How not to lose at personal financial management
Tricks of the trade — selecting a new bank
Don’t be a shmuck, be a winner!
Millions of people are signing up for Neo Banks every month all over the world. The challenge for Challenger Banks though is how to attract consumers' attention in a world where the BIG BANKS spend an absolute fortune on Marketing. JP Morgan Chase spent over $2billion dollars last year — almost all of it in a single market — the US.
The big banks have very limited product differentiation so they compete on brute force — with marketing $$ as the main weapon of choice. No Fintech on earth, not even the ones that have raised in the hundreds of millions can compete with that. Fintech’s have instead in many ways gone down the dark path towards headline rates and offers that are rarely if ever achievable.
It's not to say that FinTech’s have not brought real competitive differentiation as well. There is some really cool design thinking into helping people help themselves — Acorns is a great example. They know and we know we are useless at investing frequently so they do it for us with our full knowledge — genius. Digit has developed some really interesting new ways to help force people (with consent) to save and budget better.
Here are some typical tricks you need to look out for from both FinTech’s and traditional banks— there is a fine line between a fair exchange of value and a feature that is most likely designed to minimize your returns vs the banks — those executive jets and New York offices don’t pay for themselves you know.
- The Overclaim
We are changing the way the world does X! Saving the poor, helping the infirm etc.
Your response should be: so you are a not for profit? oh, for profit. Then you will give away all your equity to the world's orphans? oh, you won’t be? that’s all great then but how much more will I make with you than anyone else? WIIFM?
2. Our App is so cool!
Your response should be: honestly, I don’t care — show me the money, your swanky app features don’t pay me squat
3. You have to make minimum debit card transactions per month
Your response should be: I get why this is important for you but it's your problem and don’t design your value proposition by spreadsheet. If your product is not sufficiently compelling or a good fit for me lets all be adults about it and tell me upfront.
4. Bait and switch — 3%, 4% up to 7% (all real examples)
Your response should be: comparing yourself to the standard bank's rate (a headline like 20x or 40x higher than Chase etc.) is a red flag. This better not be limited e.g. apply to the first $X, or require me to do things like visit your app every day, or introduce hundreds of people to your service or have a cap. (pretty much-guarranteed anything over 1.8% for a non cd/savings account has all of these and more)
5. We have a “metal” card!!
Your response should be: WTF — since when did I choose my financial services partners by weight
6. Get $XXX when you sign up
Your response should be: do a spreadsheet, work out what the minimum deposit is and how much interest you would be earning on that elsewhere — chances are near 100% this is a zero or near zero checking account — they are giving you a fraction of what they may from your deposit and assume you will be with them for years. Don’t take the penny and give up the pound.
Hope this helps — take care out there.