Account holders don't want to abandon their trusted financial institution to begin their investing journey, but they are currently forced to, given their lack of options. While third-party applications offer digital investing opportunities, consumers want simplicity and wish to build their financial future with the secure, reliable and stable banks that they have an existing relationship with.
InvestiFi CEO, Kian Sarreshteh, sat down with Arizent's VP of Research and Content, Janet King, to talk about why banks should capitalize on their trust advantage and bring digital investing in-house. Topics covered within the session include:
- How banks can keep assets within their ecosystem with a white-label digital investing platform
- Research on account holders use of third-party apps and what this means for banks
- The impact on the customer experience when banks offer in-house investing options
- Why a digital investing partner should be seen as a compliment instead of a competitor
Transcription:
Transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the corresponding audio for the authoritative record.
Janet King (00:12):
Hi everybody, and thanks for joining us today. My name's Janet King and I'm the Vice President of Research at American Banker. The evolution of digital banking experiences has opened up new opportunities for banks and credit unions to enable customers to invest through their online banking platforms, rather than leaving that ecosystem to invest through third party apps like Robinhood or Fidelity. And today's leader episode will be exploring these opportunities and the advantages that banks can realize by bringing digital investing solutions in-house. Joining me today to discuss this topic is the CEO of InvestiFi. Kian Sarreshteh. Welcome, Kian.
Kian Sarreshteh (00:51):
Thank you for having me. Excited to be here.
Janet King (00:54):
I know, I'm excited to get into this. To kick things off, can you give us just a little bit of background on InvestiFi and how you partner with banks in this space?
Kian Sarreshteh (01:04):
Sure. So InvestiFi integrates inside of online and mobile banking to be able to provide the customers of banks and members of credit unions, a seamless experience to invest digitally and self-directed products like stocks and ETFs. And then we also have a cryptocurrency solution.
Janet King (01:23):
That's great. I think it's so exciting how all of the digital progress that we've made in banking in recent years has really transformed how customers engage with their financial institutions. So why do you think it's so important for banks and credit unions to be able to allow customers to invest directly through those online banking platforms?
Kian Sarreshteh (01:45):
I think the customers are asking for right now is the main reason, right? We look at the data of the outflows in a lot of the banks and credit unions that we partner with, and when you run those queries on your core and look for how much money's going to fidelity into Schwab, into Robinhood, the list goes on, the outflows are pretty alarming. And what's surprising to me is that a lot of small to mid-size and even some larger FIs haven't actually done this research to understand how this is impacting their financial institution and ultimately the easiest way to be able to keep a lot of those deposits in house and give the customers what they're asking for is just to integrate a similar solution of what these third party platforms have, and that's what invest here to offer.
Janet King (02:32):
Do you have a sense of what the magnitude of those outflows are on average for most banks?
Kian Sarreshteh (02:38):
Sure. I mean, yeah, it really is all over the place, but we just ran this study actually actually for a billion dollar credit union, and so a billion dollar credit union had $4 million flow out to those third party investment platforms just last month in January alone.
Janet King (02:57):
Wow. So that's a pretty significant opportunity cost. How does the platform enable investments in traditional securities versus crypto, for instance?
Kian Sarreshteh (03:09):
Yeah, there's a lot of solutions on the market invest. I think we're proud of the fact that we're, I think we're one of the only solutions that integrates all asset classes in a single UI, which is what Robinhood has done, and Robinhood has obviously been very successful. I think that's one of the main benchmarks that we see banks and credit unions look to when they're looking for what sort of digital investment solution we want to offer our customers. And I think just some data points quickly about Robinhood last year in 2024, they actually did, I think it was in the first three quarters, they haven't published their Q4 results yet, but in the first three quarters of last year, they had over $800 million of interest income alone, which made up for 42% of their total revenue. And so having this native experience where you can invest right from your banking app into crypto or into stocks directly is a very elegant way to keep your customers engaged. And that's what we're seeing that works on third party apps, and we're trying to replicate that success for the banks and credit unions that we partner with.
