Fintechs find new focus helping clients with cash management

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
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."

Latest News

RIAs need to visit universities to attract students
RIAs need to visit universities to attract students

RIAs need to find universities that offer financial planning programs and sponsor or host events, advisor suggests.

Orion deepens Capital Group alliance with ETF portfolio tie-up
Orion deepens Capital Group alliance with ETF portfolio tie-up

The leading wealth tech provider is helping more advisors access active ETF models through its exclusive partnership.

JPMorgan client who lost $50M amid dementia battle denied trial
JPMorgan client who lost $50M amid dementia battle denied trial

Case of once-wealthy family highlights risks, raises questions on firms' duties to sophisticated investors suffering cognitive decline.

Stifel loses huge $14.2 million arbitration claim linked to star Miami broker
Stifel loses huge $14.2 million arbitration claim linked to star Miami broker

“The evidence in this case was overwhelming,” says an attorney.

$9B Gateway Investment Advisers names Julie Schmuelling president
$9B Gateway Investment Advisers names Julie Schmuelling president

The move marks the culmination of a decade-long journey for the new leader at the Ohio-based RIA and Natixis affiliate firm.

SPONSORED Leading through innovation – with Tom Ruggie of Destiny Wealth Partners

Uncover the key initiatives behind Destiny Wealth Partners’ success and how it became one of the fastest growing fee-only RIAs.

SPONSORED Client engagement strategies, growth and retention in the down markets

Key insights from Gabriel Garcia on adapting to demographic shifts and enhancing client experience in a changing market