Barron's writes, "Robos Look Beyond Investing," which tells us, "In Barron's annual ranking of robo-advisors, the evolution continues. The next big thing? Checking and savings accounts." The piece explains, "Barron's third-annual robo ranking -- in partnership with Backend Benchmarking -- shows that robo assets continue to rise, to at least $440 billion at last count.... The increase has been driven by new services, including access to live advisors, sustainable-investing products, and higher-yielding cash accounts." We quote from the Barron's update below, and we also cover articles on fin-tech firm Betterment by the Financial Times and BankRate.
The Barron's article continues, "Assets are being driven by products that are new to the robos, but effectively old hat elsewhere in the financial world: cash management, spending and budgeting, and sustainable investing. 'When the markets got shaky, people weren't as hip on robos,' says Ken Schapiro, Backend Benchmarking's founder and CEO. 'They were more interested in cash options they had. So that seems to be a growing thing.'"
It tells us, "Wealthfront's cash account, which offers a 2.57% interest rate and is FDIC-insured, brought in more than $1 billion in the month after it was announced. 'We want clients to be able to automatically deposit their paychecks into Wealthfront, and we will be able to optimize every single dollar that comes into our ecosystem, allocating it to the right accounts,' Wealthfront spokeswoman Kate Wauck wrote in an email. 'We believe that delivering this will allow us to remove the excess cost in the financial industry and give it back to the people.'"
Barron's writes, "Just this past week, fellow robo pioneer Betterment said that it would offer customers FDIC-insured checking and savings accounts. The savings account is available now and carries up to a 2.69% interest rate. Checking accounts will be available later this year.... 'To really serve our customers, we have to help them with their everyday money, as well as their long-term money,' CEO Jon Stein tells Barron's."
The piece adds, "The crowded field is helping to push down fees and boost interest rates on savings accounts. But don't expect many new entrants from here on, at least not from independent start-ups. 'It's really difficult to compete with Betterment, Personal Capital, and Wealthfront when it comes to ease of use and ability to streamline services,' Goldstone observes."
Finally, they write, "Shifting demographics and new customer bases are indeed pushing the robos to evolve on the fly, sometimes pushing investing into the background. 'Mark my words,' says Goldstone, 'six months or a year from now, we're going to be talking a lot more about cash management, spending and where your direct deposit is going.'" Barron's includes a table showing Betterment with $17.6 billion in AUM, Wealthfront with $15B and Personal Capital with $10.0B.
In related news, Bankrate informs us that, "Betterment launches Everyday Savings, a cash management account offering 2.69% APY." They explain, "Betterment ... unveiled Everyday Savings, which offers up to 2.69 percent annual percentage yield (APY). The account requires a $10 minimum deposit to open but no minimum balance. To get the top APY, you must also sign up for the waitlist for Betterment Everyday Checking, which is scheduled to be released later this year. Betterment Everyday Savings insures funds up to $1 million through its partner banks, though the money will be uninsured while being transferred to those institutions."
The brief states, "The 2.69 percent APY on Betterment's cash management account is higher than yields on top savings accounts and is nearly 27 times the national average APY on savings accounts (0.1 percent). It also tops Wealthfront's cash management account, which offers 2.57 percent APY. However, if you don't sign up for the Betterment Everyday Checking waitlist, you will earn 2.43 percent APY."
They comment, "The product has savings in its name, but it doesn't work the same as a typical savings account or money market account, particularly with how the funds are insured.... The Betterment Everyday Savings, meanwhile, is a cash management program that works with program banks. The account is insured up to $1 million through those program banks. Deposits made from a linked checking account reach the program banks one to two business days after they're initiated, according to Betterment. Deposits at Betterment aren't covered by the Securities Investor Protection Corporation (SIPC)."
BankRate adds, "Program banks for the Everyday Savings are Citi, Barclays, Valley National Bank, Seaside National Bank & Trust and Georgia Banking Co. The program bank for the Everyday Checking will be NBKC. If you open the Betterment account and have money deposited at one of these institutions, you could exceed FDIC limits. Keep track of the program banks because the deposit bank list may change. The account's terms and conditions note that it is meant for you to earn interest on cash you intend to use to buy securities with through Betterment and isn't meant to be a long-term investment option."
Finally, the Economist also covered the news, writing, "Betterment wants your bank account as well your investments." They say, "Robo-advisers have made big inroads. They still need to work out how to make profits." The piece explains, "Rock-bottom fees, usually just 0.25% of assets, have helped them grow fast. Betterment, a robo-adviser based in New York that was founded in 2008, manages $18bn-worth of assets. Wealthfront, a rival from San Francisco, manages $11bn. But skimpy fees mean they need hefty assets to survive. In a report in March, HSBC claimed that robo-advisers need to oversee $11bn-21bn of assets to break even."
It adds, "But Betterment is taking a different route. On July 23rd Mr Stein announced that it was launching savings and current (checking) accounts, with the aim of becoming a 'one-stop shop' for money management. Betterment will not become a bank. Instead it has agreements with regional banks, which will hold deposits. This, says Mr Stein, allows it to offer generous terms. Rather than leaving deposits with one bank, Betterment will place them wherever rates are highest."
The FT states, "It can split customer deposits between banks, meaning greater federal-insurance coverage. Less concerned about the stickiness of deposits, it can offer unlimited withdrawals. The result is compelling for customers. The savings account offers a juicy interest rate of 2.69%, around 0.2 percentage points higher than the best high-yield savings accounts elsewhere. Federal insurance covers $1m, four times the usual limit. The current account, due to launch later this year, will have no minimum balance or account or overdraft fees, and will reimburse all fees for using an ATM."
The article adds, "If successful, the shift in strategy could put to rest worries about profitability that have dogged both Betterment and the robo-advisory industry more broadly. New account customers might be tempted to use advisory services, too. Mr Stein also hopes that the firm can encourage account-holders to save more. More than half of Betterment's customers transfer money automatically into their investment funds. If the firm manages more current and savings accounts, it may be able to increase that share. The launch comes with risks, however. The first is that it may irk regulators. Deposits are supposed to be a reliable source of funds for banks. If Betterment gets them to compete for its customers' funds, not only would banks' margins be squeezed but deposits could become flightier."
For more on Fin-Tech, see these recent Crane Data News articles: More Arrows Hit Robinhood (7/12/19), June MFI: Consolidation, Morgan Stanley Ultra Short, Fin-Tech Invasion (6/7), Personal Capital Cash Latest Fin-Tech Attack on Banks (6/18), Investment News on Fin-Techs Invading Cash Mgmt (5/13), WSJ Says Robos Taking Deposits (3/4) and Barron's Hits FinTech Money Markets (1/2).
