Hate your bank? Hankering for a better place to park your money that offers higher interest, charges lower fees, provides more-sophisticated money-management tools and offers friendlier customer service? Take heart. Alternatives to big, bad banks exist. And even more are on the way.
When Bank of America announced in September it would start charging a new $5 fee for debit cards, angry customers defected. Many opted to move their money not to another bank but to one of America's 7,000 credit unions.
The world's largest credit union, Navy Federal, says it gained thousands of new depositors last week, giving it three times as many new checking accounts as it had last year. The National Association of Credit Unions attributes this and other such spikes to the distrust, frustration and apprehension that average customers feel when doing business with big, traditional banks.
BankSimple, one of the newest big-bank alternatives--still in development but hoping to be fully open for business next year--is the direct result of such frustration. The online financial services provider is the brainchild of a former Australian who, from the first moment he set foot in the U.S. seven years ago, found US banks more difficult to deal with than had been the banks back home.
Joshua Reich, CEO of BankSimple, says that when he opened his account he was hit immediately with overdraft fees, late payment fees, and $20 for a wire transfer that took three days to compete. Soon enough, he says, "I was fed up." He reached out to a business school friend who worked at McKinsey and who knew a lot about banking. Why, Reich asked him, is it so hard to deal with American banks?
"We concluded that banks make money by keeping customers confused," says Reich. "That's terrible for the customer, but is a model that works nicely for the banks. Ever read the terms and conditions of your checking account? They're amazingly complicated."
What's more, he says, the tools that U.S. banks offer customers for managing their accounts and for understanding what's really going on with their money are outdated and sub-par.
Example: Let's say you've request automatic payment by your bank for your $500 monthly rent. What the bank shows you as your balance isn't meaningful, says Reich, since the amount on deposit doesn't reflect your automatic deduction. "It says you have $1,000, but you don't," he says. "You're got $500."
BankSimple's balances will take into account automatic payments. And its credit card statements will provide far more information that what customers now are used to getting from VISA or MasterCard. When you make a credit card purchase, says Reich, a bounty of data is transmitted by the credit card company to your bank: Not just the amount charged and the name of the business provider, but time of day, geographic location and other details. But conventional banks throw this information out. Why?
America, says Reich, "suffers from having been the first to adopt computerized banking. A lot of systems date back to the 1950s, when data storage and processing were expensive." That's no longer true, of course. BankSimple's credit card statements offer data that others throw away. By providing the time of day for a restaurant purchase, for example, the statement lets a customer easily see what was a dinner bill and what was lunch. With a few keystrokes, a bank customer can see, for example, total lunch expenditures by city for a given business trip.
Both BankSimple and already-established Ally Bank have no brick-and-mortar branches. They exist entirely online. The upside of that is that by having lower costs (no real estate expenses, for example), they can afford to offer depositors higher interest rates. The downside, for Ally, is that customers, to make deposits, must mail in their checks. BankSimple makes use of smartphone technology to get around that problem: A customer takes a smartphone photo of a check, then emails it to a brick and mortar bank partnered with Bank Simple.
"We've partnered with small community banks and regional banks," explains Reich. "They take care of handling the money. We take care of our customers. We maintain the customer relationship. With us there's no phone tree that tells callers to 'press 7'; You get a real customer service person right away." And software tries to match a caller with the same customer service representative they spoke to the last time they called, to strengthen the customer's tie to the bank.
Stessa Cohen, a research director with the Gartner Group in Philadelphia, says big, conventional banks have been slow to appreciate an important truth about their customers: "Consumers have lives to live outside banking," she says. "Everybody's life today is faster, more complicated, more stressed. The bank that makes it easier for customers to live their lives will be an attractive place to do business."
Among banks and financial service providers she considers to be innovators she cites Standard Chartered Bank of Singapore, which offers its customers a new tool, "Breeze," that lets them make appointments with their local branch online.
"How come you can make an appointment online for car repair," she asks, "but you can't do it at your local bank?" She also likes a new online service called BillGuard that warns credit card customers when it detects what it deems to be suspicious card transactions. "You register your credit cards," she says, "and they proactively detect abuse."
Do big, conventional banks have the capability to offer the same kind of service? "Yes, but they're not doing it."