PortX, which offers integration-platform-as-a-service (IPaaS) to financial institutions, said in a Wednesday (Sept. 4) news release that Fintech Hub is now available on AppMarket, a marketplace that gives Fiserv clients fast access to FinTech solutions.

PortX will also play a role in facilitating new FinTech onboarding to Fiserv’s AppMarket, providing financial institutions with more options for partnerships, the release added.

“As a pre-integrated app on AppMarket, PortX Fintech Hub enables Fiserv clients to easily leverage their data through cost-effective, reliable, and reusable API-led connectivity between their Premier core, Communicator Open, and any third-party system,” the release said. “This model ensures seamless integration, accelerates time to market, and significantly cuts down operational costs, making it an efficient and cost-effective solution.”

David Wexler, PortX CEO, expressed enthusiasm about the new tie-up.

“We’re excited to support Fiserv’s global vision for open banking through its Communicator Open initiative and helping banks and credit unions access best-of-breed FinTechs in the market,” Wexler said. “This collaboration highlights Fiserv’s innovative approach to serving its customers by maximizing the value of its product and proactively helping them to reduce costs.”

The new launch is the latest in a string of deals that PortX has inked with other companies.

In April, PortX partnered with eXate, a data privacy firm, to strengthen financial data security and regulatory compliance across the banking sector, PYMNTS reported at the time. In particular, the deal placed an emphasis on enhancing data protection for financial institutions’ data ecosystems.

The partnership saw PortX integrate eXate’s data protection platform into its IPaaS solution, giving financial institutions tools to provide comprehensive data security and compliance management, the release said.

In February, the firm teamed up with LendAPI to simplify the digital lending company’s lending process while allowing it to adopt more sophisticated, data-driven decision-making strategies, PYMNTS reported at the time.

And also in February, PortX announced a collaboration with compliance platform Hummingbird to make it easier for financial institutions to use Hummingbird’s compliance platform for anti-money laundering and financial crime investigations.

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A recent PYMNTS Intelligence report, “Embedded Finance and BaaS: From Marketing Buzz to Banking Bedrock,” in collaboration with NCR Voyix, reveals traditional institutions must now make a critical choice: adapt to these advancements to remain relevant or risk being surpassed by more nimble competitors.

APIs Transform Embedded Finance

Embedded finance and BaaS are becoming integral to the banking industry, driven by the need to offer seamless financial solutions and counter competitive threats from Big Tech and FinTech companies. According to recent surveys, 41% of FIs have already implemented embedded finance solutions, and 48% have expanded their BaaS capabilities. This adoption reflects a strategic shift toward leveraging these technologies to stay relevant in a market increasingly dominated by digital-first players.

A trend is that 79% of banks worldwide expect banking to become deeply embedded in daily consumer and commercial activities. As a response to this shift, 20% of banks are transitioning toward BaaS-centric models that enable them to offer a range of in-house financial products and services.

This strategic move is crucial, as businesses are integrating C systems with payment providers via APIs to gain data-driven insights, a trend anticipated to accelerate with advancements in artificial intelligence (AI).

Navigating Roadblocks to Embedded Finance

Despite the clear advantages, adopting embedded finance and BaaS presents challenges. In the U.K., for example, two-thirds of banking executives cite at least 10 obstacles, including cost and risk factors, that hinder the widespread adoption of embedded finance. A staggering 99% of executives acknowledge at least one barrier, with a substantial number highlighting the absence of a unified internal strategy as a major hurdle.

Meanwhile, the regulatory environment remains a critical issue. In the U.K., 31% of compliance leaders report being hampered by regulatory uncertainty, while broader concerns about outdated systems and the lack of cohesive strategies exacerbate the problem.

European banks face additional security challenges, with 80% acknowledging the importance of API security, but only 24% having implemented comprehensive security solutions. These issues are particularly pressing for smaller community banks and credit unions (CUs), which often struggle with legacy systems and limited resources.

FinTech Partnerships: Key to Banking Innovation

FinTech partnerships are emerging as essential for banks and FIs seeking to accelerate innovation and enhance customer satisfaction. These collaborations enable institutions to integrate advanced technologies and offer more responsive services, addressing evolving consumer needs and maintaining competitive edge.

