Where did JPMorgan Chase's Finn experiment go wrong?

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JPMorgan Chase's decision to shut down its digital-first brand Finn is sparking debate over whether similar units of traditional banks — including Wells Fargo's Greenhouse, Citizens Bank's Citizens Access, MUFG's PurePoint and Midwest BankCentre's Rising Bank — may soon face the same fate.

JPMorgan launched Finn in October 2017 in an effort to attract millennial customers. But it said Thursday it would terminate the brand on Aug. 10, rolling customers into its Chase Mobile app and replacing their Finn-branded debit cards with JPMorgan-branded ones. The move came only a day after HSBC announced it was dropping its budgeting app, Connected Money.

While some see it as a sign that traditional banks can't successfully compete with challenger banks and fintechs by using separate brands, others said the problem was JPMorgan's execution of the idea, not the concept itself.

“They failed largely because of an indistinctive digital banking offering,” said Wei Ke, partner at Simon Kucher and behavioral psychologist.

Finn offered a no-fee account, automated savings according to user-set rules, the ability to track savings, and the ability to mark each purchase as a need or a want. But much of this can be found in other mobile bank and challenger bank apps, observers said. Other banks, meanwhile, have more specific targets in mind with their digital-only experiments.

“Chase’s move highlights the need for banks to be clear about their strategic goals,” said Dan Latimore, senior vice president at Celent. “Citizens Access, for example, is explicit about its desire to raise deposits, and it’s willing to pay higher rates to do so. A full-service hybrid digital bank like Finn, though, had a tougher row to hoe, particularly in differentiating itself from the main Chase offering.”

Emmett Higdon, director of digital banking at Javelin Strategy & Research, suggested that digital-first brands have to offer something unique beyond traditional banks’ apps.

“We see many digital banks struggling with the balance of traditional banking services required to retain customers,” he said. “They seem to always be looking for the lowest common denominator, and forgetting little things that matter a lot in financial services, like core money movement functionality and great customer service. Simple recently shut down bill pay functionality for its customers. Not surprisingly, this didn’t sit well with a large percentage of their customers who must now look elsewhere for that support.”

There were other issues, too. For example, other banks' digital-only offerings specifically target individuals seeking high rates. The savings rates at Finn by Chase ranged from 0.01% to 0.04%, which is comparable to many large banks’ basic rates, including JPMorgan's.

By contrast, Citizens Access offers 2.35% on savings, 2.70% on online CDs; Rising Bank’s savings account rate is 2.38% and it pays 2.77% on a one-year CD; and PurePoint Financial’s rate is 2.35% on savings, 2.75% on a 12-month CD.

JPMorgan's rates might make sense given the millennial audience Finn was supposed to capture, observers said. But JPMorgan may not have gone far enough in catering to those customers, however.

JPMorgan’s Finn strategy was “smart in that the younger generation of customers they hoped to attract with Finn do not have big savings balance to begin with, so offering high interest is somewhat meaningless,” Ke said. “Instead, this is the group of customers that need guidance and motivation to save.

Unfortunately, in that respect, Finn completely missed the boat by not offering cutting-edge innovative digital features to help a customer save. Qapital, Acorns, and others have much more interesting and engaging features to achieve that goal.”

Cannibalizing the customer base

Another big issue for JPMorgan was that 50% of Finn customers are Chase customers.

“Self-cannibalization will always be a problem with new bank brands unless they’re expanding into new geographies,” Latimore said. “In some instances that may be a desired outcome. For instance, if a new brand is built on a newer core with a lower cost-to-serve, migration could be a win all around.”

At both Citizens Bank and Midwest BankCentre, executives asked themselves whether this would be an issue. So far, it’s not.

“We remain confident in our strategy and are very pleased with the performance of our Citizens Access platform,” said John Rosenfeld, president of Citizens Access.

Citizens Access has gathered about $5 billion in deposits (two-thirds in savings accounts, one-third in CDs). It has accounts in all 50 states, and 71% of balances are raised outside the bank’s branch footprint.

“By focusing on a specific subset of digital-savvy, rate-conscious consumers, which we call optimizers, and targeting our marketing efforts beyond our traditional retail footprint, we have been able to source incremental deposits nationwide,” Rosenfeld said. “There’s no material cannibalization.”

While community bank MidWest BankCentre is based in St. Louis, customers are coming from far-flung states including California, Texas and Florida.

Is there value in a separate, digital-friendly brand?

There is considerable debate over whether it makes sense for established brands to launch separate entities.

“There’s no doubt that brand matters tremendously in banking,” Latimore said. “Chase first piloted just ‘Finn.’ It didn’t work, so they rebranded it ‘Finn by Chase.’ And it’s Marcus by Goldman Sachs, incidentally. The advantage of a separate brand is that it conveys a separate vibe; the disadvantage is that new logos are competing against literally thousands of established brands that have built up trust over decades.”

Higdon sees only limited value to separate brands.

“Establishing a separate brand and second app to do so has never worked out well for established banks,” he said. “Whatever money is channeled into developing and launching that new app could be better spent enhancing the digital experience for all of your customers, through a single app.”

Tom Blomfield, founder and CEO of Monzo, a U.K. challenger bank that recently surpassed 2 million customers, said the problem with traditional banks’ digital-only brands is that they need to eventually take over.

“It’s a pattern we’ve seen in the U.K. a few times, where you get a pretty successful branch-based retail bank that rightly identifies pure-play digital challengers as a threat to the future,” he said. “You’re Blockbuster Video and you think streaming is going to come and kill you.”

The banks will start a standalone brand with new technology to try and attract a younger audience with lower fees. RBS and Barclays are among the U.K. banks that have done this.

“The thinking is, let’s create a standalone thing, lets fund it separately, lets send a team to create a challenger that will kill us before our competitors do,” he said. “That makes sense. But then they pull back before it’s had a chance to kill the main bank."

There are several reasons for that, said Blomfield.

"Either it’s their technology people saying why are we spending on two technology platforms when we could consolidate and save cost?" he said. "Or the risk and compliance people say we have all these policies and procedures you’d better be following, come and talk to us about that. Or they realize they still have the massive cost base of the original bank — the branch network, the legacy technology, the tens or hundreds of thousands of people and this low-cost, digital model can’t work with that cost base. So they never take the final step to kill the parent. You ultimately want to kill it and wipe out 95% of the cost in order to let it thrive. I don’t think anyone’s had the stomach to do that.”

Instead, the banks bring the digital-only unit back into the fold, quietly shut it down and consolidate tech platforms.

“This has happened a dozen times over the last 10 years,” Blomfield said. “I don’t think Finn is any different. It’s disappointing, but it’s fairly predictable.”

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