Banking: What We Have Here is a Failure to Communicate

Hey everybody. Welcome back to another episode of What’s Going On in Banking. I’m Ron Shevlin, chief research officer at Cornerstone Advisors and author of the FinTech Snark Tank blog on Forbes. And here with me today, as always, is my colleague Stacey Bryant.

 

Stacey, how are you doing?

 

I’m fine. I’m getting over these allergies, but you know what? I think I mentioned this to you earlier this week: the New York Knicks are up, and the Celtics are trying to take them out.

 

Sorry, Ron. You’re going to keep hearing about this until the game tonight. Just like these allergies, the Celtics are not taking me out either.

 

Good. Stacey is on the road these days, or at least she will be.

 

Yeah. I’m getting ready for next week. It’s the CrossState Credit Union Association conference in my neck of the woods, so a lot of the credit unions from Pennsylvania and New Jersey will be there. I’m excited. It’ll be a nice little road trip, just a couple of hours, and you’ll see my “Stacey on the Road” post.

 

Ron, I know you love those.

 

I do, absolutely. I’ll be on the road myself until the end of May. I can’t wait until June, when I can finally be home again and get some real work done.

 

Speaking of real work, let’s talk about some of the hot things going on in the industry.

 

Stacey, I think LinkedIn has been completely obsessed this week with Chime’s S-1 filing. I have a lot of opinions on it, but I’m going to let you jump in first. What were your thoughts?

 

Listen, Chime just dropped its S-1. I already started looking at the details, and its ticker symbol is expected to be CHYM. That’s basically a giant sign saying, “We’re coming for your customers.”

 

I always look at this from the perspective of a community bank or community credit union. These fintech companies are not playing around. Chime has about 8.6 million active users, and 67% of them treat Chime like their primary bank. That’s more than a digital banking story. That’s a significant shift in consumer behavior.

 

Chime doesn’t have branches. There are no lollipops for kids. It has a slick app and partnerships with banks such as The Bancorp Bank and Stride Bank. It says, “We’re a technology company, not a bank,” but from the community-bank and credit-union perspective, that distinction doesn’t make the competition any less real.

 

An IPO could give Chime a huge amount of cash to invest in more technology, more marketing, and more ways to make banking feel as easy as ordering takeout. I already see Chime’s marketing everywhere, from Instagram and social media to television commercials.

 

And they’re doing it with no overdraft fees and no monthly fees. They’re driving card usage and generating interchange revenue. If regulators ever seriously restrict that model, maybe it slows them down. But for now, it’s a very effective machine.

 

Stacey, I have to be honest: I’m not sure I share your optimism about Chime.

 

I’ve had a love-hate relationship with the company for more than 10 years. I’ve written positively about what they’re doing, especially around product innovation, but I’ve also always felt that the story isn’t quite as strong as they’d like people to believe.

 

A couple of things stand out to me.

 

First, the S-1 says Chime has 8.6 million active members, with active users growing more than 20% over the past couple of years. My first reaction was: didn’t Chime claim to have more than 8 million accounts back in 2020? Were those downloads? Total accounts? Accounts that were opened but never funded?

 

I think the likely explanation is that a lot of people downloaded the app or opened an account, and Chime counted those people in some way even though they weren’t necessarily active customers.

 

We actually did consumer research a couple of months ago and asked people who had digital or neobank accounts why they opened them. The number-one reason was to avoid fees, which fits Chime’s value proposition perfectly.

 

But another major reason was simple experimentation. Roughly 40% of consumers who opened digital accounts said they were just trying them to see what they were all about.

 

I saw a LinkedIn post the other day saying Chime grew because of cheap referrals. Did you see how much money Chime spent on sales and marketing over the last three years? About $1.4 billion. That puts it in the same general range as what a very large bank might spend.

 

I also think Chime relies too heavily on interchange. Betting your business too heavily on that revenue stream carries risk.