A key driver of this shift is the demand from Generation Z. PYMNTS Intelligence research shows that 30% of Gen Z consumers are likely to switch financial institutions if their current ones fail to innovate. Despite this, 41% of CUs have no plans to offer popular digital services like Zelle by 2030, and 23% are not considering digital budgeting tools. This highlights a critical disconnect and underscores the urgency for CUs to adopt API-enabled products.

In response, 80% of CUs are recognizing the value of FinTech partnerships as a crucial element of their digital transformation strategy. Nearly half of these institutions plan to invest in FinTech collaborations in the near future, with about 30% expecting to partner with multiple FinTechs.

The rise of embedded finance and BaaS marks a shift in banking from traditional silos to a digital-first approach. Despite significant challenges, especially for smaller banks and credit unions, FinTech partnerships and API integrations offer a path forward.

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The British FinTech launched the secondary share sale to provide liquidity to employees and to attract both new and existing investors, according to a Friday (Aug. 16) press release.

“We’re delighted to provide the opportunity to our employees to realize the benefits of the company’s collective success,” Revolut CEO Nik Storonsky said in the release. “It’s their hard work, innovation and dedication that has driven us to become the most valuable private technology company in Europe. We’re also excited to partner with several new investors who share our vision as we continue our journey to redefine the banking landscape as we’ve known it.”

Revolut attributed the valuation to its financial performance in recent quarters, which includes revenues of $2.2 billion in 2023 — a figure that’s 95% higher than that of the previous year — and a profit before tax of $545 million, which is a company record.

In the first half of 2024, Revolut recorded an annual increase in revenue of over 80% and improved profitability and growth in its customer base, putting it on track to surpass 50 million customers by the end of the year, according to the release.

In other developments this year, the company secured a banking license in Mexico; was granted a banking license in the United Kingdom; and launched the RevPoints Loyalty Programme, eSIMs and the Revolut X crypto exchange, per the release.

The secondary share sale was led by Coatue, D1 Capital Partners and Tiger Global.

Revolut was preparing to sell employee-owned shares in July. It was reported at the time that the sale would increase its valuation by more than a third, indicate rising confidence in the FinTech space and set the stage for an initial public offering (IPO).

The company was previously valued at $33 billion in a 2021 fundraising.

Revolut Chair Martin Gilbert said in July that the company was at least a year away from an IPO and was planning to “keep an open mind” on where that listing would happen.

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The momentum has been underscored in recent earnings reports and announcements surrounding new products and services.

The automated transfer of funds into those accounts — often through an accountholder’s paycheck — offers a dependable base upon which build those new offerings, and to cement users’ loyalties as these providers build out their respective financial ecosystems spanning deposits, lending and investing.

The push comes as PYMNTS Intelligence has found that fewer than 10% of consumers use FinTechs as their primary bank.

Cross-Selling Fuels Growth

During SoFi’s most recent earnings call, CEO Anthony Noto said member acquisition and cross-selling is fueling “financial growth for years to come. Our one-stop shop strategy continues to deliver strong, diversified growth and profitability, despite macroeconomic volatility.”

The company’s earnings presentation and commentary noted that SoFi Money achieved new records during the second quarter as ending deposits totaled $23 billion. Consumer deposits were up $2.2 billion from the previous quarter. Account openings grew by 419,000 and 90% of the company deposits remain tied to what Noto termed “sticky direct deposit relationships.”

Lending products increased 19% year over year to 1.8 million products, driven primarily by continued demand for personal loan products as well as what Noto said was “steady growth in student and home loan products.” Consumer loan originations were $1.8 billion in the latest quarter, up from the $1.6 billion in the first quarter.

High-Yield Savings Accounts in Favor

LendingClub, in its own filings and quarterly reports, notes that with its “FDIC-insured high-yield savings account, members can enhance their savings by earning competitive interest on their entire balance,” including direct deposit activity, where management has noted that overall deposits have topped $7.5 billion. LendingClub, of course, expanded its banking reach and presence through its 2020 acquisition of Radius Bank.