Janet King (04:13):
What do you think, how do you think this space might be impacted by the regulatory environment? I mean, there's been a lot of changes and we're seeing a lot of shifts with the current presidential administration and a lot of speculation about regulations maybe becoming looser, et cetera. So how do you think that might impact the future of digital investing specifically?
Kian Sarreshteh (04:38):
So I think this could go in a lot of different directions, but I think the one thing that's clear regardless of the asset class, so I mean crypto I think is being thought of differently than traditional investing with securities, but I think the regulations are being more favorable for financial institutions to have more freedom in terms of what they can offer and how they can offer it to their customers. And in doing so, we're already seeing third party fintechs and neobanks take advantage of these, I guess, perceptions of the regulatory pipeline that's going to evolve over the coming years with new administration. And it'd be prudent, I think, for a lot of the banks and credit unions to follow suit and take advantage of the same sorts of features that these third party fintechs have really gotten ahead of and are benefiting from, especially with the new administration.
(05:24):
And I think in particular with crypto, I think we do see more engagement on the security side of our application, but that's starting to change. And the previous administration with the OCC and the FDIC in particular, there was specific guidance that made it challenging for banks to be able to adopt crypto. But we're already talking to banks that have plans to roll out crypto right alongside securities, and that's somewhat new for banks. So we've been at this for a few years and what I've observed from a regulatory standpoint is the NCUA who regulates credit unions have been more pro-crypto in recent years, even with the previous administration. They actually came out with guidance that made it permissible for credit unions to offer crypto with the proper due diligence of course. But that same guidance was not available for banks, and I think it was Vast Bank in Oklahoma is one of the last banks that actually had a retail crypto offering available. And that got shut down, I think it was in '23 or '24, but that got shut down. And so we're starting to see and hear larger banks and all banks really take more of an interest in crypto again. And that ultimately, I think provides benefits to the end consumer where they can get the same investment services holistically from stocks to crypto in the same platform that they're doing their traditional banking on, which benefits customers and the financial institutions that they bank with.
Janet King (06:55):
And when we were talking about this discussion before, when we met earlier to talk about this discussion, one of the things we talked about was some of the opportunity costs that you just mentioned, right? Like the ability for banks to retain more deposits and capture interest income and whatnot. But what do you see as the advantage for lead generation for more traditional wealth management practices too?
Kian Sarreshteh (07:20):
It's a great question. And we talk to a lot of larger FIs or FIs in general that have in-house wealth management. And I think there's somewhat of a misconception in terms of what roles companies like InvestiFi play when sitting inside of a bank alongside a existing wealth management practice, most wealth managers and advisors that sit inside these branches at banks and credit unions have minimums. And there's a lot of customers at banks and credit unions that don't have enough money to actually meet those minimums. And so what happens today if they don't have digital investing integrated is the advisor is going to tell them to transfer the money over to Betterment or transfer it over to Fidelity or wherever they're going to make some third party recommendation. And then that investor is going to leave, go to that third party platform, and they're never going to come back.
(08:10):
And the advisors have no idea if there was material life changes in that person's financials where today they may not have had enough money to invest, but a year from now, two years from now, five years from now, as that person grows in their career and they grow their savings and they have more money to invest, there's no visibility for those advisors, right? Because they're already on a third party platform. Whereas if you select a digital investing partner like Invest, where we've been very intentional about building and tooling for the advisors that sit inside these banks and credit unions to give them the opportunity to view the digital balances so they can prospect directly from a backend database and see how much money these users have invested digitally, and we can set up alerts. So let's say there's a $50K minimum, as soon as that user hits $50,000 in digital investments, we can alert the advisor, they can see what assets they're holding and really warm up that conversation when they reach out and say, Hey, notice you're investing a lot of tech stocks.