 

And I’ll be honest: Chime makes its money by serving lower- to middle-income consumers, and I’m not convinced it’s easy to build a massively profitable business around customers who, by definition, don’t have a lot of money.

 

But isn’t that the point of the first phase? You mentioned these astronomical numbers, and they are astronomical. But isn’t the initial strategy about adoption? Get the accounts, get the attention, build the user base, and then use more marketing and more targeted products to deepen those relationships?

 

From Chime’s perspective, isn’t that the hope?

 

You’re making a really good point.

 

If you go back to Clayton Christensen’s The Innovator’s Dilemma, disruption wasn’t always about inventing something completely new. It often came from serving an overlooked or underserved part of the market and growing from there.

 

To a certain extent, that’s what Chime has done. It went after lower- to middle-income consumers, including people who were underserved or poorly served by traditional institutions. Banks and credit unions often say they want to serve those consumers, but historically many haven’t done it particularly well.

 

The question becomes: how does Chime expand from there?

 

Do those younger, lower- to middle-income consumers stay with Chime as they get older and earn more money? Or do they eventually say, “I’m done with Chime. Now I’m moving to a different financial institution”?

 

That makes me think about Capital One and Discover.

 

Imagine you’re a community-bank CEO sitting in your office, drinking your coffee, and you hear that Capital One just got the green light to acquire Discover. It’s almost like running a neighborhood barbershop and suddenly Walmart moves in next door offering free haircuts with every television purchase.

 

Your regular customers may love you, and I know from working in branches how meaningful those relationships can be. But some people are still going to be tempted by the big shiny sign and the big national offers.

 

Capital One plus Discover creates a huge institution with national reach, deep pockets, and serious technology capabilities. They can flood the market with new products, slick digital tools, and probably some attractive sign-up offers.

 

Competing with that purely on price and technology can feel like bringing a butter knife to a lightsaber fight.

 

So I think about deposit competition. I think about technology pressure. And I think community institutions have to understand what’s happening without becoming paralyzed by it.

 

You can’t out-Walmart Walmart, but you can be the best damn barbershop in town.

 

That means focusing on what makes you special: real relationships, local knowledge, and service that actually feels human. But you also can’t ignore technology. Find partners, get creative, and keep your edge sharp. Otherwise, one day you wake up and your customers are getting their haircut at the self-checkout.

 

I see the Capital One-Discover deal as less threatening to community institutions than you do.

 

Community institutions have already been competing against Chase, Wells Fargo, American Express, and other giant national brands. Capital One was already a huge credit-card player.

 

What makes this deal particularly interesting to me is the network.

 

Visa and Mastercard should probably be paying close attention. Capital One now has access to Discover’s network and payment infrastructure. The question becomes whether Capital One migrates more of its payment volume onto that network, how quickly it does so, and whether the combined company can make the Discover network more competitive.

 

Could it eventually attract other large issuers such as Chase, Wells Fargo, or Bank of America? Could it create opportunities for midsize institutions?

 

If it becomes a stronger alternative to Visa and Mastercard, that could actually be positive for some financial institutions.

 

I was somewhat surprised the deal went through as smoothly as it did. I don’t think it would necessarily have been approved in the same way under a different regulatory environment. But to me, this was never primarily about credit-card balances or volume. It was about the network.

 

I don’t want to beat a dead horse, but I keep coming back to what I hear from community institutions when I’m on the road facilitating strategic planning sessions.

 

A lot of the CEOs I work with are running institutions from roughly $500 million or $700 million up to $5 billion in assets. They bring up Chime. They bring up large fintechs. They worry they can’t compete, and sometimes they fall into analysis paralysis.

 

My message is: understand the headlines, understand what these acquisitions and filings could mean, but focus on what you can control.

 

Focus on your technology assessment. Focus on your niche. Focus on the customer relationships you actually have.

 

At the community level, knowing a customer’s name, knowing their kid’s name, understanding their story, those things can still matter.