In the latest quarter, management observed that the mobile/digital channels help foster a continuum of engagement, as CEO Scott Sanborn said that “with self-service functionality in the first phase of our comprehensive debt monitoring and management solution embedded in the app, mobile users are finding more reasons to engage with us. In fact, they’re logging in about 20% to 25% more often than web-only users, providing a growing, active, and engaged audience for communicating new offers and services.”

In past earnings coverage, we noted that current and upcoming company initiatives include a greater emphasis on giving members additional financial wellness tools, including debt monitoring solutions being tested with select members that will have broader rollouts. Present tests reveal that enrolled members “with visibility into their credit profiles, current debt and cost of that debt,” are visiting LendingClub up to 50% more often than those not enrolled, Sanborn said during the first-quarter call.

Sanborn also stated during the first-quarter commentary that there will be “turnkey embedded finance” functionalities that are being tested and will allow, in Sanborn’s words, “digital delivery of personalized, prescreened loan offers” via advertisers and with integration with several, select partners by the end of 2024.

Chime is not publicly traded (and has been reported to be mulling an IPO next year), but recent announcements spotlight ancillary services and products tied to checking accounts, as direct deposits remain a centerpiece. As detailed here, Chime is adding an earned wage access offering called MyPay to its banking app.

With MyPay, qualifying Chime members will be able to access between $20 and $500 of their pay before payday during each pay period, depending on their limit that is based on estimated income and risk-based criteria, according to the release.

Members can choose to have the funds deposited to their Chime checking account within two days for free or to get the funds instantly for a $2 fee, per the release.

Elsewhere, Block’s earnings show that direct deposit remains a strategic imperative. CEO Jack Dorsey said on the conference call with analysts that “there’s three main ways that we believe we will drive direct deposit, and this is all captured in our bank-the-base strategy … the first is packaging. The second is around marketing, and the third is products. I’ll start with packaging.”

The consumers who deposit $300 each month get access to free overdraft coverage up to a certain amount, and a 4.5% savings yield, said Dorsey, who added that  the company is “cross-selling direct deposit through in-app messages as well, as “we want to add spending insights to the Cash App Card, so customers can make more informed financial decisions, improving our web experience to look at balances and review statements.”

The company added in its earnings materials that the number of Cash App Card monthly actives in June increased 13% year over year to more than 24 million and spend per monthly active also grew on a year-over-year basis.

“Paycheck deposit monthly actives as of June grew quarter over quarter compared to March,” per Block’s disclosures.

Monzo, busy expanding its U.S. presence, said late last month that interest rates on money saved in its Monzo Jars would top 4.2%, for consumers depositing their paychecks with Monzo.

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For NCR Voyix, the company’s sale of its digital banking platform business to Veritas Capital for roughly $2.5 billion helps eschew the vagaries of a volatile stock price, and as Doug Brown, chief product officer, and Brendan Tansill, executive vice president and president, both of NCR’s digital banking unit, told Karen Webster, invest for the long term.

And the long term, they told Webster, includes a product and service roadmap that stretches out over years, not quarters, with a digital-first mindset that helps financial institutions (FIs) bring digital capabilities into branch settings.

The announcement and the interview with Webster came on Tuesday (Aug. 6), the same day that NCR Voyix reported earnings showing that its digital banking business logged $579 million in annualized revenues, serving 1,300 FIs across the United States.

The company’s supplementals showed that the segment’s average revenues per unit were up 6% year over year and that the active user count was up 3% to 19.8 million.

NCR Voyix’s results detailed that digital banking revenues were up 9% in the second quarter, to $154 million. Overall company revenues, on a consolidated basis, were 7% lower, at $876 million.

The proceeds accruing to NCR Voyix from the sale will be used to pay down debt and improve operating leverage.

During the conference call with analysts, CEO David Wilkinson said that digital banking operates as “the only provider of a truly end-to-end offering across the physical and digital channels.”

As for the choice of Veritas, Tansill observed to Webster on Tuesday that private equity (PE) firms tend to be painted with either of two brushes:

Brush one? The PE firm acquires a company and cuts costs to the bone to maximize cash flow as much as possible, then eyes a quick exit, essentially flipping the acquisition to another buyer to make a quick return on investment.

