The Growing Domination Of Chime, Cash App, And PayPal In Banking

OBSERVATIONS FROM THE FINTECH SNARK TANK

A new study from Cornerstone Advisors,¹ looking at who Americans have their primary checking accounts with, underscores the growth of digital banks and fintechs like Chime, PayPal, and Square—and the decline of megabanks like Bank of America, JPMorgan Chase, and Wells Fargo. What’s going on in the checking account market?

1) The percentage of Americans whose primary checking account is with a digital bank has skyrocketed since 2020. More than a quarter of Gen Zers (21 to 26 years old) and nearly a third of Millennials (27 to 41) now call a digital bank their primary checking account provider. Among Gen Xers (42 to 56), the percentage who have their primary account with a digital bank grew from 8% to 22%. Overall, six in 10 Gen Zers and Millennials whose primary checking account is with a digital bank has that account with Chime, PayPal, or Cash App.

2) Megabanks’ primary customer share is plummeting. As recently as two years ago, the megabanks—Bank of America, JPMorgan Chase, and Wells Fargo—dominated consumers’ primary checking account assignments. Since the start of the pandemic, however, the percentage of Gen Zers whose primary checking account is with a megabank has dropped from 35% to 25%. Among Millennials and Gen Xers, the percentages declined by nearly a half.

3) Community banks are making a comeback. Bucking the trend, community banks gained share in primary checking account status across four generational segments (no, that wasn’t a typo, and yes, I double-checked the numbers).

4) Credit unions aren’t keeping pace. Credit unions’ “we have nicer people, and we’re not-for-profit” story isn’t resonating. The percentage of Gen Z, Millennials, and Gen Xers calling a credit union their primary checking account provider declined between Oct 2020 through Jan 2022. 

What Does “Primary Checking Account” Mean?

Some bankers (and perhaps some of my own colleagues) will contest these findings, claiming that they’re not in line with their analyses, which typically look at account activity and derive whether a customer is using the bank as his or her primary institution. There are a few shortcomings to this approach:

1) Few banks have sufficient data about the breadth of their customers’ relationships. Gen Z and Millennial households could have 30 to 40 banking relationships. Seeing the total picture is nearly impossible (for banks and consumers).

2) Consumers have primary account providers—but not necessarily a single primary financial institution. With many consumers having multiple checking accounts (a third of Gen Zers and Gen Xers, and 40% of Millennials, have two or more checking accounts), multiple payment accounts, multiple investment accounts, and using various tools to help them manage all their accounts and relationships, the idea of a “primary financial institution” has become outdated.

3) Determining primary status from just the data misses the emotional aspect of the relationship. Someone may make a lot of mobile check deposits into one of their checking accounts and use that bank’s debit card frequently, but the fact that they use another bank’s personal financial management tools more frequently might make them feel like that bank is their primary checking account provider.

What’s Going On Here?

What’s the Cornerstone data on primary checking account status telling the industry?

• Digital banks aren’t the “challenger” banks, anymore. They won. More Gen Zers and Millennials call a digital bank their primary checking account provider than those that consider a community bank or a credit union to be their primary checking account provider—combined.
• Consumers are looking for a different kind of account. It’s inaccurate to call what the digital providers offer “checking accounts.” They’re more like mashups from what have traditionally been separate accounts. CashApp, for example, provides crypto and tax prep capabilities built into the service—features typically not found in the traditional checking account.

• Checking account usage is becoming specialized. As consumers open additional accounts—increasingly with digital banks—they consider their accounts from traditional banks to be their secondary and third accounts. Those accounts stay open, but are increasingly used for specific purposes—like making expenses for specific items or sending money to other people.
• Gen Z is flocking to PayPal and Cash App. Chime is a strong neobank among Millennials, and is growing its primary customer share among Gen Xers. But its primary status among Gen Zers has slipped since 2020—from 6.5% in October 2020 to 4.6% in January 2022. PayPal and Square picked up the slack—and more—with 8% of Gen Zers now calling PayPal their primary checking account provider, and 4% applying that label to Cash App.
• Personal relationships still matter. The uptick in primary customer market share for community banks reflects a growing need among some consumers to have the personal touch. According to Charles Potts, Chief Innovation Officer at the Independent Community Bankers of America, “Many consumers need a banker, not just a bank—and the relationship banking model is at the heart of community banking.”

¹There’s more data on consumers’ checking account relationships not included here. Connect with me on LinkedIn and/or Twitter, send a message, and I’ll send it to you.