Every wealth account starts as a savings account


In the race for wealth assets, current bank wealth group behavior suggests that large accounts matter, while small accounts aren’t worth the effort to cultivate.

On the surface, this makes sense. By definition, big accounts have large balances, which in turn yield rich fees. That math is simple and compelling.

But fintechs have a different point of view:

Get the big accounts now if you can, but more importantly, provide innovative, enhanced services to any size account and you’ll have them for life.

Banks would do well to remember what these fintechs already know—that many large wealth accounts probably got their start as a humble savings account.

Why banks love big accounts

Aside from the richer fees mentioned above, banks love large accounts because they generate operating income. Small wealth accounts, on the other hand, take just about as much people-power to manage as large accounts, which means that they are, in fact, much less profitable.

Further, big balance accounts tend to come with a more expansive list of related and profitable services. Mortgages, HELOCs, credit cards, and family-connected commercial accounts and loans are services that wealthy people frequently bring to their banks.

Why small accounts are important

It’s perfectly understandable why banks make the rational decision to focus on large accounts. But, small accounts are just large accounts waiting to happen and there are good reasons for banks to care about them.

On average, our research across a sampling of banks indicates that automated savings and investment fintechs annually siphon out about 5% of a bank’s retail deposits. On a percentage basis, large banks lose less and small banks lose more. The outflows are even higher if you include neo-banks in the analysis.

Dig a little deeper into the data and a new pattern emerges: the vast majority of departing deposits flow out of smaller and midsize accounts—not the large accounts. In some ways, this validates the bank decision to focus on larger, and apparently more loyal, account holders. On the other hand, it’s like a farmer only focusing on mature looking crops while letting crafty varmints eat the emerging sprouts.

Eventually, the field will be bare.

The experience matters

Why are these small and midsize account holders moving money out of the bank to nimble fintechs? In a word: experience.

Direct to consumer offerings like Digit, Qapital, Robinhood, Betterment, and Wealthfront all deliver compelling, well-architected products that are not offered by the typical bank or credit union. The solutions are sometimes very basic, however, other times they’re more robust, yet wrapped in a clean, almost fun, design and user experience. Open up the standard mobile banking application today and you won’t see much that compares favorably with a direct to consumer fintech offering.

The plan for banks

In order to retain the interest, and more importantly the deposits, of smaller accounts, banks can look to offer some compelling and engaging features, all of which are available via third-party add-ons to leading digital platforms:

  • Dead simple data presentation and spending insights can keep customers coming back as they learn more about their spending and saving patterns
  • Automated goals-based savings will retain bank deposits while helping customers to build positive financial habits
  • Automated micro and robo investing solutions allow banks to profitably service small brokerage accounts while supporting customers on their financial journeys
  • Some of the newer bill pay solutions have evolved with richer experiences and a better method for managing bill prioritization
    Integrated peer to peer payments will keep customers coming back to their app, increasing engagement

Ultimately, if customers find useful and compelling solutions inside of their familiar mobile banking apps, then the customers are less likely to seek out new, relatively unproven offerings from fintechs.

That means small accounts will have time to grow into midsize accounts, which can then become the large accounts that banks love. It’s a long-term view during, admittedly, a time when long-term views might be in short supply.

But, it doesn’t hurt banks to remember what one of the fastest growing fintechs—Acorns—already knows: Tall oaks from little acorns grow.

– Drew Sievers, CEO, Harvest Savings & Wealth Technologies

Click here to learn more about how Harvest’s platform can help you retain deposits, increase customer and advisor satisfaction, and create profitable wealth accounts of any size.