Banks’ deposit levels have fluctuated over the last few years, as
S&P Global Market Intelligence data shows that the pace of deposit outflows from banks has slowed quarter-over-quarter since the beginning of 2023, declining 0.49% in the third quarter when compared to 0.53% in the second quarter and 2.46% in the first quarter. Despite this, analyst expectations hold that the cost of deposits will continue to rise as higher-cost instruments like certificates of deposit account for a larger portion of banks' deposit bases.
Fintechs specializing in direct deposit switching software that hope to capitalize on this opportunity have begun seeking out partnerships with individual institutions, as well as providers of digital banking platforms, to streamline the account-switching process.
Backbase, the Amsterdam-based provider of customer-facing software for banks, began working with Atomic in October to offer partnered institutions simple tools they can use to verify income and let customers change their direct deposit account.
Consumers logged into their financial institution's banking platform can initiate the switch by using Atomic's software to identify their employer or payroll provider, sign into their payroll account, and complete a multifactor authentication via text or email. The account switch will go into effect within one to two pay cycles.
Accounts eligible to receive funds must be held at financial institutions that partner with either Backbase or Atomic. But they can work with all payroll providers.
"We started by looking at how direct deposit switching is happening today when compared to a traditional perspective … and we identified the opportunity that this can be done much more frictionless if this was done digitally," said Mayank Somaiya, director and global head of fintech-as-a-service for Backbase.
The partnership extends to Atomic's income verification product, which uses consumer-permissioned data like paystubs, W-2 forms and other employment information to build a more in-depth picture of the individual.
Somaiya explained that these capabilities are important in the eyes of consumers when evaluating which institutions they choose to bank with, as "they're comparing not just different banks, but they're comparing different experiences," he said.
"[Direct deposit switching] is great for customer acquisition teams because they can say 'hey, you sign up with us and we'll have your direct deposit in the snap of a finger,' but for the customer retention teams, it's a looming threat of 'these guys can leave at any time,'" said Dylan Lerner, a senior analyst in digital banking for Javelin Strategy.
Lerner said that "the innovative banks will see those opportunities, and they won't worry as much about so-called negatives," instead focusing more on the possible value add for current customers to incentivize "not taking their direct deposit out. As innovative players make it easier to switch direct deposits and threaten to disintermediate the primary institution, convenience [will] no longer be enough," Lerner said.
Bala Nibhanupudi, executive vice president and chief operating officer of First Bank in Creve Coeur, Missouri, was looking for a partner that could help with deposit switching and help with system integration.
"From individual consumers and business banking clients, to commercial and wealth management customers, we wanted one single application for First Bank that we could say, 'this is a unified portal regardless of what kind of account you have with us,'" Nibhanupudi said.
He found his answer in Backbase and began working with the firm in September of last year to unify the $6.7 billion-asset bank's customer experience across all account classes.
The process involved first migrating a handful of First Bank's fintech integrations onto the Backbase platform to ensure that consumer accounts have the same level of service as they did before the move. In the months since then, Nibhanupudi has continued to integrate software from other fintech partners onto the Backbase platform to support business, wealth management and other client segments.
"When we started looking for a better environment for us, one of the things we landed on was [Backbase's] platform technology that offers us the ability to plug and play with the new technology faster," Nibhanupudi said. The bank is expected to launch a new online account opening process sometime in the first quarter of this year.
Fintech partnerships with
The
While Backbase is currently working across its client base to identify institutions that are interested in activating the Atomic integration, both firms will remain dedicated to positioning clients as the prime choice for their consumers.
"Our long-term goal at Atomic is to help the financial institution become mission control in the financial lives of their customers," said Jordan Wright, cofounder and chief executive of Atomic.
