Is there any benefit in opening a checking account with a traditional national or regional bank anymore? Or is it time to switch to new, digital, banking competitors like Chime, M1, MoneyLion and others?
Our family has multiple checking and savings accounts. Most were opened long time back driven by ATM proximity (aka ATM fee avoidance). Since then, my cash-tips-only hair salon has started accepting tips by Venmo. So, my trips to ATM are rare.
Let’s tackle the question based on supposed benefits of deposit accounts we used to assume.
Access to wide ATM and branch network
Last time when I was renting, my Gen X landlord wanted to be paid via Zelle, the P2P cash app, instead of check. Since everyone started taking pictures of their checks to deposit and using P2P apps for paying cash, most people have not visited a branch in years. Then in 2020 everything closed down. Once we open up, foot traffic to branch and ATMs would be even lower than pre-pandemic times.
Your money is safe with well-known banks
Since FDIC started guaranteeing everyone’s deposit in 1930s, bank brands are not what is safeguarding our money. It is Federal Govt., behind FDIC, guaranteeing all deposits up to $250,000 for each account owner. I personally felt the guardian angels of FDIC when IndyMac bank failed in 2008. Be it Chime or Money Lion or any other digital bank that you have on your phone, money in their checking/ savings accounts are as safe as the ones kept in mega banks like Bank of America.
You get better features with mega banks
Well, anyone paying attention in last few years knows it is actually the opposite. User experience in mega banks’ legacy platforms is often clunky, unintuitive and hard to navigate. Digital banking apps like Chime does not charge any overdraft fee. Such user-friendly feature is yet to make to any large bank. Features like spending controls and alerts, that took years to show up in many bank accounts are standard with all new digital banking solutions.
You open checking account at a bank to build relationship
Gone are the days when someone sat with a banker to apply for a mortgage or brokerage account. Online financial marketplaces like Bankrate.com, Lending Tree have been around for decades even before Rocket Mortgage rocked the mortgage world with online mortgage application. I will not waste any space about opening brokerage account at a bank- that ship has sailed years ago.
Most banks are yet to figure out how to use relationship data like direct deposit and brokerage transactions while underwriting loan. Younger Americans with bank accounts struggle to get their first credit card from main street banks. Leveraging credit building products from FinTech organizations like Chime or using financing from Affirm is a far easier option than qualifying for a credit card at a mega bank.
Mega banks have superior fraud protection
It is true that large banks spend millions to prevent hacking and alert customers of potential fraud. But even better technology is widely available to their newer competitors. Newer FinTechs are often ahead of banks in incorporating features like facial recognition, identity verification via device authentication or even tracking location from social media posting to identify fraudulent transactions.
One mega bank still does not have multi factor authentication (the system where a phone or email in addition to login credentials are used) in the online portal. Most of my payment experiences in Europe and Asia ended in humiliation after being declined by several major U.S. credit cards except American Express.
In conclusion, there is rarely any need to meet your friendly neighborhood banker and ATM visits are rare. Unless one is a wealthy individual searching for .4% or .5% APY (Annual Percentage Yield) for vast amount of cash reserve, rest of the mere mortals get no discernible benefit from their checking accounts in large banks.
Banks should embrace partnership with FinTechs with superior user experience features. But banks also need to rethink their business model. If large banks’ funding cost is much lower than budding FinTechs, can banks let go of their addiction to overdraft fees? Future is here and the customers love it. Consumer inertia of moving the direct deposit and online bill payments is not high enough hurdle to fend off coming decline in traditional banks’ deposit accounts.
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