With brush two, the PE brings in considerable financial resources to accelerate growth of the target company. These PEs have a mindset of investing in people and technology for the longer term.

Veritas, Tansill said, fits squarely in the second camp, with more than two decades of investing in tech firms. They take concentrated bets, with only about half a dozen holdings in each one of its funds and billions of dollars committed to the success of those holdings.

“There was an enormous amount of interest in the business, and we were in the strong position of being able to choose a partner that was strategic,” Tansill said.

Veritas also has the expertise to assist with corporate carve outs, Tansill said, which will prove critical in an environment where digital banking will still use consumer accounting and financial services from Voyix while it seeks to hire 200 individuals before it is fully independent.

“This exercise will take as long as a year,” Tansill told Webster.

In the meantime, as that transition unfolds, Tansill said that what’s important is that the digital banking customers “feel zero impact … they should feel the benefit of the Veritas war chest, but not the pains of us trying to separate from Voyix.”

Taking the Long-Term View

The shift from public markets to private ownership also will allow for a strategic and investment mindset evolution.

“When you’re a public company,” Tansill said, there’s a mindset that might constrain how much capital is spent each quarter, because investors compare each quarter’s results and take a shorter-term view of performance.

“In the private market,” he added, where no one’s looking at the numbers besides the Veritas board members, “we can invest a dollar today to be a better company four or five years from now. The investment horizon is longer.”

Business banking will be a key area of focus for the digital banking operations, predicted Tansill, who added that the firm will build or buy operations in that segment more quickly than would be seen were the enterprise still publicly traded.

Brown said that Veritas shares the mindset that there’s still relevance for branches to be a key component of the retail banking experience. That mindset’s been corroborated by the likes of JPMorgan and others building out their physical footprints.

As Brown noted, “community banking still revolves around the concept of the relationship,” and digital-first initiatives simply serve to bring that continuum of omnichannel banking more firmly into the present day. The digital banking operations are also working on a rebranding, said Tansill and Brown.

Said Tansill of the $2.5 billion deal, and the potential of operating as a standalone entity in the evolving digital banking landscape: “We and Veritas see the world similarly, and that’s going to be enormously helpful.”

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This milestone, announced Tuesday (Aug. 6), comes weeks after the company reached its first full year of profitability and amid an increasing embrace of connected banking.

“What a milestone to add to an already brilliant year,” CEO TS Anil said in a news release provided to PYMNTS. “In just under 12 months, two million more customers have chosen Monzo, which means that now one in five U.K. adults is a Monzo customer.”

Monzo in May raised $190 million, valuing the company at $5.2 billion as it plans to expand into the United States. Last year, the bank hired former Cash App Head of Product Conor Walsh to serve as its U.S. CEO. The company is also planning to expand into Europe via Ireland, and said in June it was beginning stages of opening an office in Dublin.

And in June, Monzo released an annual report that showed a profit before tax of $19.5 million (£15.4 million) versus a loss of £116.3m in the prior year.

Monzo also recently debuted Monzo for Under 16s, a bank account designed to offer money management skills to kids between the ages of 6 and 15. 

“The account gives children the opportunity to experience magic money firsts like saving, budgeting, receiving pocket money or using a card to pay in a shop, all while giving parents or guardians complete control and visibility to ensure they’re managing their money safely,” Monzo said in a news release.

The company’s success is happening amid — as was noted here recently — the “inexorable rise of connected banking.”

The PYMNTS Intelligence report “How the World Does Digital” found that of the 60,000 consumers studied last year — a sample that represents about 800 million people in 11 countries — 42% engage with online banking, while 46.8% bank through mobile means.

“Drilling down a bit, the total average days tied to those activities stood at more than 10 days for online banking and more than 11 days for mobile banking,” PYMNTS wrote. “In 2023, about two-thirds of consumers used an app on their phone for banking (mobile banking, 68.6%) or from their desktop with a browser (online banking, 66.6%) at least monthly. Almost 47% used mobile banking at least weekly, and 42% used online banking at least weekly.”