(09:13):
Let's get more formal strategy in place on how you think about investing in those sorts of assets. So I think that's one area. And not to be too long-winded here, but the other thing that we're excited about at InvestiFi is giving advisors tools to be able to prospect from the outflow data. And this is one thing that we don't see any FIs doing today, where there's customers regularly transferring money over to third party investment platforms and their in-house wealth managers have no visibility into those transfers going out. And there's some big transfers. There's some users that are transferring a hundred K out a month to these third party platforms, which is a great prospect for wealth management to hopefully bring into their own portfolios and not having those tools. There's a big gap. And so if you have the right digital investment partner, it should be a compliment to your wealth management.
(10:01):
It should drive and grow your AUM, your client base, et cetera, and not really be looked at as competitive. And the last thing I'll say on this, I'm a little bit passionate about this. The last thing I'll say is if you have the right partner, they should not be coming after your fees either. So I think the thing that wealth management typically cares most about is the AUM and the associated fees that come along with that. And so when you're selecting a digital investment partner, the digital investment partners that are truly there to support wealth management are the ones that are going to give a hundred percent of those AUM fees like Invest does to wealth management or the FI to just do the same rev share that they're currently doing for their traditional wealth management practice. So sorry to be long-winded.
Janet King (10:46):
No, that's fine. And I think we'll probably revisit a few of those points in a little more detail later too. But we started the conversation today and you were like, when I asked you why this was so important, you said because customers want it, this is how customers want to interact with banks. So how do you see these kinds of in-house investing opportunities aligning with consumer needs and expectations?
Kian Sarreshteh (11:09):
I think most consumers would prefer to only have a single bank or a single application where they engage with their finances. I don't think anyone wants to have more than, I think I saw Data point recently where a lot of people in the US don't have more than 10 apps downloaded on their phone, and so they don't want a separate app for investing from banking, from lending, et cetera. And so we see that consumers are going to places of convenience. And Robinhood is the best example that I think I can think of off the top of my head where they've done a great job. Well, first of all, they grew from zero to 22 million users in seven years with using investing as a hook before they grew into a bank. So I think it was in 2022, they launched a debit card checking account, a savings account.
(11:53):
Now they're really marketing their high yield savings account aggressively, and consumers are excited about it because when they have idle cash sitting in an account with Robinhood, the consumers know that when there's an opportune time to invest, they're not going to have to transfer money over to a third party platform to do so. And so if I'm a consumer and I can get 4.5% yield on my savings account while still having an opportune time to invest whenever, let's say the price of Tesla dips or whatever investment I'm looking at, then that's a great experience because it's all in the same place and I don't have FOMO that I might miss out on an investment opportunity if I don't have my money sitting in my investment account. So Robinhood's been, they've done a great job with that because the investment account at Robinhood essentially is the savings or checking account at Robinhood.
(12:41):
And so dovetailing a little bit into what invest, if I offers to banks and credit unions as well, we're the only company in the entire United States that does what's called investing from checking where the investment account with invest is not some third party bank account, but it's the checking account at your financial institution. And so the idle cash sitting at your financial institution is really a big opportunity to benefit from. I think that's really an overlooked piece of value when you're getting a digital investing partner because if your digital investing partner is treating the investment account as an account that you can keep on your balance sheet, you can benefit from those deposits the same way Robinhood has.
Janet King (13:23):
So I have a couple of questions I want to ask you about that, but let's start by looking at the generational differences. Are there any generational factors in play? You said 10 apps on average, people are downloading and some of those behaviors, are you seeing a lot of differences based on different generational cohorts?
Kian Sarreshteh (13:42):
So I think there is the obvious perception that the younger generation prefers to do self-directed. They prefer to invest digitally, and there's more of an interest in crypto maybe, right? But I think what's, when you look at the actual data, there's not that much of a skew younger. We see a lot of older customers that feel comfortable investing through the financial institution that they've banked with for decades because they trust them. I think my dad is an example. My dad quite literally said he is never going to transfer money over to Robinhood or Coinbase or anywhere like that because he doesn't trust it. But if he could invest right through the bank that he's used for 20 years, he would absolutely do so and also take advantage of crypto likely. And so I think that's the piece where a lot of financial institutions need to realize is yes, it's a great tool to be able to attract the younger demographic, which I know a lot of financial institutions have an initiative to do, but it's also a great tool to keep your older members and customers engaged and make sure that they have the same opportunity to invest digitally as the younger population.
