makes perfect sense. But Polverari believes banks like Wells Fargo have reacted too slowly to the way the world is changing.
Half the traditional banking industry, he says, was too busy keeping customers coming into branches — the banking equivalent of the newspaper industry trying to get readers to stick with dead trees. The other half, he says, defined success in online banking as having a website — and not much more. “They got stuck in that paradigm for a long time,” Polverari says. “What happened is everyone started innovating outside of them.”
The Bank of Google
You could even argue that the banks never had a chance. In many ways, government regulations — the regulations that keep our money safe — prevent them from moving quickly.
“It does sometimes appear that banks are slower to innovate than some of these tech companies,” says Steve Kenneally, vice president of regulatory compliance at the American Bankers Association, a trade group that speaks on behalf of the country’s banks. “[But there's] a lot less downside to someone in a garage in Palo Alto crashing and burning than having a bank commit a lot of capital toward something that may not succeed.”
The solution is not to fight the innovators but to join them. Tescher, of the Center for Financial Services Innovation, says banks should embrace services like Moven and Simple. “The marriage of slower, less sexy, safe place coupled with looser, freer, cooler marketing company could be a terrific proposition,” she says.
‘There’s a lot less downside to someone in a garage in Palo Alto crashing and burning than having a bank commit a lot of capital toward something that may not succeed’
— Steve Kenneally
But why stop at Moven and Simple? Why not embrace companies such as Google, Facebook, and Apple, the companies that now sit at the center of our daily lives? They run massive software platforms we interact with multiple times every day, and in so many cases, these platforms are used to buy and sell. You can even send money via Gmail using Google Wallet, and the rumor is that Facebook is building its very own, PayPal-style payments platform.
Some have said the likes of Google and Facebook should go whole-hog and transform themselves into fully-regulated banks that actually hold your money. But people like Moven founder Brett King see this as unlikely, arguing that the costs of running a complete bank will discourage the biggest tech from doing so. The best bet, he says, is for the Googles and the Citibanks to join forces.
Google, Facebook, or Apple will eventually offer online banking services as Moven and Simple have done, and these services are sure to be much easier to use — and more powerful — than what an old school bank could give us. Banks would be smart, King says, to just plug into these services, rather than trying to play catch-up in a race they’re unlikely to win.
“They’re going to have to reach out to partners to engage,” he says. “The best partners are the partners that own the customer already.”
1Correction 13:53am EST 08/22/13: An earlier version of this story said that the financial application Mint uses Yodlee software. Mint used this software in the past, but no longer does.
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