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The British FinTech announced Thursday (July 25) that it had been granted the license, with restrictions from the country’s Prudential Regulation Authority (PRA), an arm of the Bank of England that oversees the U.K.’s banking industry. 

From here, Revolut enters what is known as the “mobilization” stage, also referred to as “Authorization with Restrictions,” a typical step for many new U.K. banks.

“Nothing changes for U.K. customers during this restricted period, which is to allow new banks like Revolut to complete the build-out of their U.K. banking operations ahead of launching in the market,” the company said in a news release. “Until then, U.K. customers can continue to use their Revolut e-money account as they always have.”

The company had first applied for a banking license in 2021, and saw the process take longer than usual, as Revolut faced scrutiny over its size, as well as issues with its financial reporting.

“Today’s announcement is a significant step forward for Revolut and for our customers,” said Francesca Carlesi, U.K. CEO of Revolut. “It is a tremendous responsibility to be a bank in the U.K. and we will work relentlessly to offer products and services that improve the financial lives of everyone who uses Revolut.”

The license marks a series of good fortune for Revolut, which began July by announcing that its revenues had jumped 95% last year, from $1.1 billion in 2022 to $2.2 billion in 2023. 

The company also reported profit before tax of a record $545 million, with Revolut adding 12 million new customers in 2023 — the FinTech’s third profitable year — bringing their total customer base to 45 million as of last month.

This week also saw reports that Revolut was planning a share sale that would value the company — already the world’s most-valuable FinTech startup — at $45 billion. 

A report by the Wall Street Journal said this would set the stage for an initial public offering (IPO). The company declined to comment on the sale when reached by PYMNTS.

Assuming Revolut is ready to go public, there’s no guarantee that the company will do so in its home country. Chairman Martin Gilbert said recently that he wasn’t ready to commit to a London IPO, even as he praised pending changes to the regulations for listing on the U.K. market.

“All the moves [regulators] are making are good, they’re allowing founder-led companies like Revolut to list here rather than just have no choice,” Gilbert said. “But again let’s see how it all pans out, the proof will definitely be what happens in the future.”

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That sentiment applies to financial services — at least depending on where you look, or what promises are made by nonbanks.

With traditional financial institutions (FIs), the banks that have been around for decades, even centuries, there are some guarantees. Up to $250,000.

For all other settings, and particularly with the digital-only FinTechs, neobanks, and generally speaking, the nonbanks … caveat emptor.

Consumers Frozen Out

The continued fallout from the Synapse Financial bankruptcy — as apps such as Yotta, where savings accounts are tied to debit cards and other financial offerings, saw depositors frozen out of accounts — will likely force a wider discussion about which depositors are protected by the government, where they’re protected, and even when.

Last month, as we wrote here, while Synapse filed for Chapter 11 bankruptcy and dueled with Evolve Bank and Trust, 85,000 of Yotta’s customers — holding a total of $112 million in savings — were locked out of their accounts. Copper, another FinTech that used Synapse, announced in May it will shutter at least some of its offerings, including bank deposit accounts and debit cards.

Consumers Caught in a Gap

The consumers are the ones who are, arguably, left in a gap between the accounts that are backstopped by the government and those that are not.

And in recent developments, legal wrangling over data and cease and desist orders have only muddied the waters of where the money’s gone and how it can be returned to customers.

The gap comes as the money has leapfrogged across several players, where consumer funds move through companies including Synapse, acting as intermediaries on their way, ultimately, to deposit accounts at regulated institutions — for example, Evolve Bank and Trust. The “end” accounts held at the FIs are the ones that are covered by deposit insurance.

In the partnership model that brings FinTechs together with banks, questions remain as to just where deposits are held and whether they might be insured or not. The FinTechs, largely unregulated to date, act as middlemen, providing infrastructure and software to help provide banking services for companies that are not banks.

The gaps come when some of these firms offer FDIC insurance, partners do not and consumers may not necessarily understand exactly where their funds are held.

Deposit insurance, tracing its roots back about 90 years, was set up by the government as an independent agency to help foster trust in the U.S. financial system — specifically, traditional FIs — and to help prevent bank runs that now seem to be shorthand for the Great Depression.