Janet King (14:55):
Banks certainly do have the advantage on the trust face. We see that in all of our research that banks are among the most trusted institutions that consumers are engaging with. How does this at play at all with sort of the physical kind of branch strategy for banks?
Kian Sarreshteh (15:14):
Yeah, I'm really passionate about this subject because I think the thing that Robinhood and all these third party investment apps and neobanks don't have is branches and ATMs I mean, they might have some sort of shared at ATM network, but for the most part, they don't have the physical presence that banks and credit unions have had in their communities forever. And coupling that with a feature parody like digital investing that sits inside of online and mobile banking really gives the banks and credit unions the leg up because they can offer a very similar experience to what their customers are getting on third party apps. But augment that with the trust factor because if something goes wrong with my investment, I can actually talk to somebody at my bank or my credit union, I can go into a branch and while the teller may not have information about the investment that I made, I at least feel good about the fact that I know that there's a real human being that I can go and talk to. Good luck trying to get ahold of somebody from Robinhood or any of these third party investment apps.
Janet King (16:18):
So where are you seeing this approach gaining ground within the banking community? Sort of where are the early wins?
Kian Sarreshteh (16:26):
So I think the early wins are going to come from the early adopters. I think there's obvious competition in every geography across the United States in terms of going after the same customers. And Robinhood and the third party investment apps have already done a good job of taking a lot of those customers away from banks. And the early movers with the banks and credit unions that adopt the same sort of digital investing solution that their customers want are going to be, they're going to have the advantage to be able to pull a lot of those customers back and keep their existing customers within their financial institution walls before they're taken away by a Robinhood or another bank in that community. We're really seeing, it's been interesting because we've been at this for four years now at InvestiFi, and it really wasn't until the latter half of 2024 when we really started to see more banks actually take notice of digital investing being an important feature to offer the customer base.
(17:29):
And fast forward into this year, no, we're already in February, and it's one of the most, I think, front of mind topics for the banks that we talked to. And I think the reason for that is people are really starting to take notice of how well these third party investment apps are doing, not just with the investment of their business, but by complimenting that with high yield savings at Robinhood or SoFi is another great example because you can get loans on SoFi, and if I'm buying stocks on SoFi, why do I need to transfer money back to my bank to get a loan with? And so I think being an early mover here is going to be really important, and the ones that are early movers are going to get the most benefit from a solution like this before the space really gets too saturated.
Janet King (18:15):
Are you seeing any particular types or sizes of banks that tend to be in that sort of early mover bucket? Smaller banks?
Kian Sarreshteh (18:26):
Yeah, I would actually say the small to midsize banks are where we're getting the most traction with right now. I think just generally speaking, everyone's aware of this sentiment that I think larger institutions just take sometimes a little longer to move because they want to get absolutely right, which makes sense. But all that to say, I mean, we have interest from banks that are greater than 200 billion in assets. And so I think this is a feature that everyone right now is looking at and there's a lot of different ways to do it. And so it is prudent to do your research obviously, and make sure you understand all the considerations that are most important for your financial institution. But this solution makes sense from credit unions as small as like a hundred million in assets all the way up to the largest banks.
Janet King (19:07):
So I'm curious what you see as driving success. What's really helping to drive adoption of this behavior among bank customers? I know one of the things we talked about was financial literacy, so I'm curious how you see that factoring in here.
