Hours after Silicon Valley Bank's crisis made headlines on March 9, a New York-based startup that streamlines payroll verification and direct deposit account-switching saw the first indicators of unusual activity among its fintech and banking customers.
Over the next several days, Pinwheel observed a series of spikes in traffic from customers using its digital Direct Deposit Switch tool to relocate their paycheck deposits to more stable institutions, said Kurt Lin, Pinwheel's co-founder and CEO.
"When the scare of bank runs started happening, there was a lot of movement and people switching their accounts," Lin said, noting its surge peaked on Friday, March 10, before gradually returning to normal levels on Wednesday, March 15.
Among fintechs — where the firm has a heavier mix of customers — Pinwheel tracked a 78% increase in account-switching traffic, Lin said. On the banking side, Pinwheel observed a 20% overall increase in the use of its account-switching service during the days surrounding the bank crisis.
Pinwheel's Direct Deposit Switch product, used by hundreds of fintechs like Block's Cash App and dozens of financial institutions including Citizens Bank, withstood the surge without incident. Users leaned on Pinwheel's technology to push and pull the necessary data to complete a direct deposit account-switch within a minute or two, according to Lin.
The incident underscored the growing demand for faster account-switching infrastructure as the speed of funds-movement steadily increases with faster payments, Lin said.
"Without an intermediary service like we provide, it can be really hard to switch your account deposit. You either have to submit a form to your human resources department or do a self-serve approach through a payroll company portal, which can be complex," Lin said.
Pinwheel's technology automates these processes with a permission-based API that has real-time connections to millions of consumers' income and employment data.
Analysts say direct deposit account-switching services are getting more attention from banks of all sizes.
"Getting a new account holder to update their direct deposit is challenging and many new customers never follow through with the process," said David Shipper, a strategic advisor in Aite-Novarica's retail banking and payments practice.
Although deposit-switching services like Pinwheel — and rival services like Clickswitch and Atomic — aren't new, they're gaining favor with organizations struggling with attrition when adding new customers, he said.
"I've heard of retention numbers for new checking account campaigns as low as 10% because the process of switching direct deposit and bill pay from a previous bank is a hassle, so these services can be extremely valuable for both traditional financial institutions and smaller challenger banks and neobanks," Shipper said.
Prior to the banking crisis, Pinwheel was preparing to roll out a new tool in late March called Smart Branch, which enables branch personnel to help customers handle direct deposit account-switching in person.
"More than 60% of consumers still visit the 70,000 brick-and-mortar branch locations across the U.S., and more than 75% of account opening still occurs in branches," said Lin, noting that Pinwheel has recently intensified its marketing focus on banks after primarily serving fintechs with its payroll-verification service launched in 2018.
This month, Citizens began using Pinwheel's digital and Smart Branch approach, and several other banks are poised to add the service in coming months, Lin said.
Pinwheel, which has raised $77 million to date, plans to roll out a new version of its digital Direct Deposit Switch tool geared specifically for credit unions and community banks, the company said.
"Banks are increasingly interested in streamlining the direct deposit account-switching process for their customers' convenience, and we expect to see the same kind of results play out as we add more financial institutions to our mix," Lin said.
