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One of These Fintechs Is Not Like the Others

One of These Fintechs Is Not Like the Others
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An estimated 30 million people have opened an account with a “new bank”. But how do these platforms work, and why are they different?

With the app’s easy-to-use and bilingual interface, Dora could easily be mistaken for any of the leading competitors in the field of only digital banking startups that are suddenly crowded.

Dora app automatically detects if your phone is set to English or Spanish. It takes less than three minutes to sign up for a free Dora checking account. Each account comes with a debit card, access to 30,000 ATMs with no additional fees and an ‘early payment’ feature, which is a common feature among many of these startups, allowing direct deposit funds to be made available earlier than traditional banks.

Sometimes called “new banks” or “rival banks”, you may have noticed a recent proliferation of digital-only banking startups. An estimated 30 million people now have an account with a new bank, and that number is expected to nearly double by 2025, according to eMarketer.

These digital banking startups largely seek to capitalize on rising anti-bank sentiment, stemming from high overdraft fees and other predatory practices that are slowly squandering their hard-earned account holders’ money. CNBC reported that banks took more than $30 billion in overdraft fees from customers in the pandemic-hit 2020 alone — driving record bank profits, although some large banks have moved away from overdraft fees in recent months.

Although anti-bank sentiment is fueling all of these new banks, not all of these startups are built the same way. Most of them are backed by venture capitalists and other early adopters who expect to get paid somewhere big. On the other hand, the course is collaborative, and its budding angel investors are a group of credit unions that don’t expect any big payday at the end.

“This is a financial technology that has grown from within the credit union movement, and it is really special,” says Ann Solomon, vice president of strategic initiatives at Inclusiv, a national network of credit unions focused on community development. “It doesn’t have the same motives for seeking venture capital gains as some other fintech companies.”

Inclusiv itself has also invested a startup in the course, and takes a seat on its board of directors. The name Dora comes from Dora Maxwell, a longtime credit union leader who has helped lease hundreds of credit unions in the Northeast and Midwest.

The term “new bank” can be a bit of a misnomer, depending on the specific institution at hand.

Some of the new banks are digital-only banks and credit unions, such as Ally Bank, Vero Bank, or Alliant Credit Union. These institutions have physical banking charters, which are required to hold deposits, issue debit cards and do all the things that mainstream banks do, the only difference being that only digital banks have no physical branches.

But many of the leading new banks like Chime or Current are not technically or legally banks at all. They are financial technology companies, or “fintech”, which are companies that provide an application or user interface built on the actual banks or credit unions they have partnered with to hold deposits, offer debit cards, and facilitate transactions on their behalf.

Since mainstream banks can be relatively slow to adopt new technology or consumer desires, these fintech companies believe they can offer a better user experience to their customers while partnering with a real bank to actually hold customers’ money. You can usually find the real bank partner in the text printed at the bottom of a fintech company’s ads or homepage.

Fintech companies can be valuable in terms of expanding access to basic banking and bill payments, “but they are not financial institutions — they rent, pay for, or work with a charter financial institution,” says David Rothstein, who leads the Bank initiative. On, which works with cities and financial institutions to advance financial inclusion across the county.

One of Rothstein’s concerns is that fintech companies are generally still in the startup phase, and it’s not clear to his group what happens if a fintech banking startup fails — or gets acquired. “A lot of these companies are designed to be bought by a financial institution or someone else,” says Rothstein.

By contrast, there are clear and well-established protocols for when banks or credit unions merge — or fail. Regulators can liquidate failing institutions and seamlessly transfer accounts to another institution, usually without interrupting the account holders’ banking services.

There is no such established path for a new bank that is not a licensed financial institution. If a purely fintech startup fails, users may end up finding their deposits in a bank they’ve never heard of, perhaps as far away as South Dakota, Utah or Washington State.

“We want people to have a secure, structured product that provides them with a stable foundation, and I think these digital banking applications are just a little bit far, outside the mainstream financial system,” says Rothstein. “They’re not bringing people into the mainstream, and that’s the ongoing challenge for that.”

Cycle could be the exception. It is a fintech platform currently built on top of USALLIANCE Federal Credit Union, the leading credit union behind the platform itself. The credit union, headquartered in Rye, New York, began as a credit union for IBM employees in 1966.

