Fintechs find new focus helping clients with cash management

Robo-advisers, lenders and stock trading apps are all launching high-yield savings accounts

Apr 26, 2019 @ 2:09 pm

By Ryan W. Neal

Cash management is suddenly one of the hottest trends in financial technology.

Since Wealthfront launched Federal Deposit Insurance Corp.-insured high-yield savings accounts in February, the digital adviser said clients have deposited more than $1 billion, generating $2.5 million in interest. With that success, Wealthfront is increasing interest rates on the cash accounts to 2.29%.

Wealthfront is hardly the only fintech interested in providing banking, or at least bank-like services. Bettermentlaunched Smart Saver in August, a program that sweeps extra cash in a client's checking or savings account into a portfolio of low-risk bonds, projecting a 2.18% yield after management fees.

Robinhood also attempted a checking and savings feature in December that promised 3% returns, but shelved the product following industry backlash and regulatory scrutiny. The stock trading app is now reportedly seeking a bank charter.

Social Finance Inc., M1 Finance and Acorns all also have brought to market their own cash management features.

"I think what's happening is that you're seeing these consumer-facing fintech companies trying to expand past their original core competency into other areas of finance," said David Goldstone, Bankend Benchmarking's head of research. He noted the trend in a recent report on robo-advisers.

(More: Robo researcher claims SoFi trades triggered capital gains tax hit)

Their goal is to create a truly comprehensive financial platform where consumers can get any financial product they need. Consumer preference is moving in that direction because people aren't going to keep multiple fintech apps on their phone if they all offer the same services. Getting into cash management also unlocks new cross-selling opportunities, Mr. Goldstone said.

For example, if a SoFi customer pays off their student loan, the company can offer to quickly and easily create a brokerage account funded with the same monthly deposits they were already making to SoFi. Why would that customer instead open an account with Betterment or Wealthfront, Mr. Goldstone asked.

Fintech startups not only have to keep pace with each other, they have to stay ahead of the traditional financial institutions that have large, established client bases, brand recognition and deeper pockets.

(More: High-net-worth investors not impressed by mobile wealth management apps)

"It's hyper-competitive out there," he said. "Margins are thin, and client acquisition costs are high."

So of all the product areas to move into, why cash management?

For Joe Ziemer, vice president of communications and policy at Betterment, it was a natural extension of the services that the robo adviser already offers. He said the moves are not done to appease demands for growth from Betterment's venture capital backers.

"Financial planning starts with that day-to-day cash flow," Mr. Ziemer said. "Especially if you think about our customers and their life cycle and age, cash management is an important part of that relationship."

Mr. Ziemer also said the firm has data showing investors increasingly look towards cash or cash-like products instead of equities, perhaps after the late 2018 volatility generated fear about the markets.

"Even though markets are doing very well, customer sentiment towards the market doesn't match what it should," Mr. Ziemer said.

(More:Future of advice is wealth planning across the household)

Fintech startups also see an opportunity to capitalize on banks' unwillingness to increase yields as federal interest rates rise. With so many high-yield options hitting the market, people are wising up to the fact that their traditional savings accounts are costing them returns, Mr. Goldstone said.

It remains to be seen how much the startups can disrupt the banks.

"I would expect over time, the banks would start to pass along more to clients," Mr. Ziemer said. But even if there are still a vast number of clients and amount of assets that will stay with banks for a long time, he said fintech is "slowly starting to chip away at it."


What do you think?

View comments

Upcoming event

Nov 20


Future of Financial Advice

An innovative conference dedicated to improving the client experience by enhancing digital technology, mainstreaming healthcare and optimizing wealth management strategies.The Future of Financial Advice will provide a forum for... Learn more

Most watched


Young professionals see lots of opportunity to reinvent the advice experience

Members of the 2019 InvestmentNews class of 40 Under 40 have strategies to overcome the challenges of being young in a mature industry.


Young advisers envision a radically different business in five years

Fintech and sustainable investing are two factors being watched closely by some of the 2019 class of InvestmentNews' 40 Under 40.

Latest news & opinion

New Jersey fiduciary rule: Pressure leads to public hearing, comment deadline extension

Industry push results in chance to air grievances on July 17 and another month to present objections.

InvestmentNews' 2019 class of 40 Under 40

Our 40 Under 40 project, now in its sixth year, highlights young talent in the financial advice industry. These individuals illustrate the tremendous potential of those coming up in the profession. These stories will surprise, entertain, educate and inspire.

Galvin to propose fiduciary rule for Massachusetts brokers

The secretary of the commonwealth is proposing a fiduciary standard in response to an SEC investment-advice rule he views as too weak.

Summer reading recommendations from financial advisers

Here are some books that will keep you informed and entertained during summer's downtime

4 strategies for Roth conversions

There's never been a better time to do a Roth conversion, and here are several ways to go about it.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print