 

When I was a consumer-loan underwriter and a branch manager, I remember a customer who didn’t qualify for a loan based on the credit report alone. But once I understood the story, including a divorce, health issues, and interruptions in employment, I could put the situation in context and make a more informed decision.

 

That kind of person-to-person understanding allowed us to make an exception and approve the loan. It created tremendous member loyalty and led to more business.

 

So yes, these large acquisitions matter. But community institutions should not become paralyzed by them. They should focus on what they can control and what they can do particularly well.

 

There’s something you said that I really latch onto: focus on your niche.

 

The challenge is that for many community-based financial institutions, “the community” is no longer a defensible niche. Geography alone is increasingly difficult to defend.

 

It’s ironic because many credit unions spent the last 20 or 25 years moving from narrow fields of membership toward broader community-based charters. They thought they were expanding their addressable market, but in retrospect, that broader geographic definition may have weakened the distinctiveness of their niche.

 

Now they have to go back and ask what their true niche actually is.

 

And Chime has a niche too: lower- to middle-income consumers who don’t care much about physical presence.

 

Although even that isn’t entirely true. Our research shows that a very high percentage of Chime customers still maintain other banking relationships.

 

Why? Because many of them still want the security blanket of being able to walk into a branch and talk to a person when they need to.

 

So nearly everyone outside the very largest banks is fighting over some kind of niche.

 

For a community institution to say, “Chime is eating our lunch,” I’m not sure I buy that unless the institution is specifically trying to serve the same lower- to middle-income, younger consumer segment.

 

And there’s one more point about Chime.

 

The consumer research we’ve done suggests Chime may have some generational challenges. It has done very well with millennials and, interestingly, pretty well with Gen X. But its position with Gen Z looks weaker.

 

In YouGov research on customer satisfaction, Chime ranks in the top 10 for millennials and Gen Xers, but not for Gen Z.

 

So even Chime may be facing headwinds as younger consumers enter the market.

 

Younger consumers are also growing up in a world shaped by open banking.

 

Penny Lee, president and CEO of the Financial Technology Association, recently commented on efforts to vacate CFPB Rule 1033. Her argument was that vacating the rule would benefit the biggest banks, limit competition, and reduce consumers’ control over how they use digital financial services.

 

The intention behind Rule 1033 was to give consumers more control over their financial data.

 

From the community-bank perspective, though, the rule can feel like being invited to a party only to watch through the window. The rule may technically exempt smaller institutions in some areas, but the concern is that large banks and fintechs are still better positioned to absorb the costs and benefit from the infrastructure.

 

If the CFPB ultimately vacates the rule, I don’t think we should act surprised. The implementation was complicated, the technology requirements were significant, and compliance costs were a real concern.

 

But vacating 1033 should also force a larger conversation about open banking. We shouldn’t build the future of financial services in a way that locks community banks and credit unions out of innovation or overwhelms them with compliance costs.

 

If the institutions that are closest to Main Street get pushed out, who serves those communities?

 

This is another sticky issue because I think some consumer advocates oversimplify Rule 1033 as purely a matter of giving consumers control over their data.

 

Consumers already have a degree of control. And while many banks have resisted aspects of open banking, the United States already has an enormous amount of data sharing and open-banking activity even without a single comprehensive regulatory framework.

 

Simon Taylor, one of the leading fintech voices in the space, made this point several years ago at an American Express conference. His argument was that open banking was already larger in the U.S. by actual interaction and transaction volume than it was in many countries that had formal open-banking regulation.

 

So I push back on the idea that regulation alone suddenly gives consumers control.

 

And I’m skeptical of the assumption that every fintech will step in purely to maximize consumer choice. Every company has incentives to structure the customer experience in ways that benefit its own business.

 

But what about financial-literacy and budgeting tools? Think about something like Mint. Open banking can make it easier to connect accounts, see a complete financial picture, automate payments, and make faster lending decisions.