Evolve was the entity in the Synapse drama that, as a bank, falls under the purview of the FDIC. But deposit insurance is activated only in the event of a bank failure. Evolve didn’t fail, and so insurance coverage (which extends to $250,000 per account) was not triggered. And so, the consumers and depositors are left in limbo.

In Synapse trustee Jelena McWillams’s initial status report, she noted: “Synapse often used multiple Partner Banks to service different functions for the same Fintech Partner. In certain instances, end user deposits through a Fintech Partner were deposited in an account at one Partner Bank, while end user withdrawals through that same Fintech Partner were processed from a different account at a different Partner Bank. This business model makes it both essential and difficult to reconcile transactions and ensure end users receive access to the correct amount of funds due to each end user.”

In her third status report, issued last month, McWilliams wrote that “while end user funds were initially deposited through Synapse, which was not directly regulated by the Federal Reserve, FDIC and OCC, the end users’ deposits now reside with the Partner Banks that they do regulate.”

Thus, we note, the gap that’s ensnared consumers.

Evolve has, according to reports, held onto $46 million in deposits, alleging that Synapse’s record keeping has shown “numerous significant discrepancies.”

The New York Times noted that some depositors have said they are selling assets, even their homes, to pay bills. The judge overseeing the case has said that depositors may need to hire their own attorneys to lodge lawsuits against the companies embroiled in the Synapse proceedings.

The FDIC’s Warnings

In a June post on its website, the FDIC said: “The easiest way for most consumers to have confidence that their money is safe continues to be opening an account directly with insured depository institutions, like FDIC-insured banks and savings associations.”

But the FDIC also noted that “increasingly, some consumers are choosing to open accounts through nonbank companies (typically online or through mobile apps), such as technology companies providing financial services (often referred to as fintech companies), that may or may not have business relationships with banks.”

At least some of that record keeping and clear delineation of ownership has been, well, a work in progress as Synapse had been reported to be commingling funds. And, in a nod to the “caveat emptor” exhortation above, PYMNTS reported last month that “cease and desist” letters had been issued to several companies for violations of the Federal Deposit Insurance Act.

The act prohibits individuals and entities from “making false or misleading representations about deposit insurance, using the FDIC’s name or logo in a manner that would imply that an uninsured financial product is insured or guaranteed by the FDIC, or knowingly misrepresenting the extent and manner of deposit insurance.”

Through the past few months, the letters have been issued to companies like Prizepool, AmeriStar and virtual wallet firm Organo Payments.

PYMNTS Intelligence has estimated that 10% of consumers surveyed said that their primary bank accounts are with digital banks and 25% had used neobanks or FinTechs to access at least some banking services.

The complexities of some of the FinTech/banking relationship — and the implied gaps — are detailed by the FDIC, as its post noted that “even if they claim to work with FDIC-insured banks, funds you send to a nonbank company are not eligible for FDIC insurance until the company deposits them in an FDIC-insured bank and after other conditions are met.” (emphasis from PYMNTS). After the nonbank places your funds on deposit at a bank, “records must be kept to identify who owns the money and the specific amount that each person owns.”

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Open banking looks set to transform financial services in the United States, and the approach, in contrast to what has been seen in Europe, is market-driven rather than government-driven. A spate of announcements has served to highlight digital innovations that are changing the ways accounts can be opened and bundled with other offerings that go beyond direct deposit.

In other words, the age-old practice of walking into branches to get onboarded into a bank’s client base or take advantage of new services added on to new accounts is becoming increasingly reliant on digital workflows.

Back in October, the Consumer Financial Protection Bureau noted that its proposed open banking rule would make it easier to switch accounts, as consumers permission and control their data.

Stage Set for More Digital Innovation

The stage is seemingly set for individuals and businesses to establish more digitally based relationships with their financial institutions.

As detailed in PYMNTS Intelligence’s most recent “How the World Does Digital” report, across 60,000 consumers studied in 2023 — a sample representative of about 800 million people living in 11 countries — 42% engage with online banking. A total of 46.8% do their banking through mobile means. About two-thirds of consumers used an app on their phone for banking (mobile banking, 68.6%) or from their desktop with a browser (online banking, 66.6%) at least monthly.