Kian Sarreshteh (19:23):
Yeah, of course. And I think that's another key feature that banks should be looking at when they're evaluating digital investment partners. You want to have a solution that not only provides the investment capability, but also the research tools around that so they can educate themselves. So they're making informed investment decisions, which is obviously what we want the bank customers doing, but then also getting educated around topics that might stimulate more investing activity and keep them inside of your financial institution. And I think one of the other really important things to mention, and I don't know if we're going to cover this or not, but the marketing benefit of having digital investing integrated inside of online and mobile banking is very significant. I think the data point is, it's about seven times the increase in engagement digitally when you have investing inside of online and mobile banking because people want to look at how their investment balances are performing over time because they're changing every day versus if I'm only going to online banking to confirm my direct deposit hit or maybe to do bill pay, I may only be logging in a few times a month versus 30, 40 times a month.
(20:31):
So I think that's another big benefit that banks get from this. And when they do, every time a customer logs in to look at their investment balance, you can market them another product, a credit card, a loan, what have you.
Janet King (20:42):
Yeah, that's interesting. And really building those stickier customer relationships and making it part of their whole financial ecosystem in a much more active and integrated way. That's great. So what are some of the common obstacles that banks and credit unions need to solve for to successfully enable this kind of investing through their online banking platform?
Kian Sarreshteh (21:05):
I think if you choose the right digital investing partner, it should be turnkey where they own their broker dealer, they own the registered investment advisor, and they can really come in and provide a turnkey solution where the bank or credit union does not have to worry about all the regulatory natures of FINRA on the SEC, which a lot of banks and credit unions, especially smaller ones, aren't typically accustomed to. But beyond that, if you have in-house wealth management, I think those are important conversations to engage wealth with. When we talk to banks and credit unions, we typically talk to folks both on the wealth side if they have wealth management and on the digital banking side. And so there's going to be unique benefits to a bank on the digital banking side, like doing things like driving more engagement. But then all those advantages around wealth that we talked about, it's important to have wealth input into this sort of solution because ultimately they're going to be the ones that are going to benefit the most because they can use this again with the right partner as a tool to really grow with their managed accounts and graduate those digital investors into human advisory relationships with managed accounts.
(22:10):
And so I would say depending on what side of the house that you're on of the bank, engage the other side and really have a frank conversation around what's most important to your bank, and then that really will help inform the business case and what vendor you ultimately want to partner with.
Janet King (22:26):
Okay. So clearly different opportunities as well as different challenges based on those bank structures and whether or not those banks have wealth management offerings within their portfolio of services or not. So looking to the future, what kind of trends are you seeing on the horizon for digital investing?
Kian Sarreshteh (22:50):
So it's a very exciting time to be in this space because a lot of people are approaching this differently. And I think some of the key features that we see out of the box, I think table stakes is having a self-directed offering, integrated inside of online banking, having a robo-advisory offering, having crypto. And if all that can be integrated into single UI that really provides for the best customer experience that's really going to motivate your customers to stop transferring money over to third party apps and just do it right through your bank. But then looking ahead, some of the key things that we're excited about is doing Roundup investing, being able to take the loose change from rounding up a debit card purchase and converting that into a stock or into crypto. And then being able to do things like have already been done by a Robinhood.
(23:38):
One of the ways I think Robinhood done a great job of growing their by rewarding their customers from doing an ACATS transfer. And if you don't know what that is, it's really just transferring securities from one custodian to another. So if I have stock sitting on Fidelity right now, I could transfer that into Robinhood. And Robinhood started rewarding people for doing that, and that paid off in a big way. They grew their deposits by over 50 billion last year with that being one of the major promotions. And so I think there's a lot of different features that are exciting, but then figuring out the right ways to be able to market to those users that have already left is one of the most important things that banks can think about, which is really the phase two to this thing. And at InvestiFi, we actually provide a lot of the marketing tools to the banks that we partner with. So a lot of this can be done more seamlessly. One of the things in particular that we've done, like I mentioned, was building out that outflow tracker so banks can target people that are already transferring money over to those third party investment platforms.
