(one reason) why your new FinTech bank sucks

The main thing I love about Twitter is all of the inspiration I get. I become inspired to create content, save money, and start new ventures. Thanks guys!

Recently I came across some rumblings about a bank called Chime. Like other FinTech/ de novo banks, it was created within the last decade. Chime boasts, among other things, a “no hidden fees” (their words, not mine) account – including no monthly maintenance fees and no overdraft fees. 

Everyone was making such a fuss because there were several users who had accounts closed with no notification over roughly a month’s time. Let this serve as a reminder that any financial institution can (and commonly does) close customers’ bank accounts without notice and without reason. Loans are a different matter and if a bank or credit union nullifies your loan without any notice that’s a problem and you need to escalate that concern immediately. The document that a bank needs to send in those instances is called an adverse action notice. 

So I made these series of tweets earlier recently: 

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The point that I was trying to make was that financial services compliance/banking compliance is very expensive. Partly because it takes a lot of time and partly because good talent will cost a lot of money (there’s a lot to know and us compliance folks aren’t doing this for peanuts mmkay?)

A crux of the Bank Secrecy Act (BSA) is knowing who your customers are and what they are doing. Part of having and maintaining this knowledge is called doing due diligence. Many banks use a type of ‘scoring criteria’ to identify certain customers as either low, medium, or high risk. This is largely based on historic account activity – and to a smaller degree factors like your location and even whether you have a business or personal account are important. If you all of a sudden have a lot of money coming into or out of your accounts then you will begin to look high risk.  

How this comes into play with new FinTech bank accounts  is that this due diligence can seem very doable with a few thousand customers, but as a bank begins to gain steam and thousands become millions, due diligence gets more and more difficult. 

Once you get a backlog of customers it gets hard to bounce back and stay on top of the work. The path of least resistance is for financial institutions to just close any accounts that look suspicious. Of course, closing any and all of these “suspicious” accounts is bad for a business’ reputation. But a couple hundred accounts closed out of millions will by-and-large go unnoticed by the general public – except for small pockets of internet outrage. This is one way for overworked banks to balance workload with remaining compliant. 

I’m curious if any of you have been victim to a sudden bank account closing? Did the bank attempt at all to get more information on you and your transactions?

— J