Banks are examining and re-examining their tech stacks to more fully tap into instant payments, digital account openings and embedded finance, among other initiatives.

In a panel discussion with PYMNTS in June, Galileo Head of Product Strategy Michael Haney said composable banking is “becoming an imperative to improve the operational efficiency at these legacy banks and be more responsive to client needs and industry trends.” The new generation of platforms is based on MACH principles: microservices, APIs, cloud and headless.

As for some of the recent tech-driven initiatives, Bankjoy and Pinwheel partnered in April to help financial institutions offer their customers a frictionless way to set up their direct deposit. Via the collaboration, Bankjoy will help its bank and credit union clients integrate Pinwheel’s digital deposit switching solution.

Last month, Mastercard said it would add new open banking-powered solutions that make it easier for consumers to automatically switch their direct deposits and update their recurring bill payments. These capabilities are expected to result from the integration of Deposit Switch and Bill Pay Switch with Mastercard’s open banking platform and the delivery of these solutions in partnership with Atomic.

Neobanks Face More Regulation

If the traditional players are shifting their efforts more fully into digital channels, neobanks are facing pressures to become more like, well, traditional banks.

Last month, in the wake of the Synapse collapse, the Federal Deposit Insurance Corp. (FDIC) issued a warning to consumers regarding the risks of opening accounts with nonbank firms, including neobanks. Cease and desist letters underscored that some of these firms represented that accounts were insured by the FDIC when that was not the case.

The post Traditional Banks Go Digital as Neobanks Face Regulatory Heat appeared first on PYMNTS.com.

In addition to the usual metrics that will be closely watched by investors, economists and everyone else — the loan performance, the deposits, the debit and credit volumes — we’ll likely get further proof of the inexorable rise of connected banking.

The PYMNTS Intelligence report “How the World Does Digital” noted that across 60,000 consumers studied in 2023 — a sample representative of about 800 million people living in 11 countries — 42% engage with online banking. A full 46.8% do their banking through mobile means.

Drilling down a bit, the total average days tied to those activities stood at more than 10 days for online banking and more than 11 days for mobile banking. In 2023, about two-thirds of consumers used an app on their phone for banking (mobile banking, 68.6%) or from their desktop with a browser (online banking, 66.6%) at least monthly. Almost 47% used mobile banking at least weekly, and 42% used online banking at least weekly

Mobile devices in hand and omnichannel options fueling a digital experience in the branch are part and parcel of the way banks are reshaping the client experience.

J.P. Morgan, Citi and Wells Fargo will report earnings Friday morning. J.P. Morgan, as the largest bank as measured by assets, will arguably set the tone for the macro-outlook governing consumer spending and business resilience.

Inflation pressures have been evident, and net charge-offs have been rising, although they remain within historical levels. In April, J.P. Morgan reported that net charge-offs tied to its card services segment stood at 3.3%, up from 2.1% a year ago during the first quarter of last year. Credit and debit spending were healthy at 9% growth. At the same time, end-of-period deposits were down 7% year over year, to just over $1 trillion. The consumer-level pressures may be evident in the upcoming reporting period.

Tailwinds to Digital Banking

The puts and takes about various business lines remain to be seen. But the digital shift is firmly in place, and there may even be a lift in positive momentum in terms of digital banking activity and especially mobile users.

Active mobile customers at J.P. Morgan were up 7% year on year to 54.7 million. There is also evidence of what Citi CEO Jane Fraser termed in April as “strong engagement in digital payment offerings,” such as Citi Pay, which is used as a point-of-sale lending product that is integrated into merchants’ checkout processes. Citi’s active mobile users were 10% higher, to 19 million, and active digital users 6% higher, to 25 million. Wells Fargo noted in April that mobile active customers in the most recent quarter were 30.5 million, up from 28.8 million a year prior.

Later in the month, Bank of America will also weigh in with earnings. During the first quarter, Bank of America logged 3.4 billion digital logins, with digital sales accounting for half of its total sales. Additionally, the bank reported an uptick in digital households, reaching 748,000 in the quarter, representing 86% of its installed base. This marked an increase from 717,000 households and 84% penetration in the previous year.

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