Janet King (24:44):
Anything specifically that you've got planned to, you talked about the outflow analysis. Anything else that's on your sort of roadmap that you think is going to be important to keeping ahead of some of the things that are coming in the future
Kian Sarreshteh (24:57):
That you talk about? So a lot of this is still confidential right now. We're public about the fact, like I mentioned, that we're doing Roundup investing and
(25:08):
Some of the features that we're building out for advisors. We do have, one of the other things that we're building out is the ability to have people do mock trading. So being able to invest with play money. And I think that's important too for the early or the younger population because if I'm under the age of 18, I can't actually enroll in a securities account with a broker, but I could start practicing trading. And if I start practicing trading with my bank, I'm going to be more likely to actually trade with my bank once I'm old enough to do so. And then being able to maintain that customer throughout their lifetime will really add to the LTV of that younger generation as they grow in their careers and get older and accumulate more wealth.
Janet King (25:54):
Yeah, that's really exciting. That's really fun. So what should banks do to get started on this journey? Can you give us one or two targeted next steps that everyone watching today should sort of walk away with as they think about how their bank might approach this opportunity?
Kian Sarreshteh (26:10):
So we actually have what we call our outflow analysis document, which you can download from our website, which is investifi.co. And when you download that, you essentially get all the names to query on your core. So having all those names and you plug those into your core, you see how much money is leaving. I think that's really step one for building the business case. And once you've done that, I think depending again, what side of the house that you're on, digital or wealth, being able to have those candid conversations around this much money is leaving and going to these platforms, what features and what services do we need to offer our customers that these other platforms are offering to be able to bring these customers back, bring these deposits back and get similar marketing benefits that these other platforms are doing. So I think, yeah, step one, figuring out how much money is leaving, which should really help inform that business case. And then step two, just figuring out the specific features that are going to make the most sense for your bank. And then step three would be just identifying the right vendor and partner.
Janet King (27:10):
Any differences in that advice, depending on the type of bank size or is that a pretty good roadmap to get started?
Kian Sarreshteh (27:16):
So I would say if you have, I'd say the big difference on how you move forward with this, if you have wealth or if you don't have wealth management in house, if you do have wealth management in house, I think you want to look for a vendor that actually is able to embed the existing risk questionnaires and portfolios from your advisory into the robo-advisory solution. And so what I mean by that is for those of you that aren't overly familiar with Robo or how wealth management works typically is there's a risk questionnaire that customers will fill out, which really informs the risk profile of that individual. Then based on that risk profile, they're recommended a portfolio of assets ranging from very conservative to very aggressive, which make up a lot of ETFs that have various fixed income equities and other products inside of them based on the risk profile of that user.
(28:08):
And so out of the box, a lot of the investment providers like InvestiFi on the market today have portfolios that come pre-constructed. But a great way to help graduate those digital investors into those managed accounts is to just mirror that risk questionnaire and mirror the same portfolios that are being recommended by your existing human advisors. And when you do that, you're going to have a lot less churn because if they're different portfolios and different risk questionnaires, you have to get those users to opt in to the new portfolios when you attempt to graduate them to those managed accounts. But if they're the same portfolios, then that just becomes so much more seamless. And so make sure that, and I think most of the larger FIs do have wealth management, so just make sure that you're looking for vendors that actually can embed those existing portfolios and questionnaires inside of the digital robo-advisory experience to really help drive the most value to your wealth management practice.
Janet King (29:11):
Thank you. That's great. I think this has been such an interesting conversation. I think it's such an exciting opportunity that we have ahead. So I want to just thank you so much for joining me today, Kian, and for sharing all of your insights and knowledge. We really appreciate it.
Kian Sarreshteh (29:27):
Thank you for having me. This has been blessed.
Janet King (29:29):
Yeah, and thank you to the audience for tuning in. I hope that we've provided you with some new insights on this topic that you can take back to apply in your own work environment. So thank you everybody. Thank you again to InvestiFi and have a great day.