USALLIANCE CEO Chris Vanbeek says he and his colleagues first noticed a few years ago when some new banks began offering advertising services, such as “early payment,” that credit unions had been offering for years. It drove him a little crazy, he says, when some fintech companies started calling their users “members” — credit unions that are very protective of being member-owned.

“Fintechs have taken a credit union class and it has just done really well,” VanBeek says. “They made it so you can go from a financial connection to an emotional connection really easily.”

USALLIANCE and other credit unions have their own mobile banking apps, as well as products and services shaped by decades of being member-driven financial institutions. But fintech companies seem to have discovered something they haven’t yet discovered. Users seem drawn to a more pared-down initial digital experience that does just one thing, and isn’t bogged down by the desire to sell them other products.

“They do a really good job, and there’s no reason why we can’t do a really good job,” VanBeek says.

USALLIANCE started building Dora internally, but the plan was always to make it a team effort with other credit unions. You will also need some additional investors just to compete with other fintech companies. Dora is turning to platforms like Chime, which just raised $485 million in its sixth round of startup fundraising, and expects to go public later this year, according to CNBC.

There was some interest from some credit union-friendly companies in the finance or payroll area to provide some startup capital for Dora, but in the end VanBeek says it was decided to keep the ownership in the family, so to speak – just credit unions, which are all financial cooperatives. owned by members.

Keeping it nonprofit and purely collaborative is a powerful statement in and of itself,” VanBeek says. “Cooperatives have a little bit longer-term view and care more about their members.”

Even with 130,000 members and $2.1 billion in assets, USALLIANCE is actually the smallest investor in a credit union in the cycle to date – it’s also a dedicated low-income credit union, meaning that the majority of its members meet certain low-income thresholds based on available data. From the US Census Bureau. The others are the Twin Cities-based Affinity Plus Federal Credit Union (also a dedicated low-income credit union), the Massachusetts Digital Federal Credit Union, and the New Hampshire Federal Services Credit Union.

Inclusiv’s investment in Dora allows it to act as a voice for its members, which currently consist of 425 much smaller credit unions serving some of the lower income communities across the country. “Our members don’t have much of a voice in the fintech world, and here we can give them that voice,” says Peter Rubinstein, Inclusiv’s Director of Technology and Innovation.

The course launched in September 2021, and had 3,700 accounts at the end of December. Assuming Dora starts to gain traction, VanBeek anticipates that more credit unions will be interested in joining the platform. Some may invest, and some may decide that they will sign only as banking partners. The course has the ability to work with multiple banking partners behind the scenes, as with other fintech platforms.

With its unique ownership structure, Dora really has something that no other fintech platform has – it’s Bank On Certified.

The Bank Initiative certifies bank account products that meet its national standards for low-cost checking accounts, including no overdraft fees and free online bill payment. One of the requirements for obtaining Bank On certification is that the accounts are provided by a licensed and regulated financial institution.

While only digital banks such as Ally Bank or Alliant Credit Union offer certified bank account products, other purely fintech platforms are not currently eligible. But the course qualified due to its ownership structure.

“Dora is certified because it’s a product offered by four credit unions and it is backed by those credit unions,” says Rothstein at Bank on Options. “It’s the closest we’ve ever seen [pure fintech platform] Model.”

Dora already planned to focus her marketing on unbanked or underbanked families. The Federal Deposit Insurance Corporation estimates that there are more than 30 million unbanked or underbanked households across the country. Bank On Certification can help with this marketing plan. Bank On Initiative works with a growing network of 90 state and local coalitions across the country to promote bank accounts that meet financial inclusion standards.

“One of the things that alliances always ask us is how they can get their local credit unions and local banks involved, because they really want to do that,” says Rothstein. Now, he says, those credit unions can join the course.

Oscar is the chief economic correspondent for Next City. Previously he served as Next City Editor from 2018-2019, and was a Fellow of the Next City Equitable Cities 2015-2016. Since 2011, Oscar has covered community development finance, community banking, impact investing, economic development, housing, and more for media such as Shelterforce, B Magazine, Impact Alpha, and Fast Company.

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