Digital Banks Gain US Customers During Pandemic, Thanks To Advance Deposits By Reuters

© Reuters. FILE PHOTO: This illustration shows US one hundred dollar bills

By Imani Moise, Anirban Sen and Anna Irrera (Reuters) – Digital banks including Chime, Varo and Current have won over more American customers during the coronavirus pandemic by quickly processing stimulus payments, distinguishing them from traditional banks and generating valuable news. word of mouth references. In some cases, companies pre-financed deposits that they expected their clients to receive from the Treasury Department. In others, they received funds quickly and sent them faster than traditional banks. That drew praise from people who celebrated their first deposits online and encouraged others to join their digital banks. “I LOVE YOU @Chime,” tweeted a user with the ID @ jayy702 after receiving some stimulus funding on December 28th. “1000th reason I’ve been with them for years. #ChimeCares.” Also known as challenger banks or neobanks, firms like Chime operate primarily through smartphone apps and attract depositors with benefits such as no fees or minimum balance requirements. The reactions were not all positive. Both large banks and startups received complaints about delays that were due to the Internal Revenue Service diverting millions of payments, as well as problems such as not having established direct deposits. Overall, however, digital banks appeared to do more to transmit funds quickly, analysts said. That helped them build a stronger foothold in the United States, where they have struggled to gain traction. “Getting stimulus money to customers faster than traditional banks is a huge publicity achievement for neobanks,” said Sarah Kocianski, head of research at fintech consultancy 11: FS. She predicted higher profits for clients: “The appeal of getting paid early will remain beyond stimulus packages.” Varo more than doubled customers in 2020 compared to much slower growth in previous years, Chief Operating Officer Wesley Wright told Reuters. Now it manages almost 2 million accounts. “The pandemic brought great growth to us and other digital banks,” he said. Current’s customer numbers rose similarly, from 1 million users in June to more than 2 million in November. His income increased fivefold last year. “It’s clear that Americans desperately needed this,” said current CEO Stuart Sopp, who urged the incoming Biden administration to offer more support. Chime also grew significantly over the past year, said a spokeswoman, who declined to share details. Chime gave 700,000 clients early access to nearly $ 700 million in stimulus funds. Although they are gaining traction, experts put neobanks’ total deposit market share at a low single-digit level. For comparison, JPMorgan Chase & Co (NYSE :), Bank of America Corp (NYSE 🙂 and Wells Fargo (NYSE 🙂 & Co each account for at least 10% of US deposits, according to government data. Those three banks said they have processed all of the electronic stimulus payments they received to date. Millions of Chase customers were able to access the funds as of January 1, and all valid transactions were completed on January 4, the bank said. More than three-quarters of Bank of America customers who qualify for stimulus payments have received them, he said. Wells also said that it has processed all of the stimulus payments that came through direct deposit. The industry has attributed the delays to problems beyond a bank’s control, including IRS error, as well as payments sent to closed accounts or tax preparers rather than individuals. Those who have not yet received stimulus funds can receive paper checks or debit cards in the mail. ACCOUNT BENEFITS In addition to benefits like free accounts, some digital banks also offer early access to recurring deposits, as well as free referral bonuses or cash advances. When the coronavirus lockdowns pushed millions of Americans into unemployment, quick and easy access to money via the smartphone app became even more attractive. Importantly, they also got more people to access “primary” accounts with direct deposits, necessary to obtain electronic stimulus funds. Those accounts are considered the holy grail of consumer banking, because depositors tend to stick with their main bank and seek other services over time. About 15% of U.S. millennials had primary accounts at digital banks in December, up from 5% in early 2020, according to a survey by Cornerstone Advisors. The consultancy defines millennials as those born between 1982 and 1994. Drew Kolar, a 35-year-old bartender from New York, is one of them. After losing his job in the spring, Kolar was pleased to see stimulus funds quickly appear in his Varo account. He switched from Chase in late 2019 after his account turned negative and the bank evaluated fees due to student loan payments going wrong. “I started looking for banks online that would accept me with my bad credit and no connections to Chase, and I found Varo,” Kolar said. “So far, I have had no problems.”