 

There is real value there.

 

A lot of people don’t have deep financial knowledge, and community banks and credit unions often do a great job providing education. Open-banking tools can complement that by giving people better visibility into their financial lives.

 

So I worry that if we pull too far back, we may also lose some of the innovation that helps consumers become more financially capable.

 

I want to be very clear about my position because I actually think Rule 1033 was one of the few things the CFPB has done in the last decade that was directionally right.

 

My pushback is against the idea that it’s a panacea.

 

Here’s one of the risks I see.

 

Imagine I’m a lender and open banking gives me access to a much broader range of Stacey Bryant’s financial data. When Stacey applies for a loan, I may ask for every possible piece of information because it’s easy to request and transfer.

 

Stacey may reasonably ask, “Why does the Bank of Ron need all of this information?”

 

But if I make access to that information effectively a condition of getting the loan, then we’ve created a different problem. Instead of too little information moving, we may end up with too much information being transferred, including information that may not actually be necessary for the decision.

 

Opening the rails for data movement without enough guardrails creates its own risks.

 

But if a lender is trying to make the best decision possible, isn’t more context sometimes useful?

 

When I was in the branch and a member was sitting in front of me telling me their life story, that context helped me write the underwriting memo and justify an exception. Isn’t open data, at least in some ways, a digital version of that same effort to understand the full story?

 

I agree that more context can help.

 

My concern is that advocates sometimes understate the risk of going too far. Just because the information is available doesn’t mean every lender should collect all of it.

 

The other thing that drives me nuts is that many community banks and credit unions see open banking only as a threat. They don’t always recognize that it could also help them understand their own customers and members better.

 

Credit unions often say, “We know our members better than anyone else.” And they may know names, families, schools, and community connections.

 

But that doesn’t necessarily mean they understand the customer’s full financial life. They may not know where the customer invests, what other accounts they use, what financial challenges they’re dealing with, or which products they prefer elsewhere.

 

Open banking creates the opportunity to know more, but it also creates the risk of oversharing. Consumers may agree to share more than they truly understand because they think that’s what they have to do to open an account or get approved for a loan.

 

Before we wrap up, can we talk about how people are throwing AI terminology around at conferences?

 

I’m on the road all the time, and I hear people say, “We’re using AI,” “We have embedded finance,” or “We’re doing open banking,” without really explaining what they mean.

 

It starts to feel like pronouns in a complicated story. My daughters tell me, “He said this, she said that, they said something else,” and eventually I’m asking, “Who is ‘they’?”

 

It’s the same with AI. What AI are you using? What does it actually do?

 

Last year I said on LinkedIn that I wanted to stop using “AI” as a blanket term because it covers very different technologies: machine learning, conversational AI, generative AI, and now agentic AI.

 

And now the overuse of “agents” and “agentic AI” may be even worse.

 

This isn’t unique to AI. Ask 10 bankers what onboarding means and you’ll get 10 different answers. Ask 10 bankers what open banking means and you’ll get 10 different answers. Ask what personalization means, a term we’ve been using for decades, and you’ll still get different definitions.

 

Social media accelerates the problem because people repeat terminology quickly without always stopping to define it.

 

At individual banks and credit unions, I tell leaders to stop saying “AI” when they can name the actual technology they mean.

 

I think we should start challenging each other on this. If somebody says a product “has AI,” ask what kind. Ask how it works. Ask what it is actually doing.

 

Especially in vendor demos, if the pitch is “This has AI,” the next question should be, “Okay, what is it? Show me.”

 

Maybe that should be our new hashtag: challenge AI.

 

I like it.

 

And in future episodes, we should take some of these terms one at a time and drill down on what they actually mean.

 

I’m watching the clock, and we like to keep these episodes manageable. Thanks to everybody for tuning in to this episode of What’s Going On in Banking. We look forward to talking with you again soon.

 

Thanks, Ron. See you.