FinTech students agree with the WSJ’s article “Banks
Are Paying Peanuts on Deposits. Robo Advisers Are Offering Higher Rates”
Better deals for consumers will likely hit traditional banks and brokerages, where cash deposits have long generated a significant chunk of revenue
| Marquette's Applied Investment Management Research Room |
The students in Dr. Krause’s FinTech Topics class each analyzed
four robo-advisors and digital banks to evaluate the strengths and weaknesses
of the offerings. Similar to The Wall Street Journal article by Lisa Beilfuss, they found large differences in
what consumers are being paid on their cash (money market) accounts.
For instance, two pure robo-investment firms offer much higher
yields. Wealthfront’s cash-management
account, which is basically an investment brokerage account that pays a return
on idle cash, is presently offering a 2.24%
annual interest rate, and Betterment LLC’s account offers
2.23% after fees. That compares with a national average of 0.10% U.S. banks are paying savers,
according to Bankrate.comhttps://www.bankrate.com/.
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| David Krause teaches a FinTech Topics course at Marquette |
Krause concluded based on his student’s research, “I saw it
before when money market funds were introduced in the early 1980s, better yields
on cash balances will likely hit the traditional banks and brokerages hard –
and this is an area where consumers’ cash deposits have long generated a
significant chunk of revenue because they loan the funds out at a much higher
rate.”
He continued, “I believe that the legacy, retail banking
industry is going to undergo a major change and the high-tech, sophisticated
FinTechs are ready to take considerable market share from them. Today’s digital
natives, millennials, and Gen Z consumers might drop their traditional bank for
a digital bank or robo-advisor.”
Lisa Beilfuss in the WSJ wrote that “Automated financial
advisers are expanding into the cash-management market with high rates, the
latest move by these so-called robo advisers to capture clients from
traditional banks and brokerages.”
Krause indicated that he plans to produce a report of the students’
findings.
