Aspiration CEO: Big Banks’ ‘Bad Decision’ Is My Gain

When Bank of America announced last week that it was terminating its free checking option for low-balance customers, a literal Tweet storm broke out.

The new program, first launched in 2010, was a digital-only offer for customers with low-balance checking accounts. The rules were simple: Consumers had to (a) have $250 direct-deposited each month into their account and (b) transact with the bank in a purely digital fashion (with no physical branch privileges) in exchange for a free checking account. An $8.95 fee was charged each month that the digital customer opted to use a bank branch for services or if they did not make the direct deposit.

The program was intended to compete with the “digital only” banks popping up at the time. Three years later, in 2013,  Bank of America stopped enrolling new customers in the program.

Last week, the bank shut down the program completely.

Bank of America’s response to the barrage of complaints was to guide the e-account customers to their Core Checking account, which they claimed offered a “great value.”

“Our Core Checking account provides full access to all our financial centers, ATMs, mobile and online banking and offers several ways to avoid a monthly fee, including a monthly direct deposit of $250, which equates to $3,000 annually,” Betty Riess, a Bank of America spokeswoman, told CNBC. “This is one of the lowest qualifiers in the industry — and a great value.”

Customers can also keep a daily balance of $1,500 to avoid fees. Those who do not meet those criteria will pay a $12 monthly fee.

The move, apart from causing outcry among customers, also raised the ire of lawmakers. Maryland Representative Elijah Cummings and California’s Representative Jimmy Gomez, in an open letter to BoA CEO Brian Moynihan, said that many low-income American families rely on the account. They also questioned the move in light of the lift BoA received from last month’s federal legislation, which slashed taxes for corporations.

But for all the complaining, according to Aspiration Bank CEO and co-founder Andrei Cherny, eliminating free accounts – and raising the fees on existing accounts – is just standard operating procedure for all of the nation’s largest retail banks.

“They feel like they can just charge customers whatever they want because it’s too much of a hassle to switch banks,” Cherny told PYMNTS in an interview.

The problem with that thinking, according, to Cherny, is that it is out-of-date – and customers have more choices than big banks think they do.

“More and more consumers are switching to better options,” he noted.

Free to Be Free

Cherny said that in the land of digitization of everything, including financial services, many players have quickly learned that their customer base was not nearly as captive as they thought.

“From working in the White House during the Clinton administration and as a financial fraud prosecutor before founding Aspiration, I found that one of the best ways to make a change is to move your money to companies that are doing the right thing. Americans spend $32 billion a day and that’s a hugely powerful lever that we can be using,” he said.

He offered taxis and travel agents as examples of industries who got too comfortable and soon found their customers fleeing to other, better, more modern, easier-to-use services – Uber and Expedia, to name just two. It wasn’t long before consumers pulled that spending lever rather suddenly and disruptively, Cherny said.

It’s a lesson that he believes banks will have to learn as well – because their customers are getting better offers from institutions that are also FDIC-insured, and that also offer a full suite of financial services online.

“Consumers are no longer willing to pay for the privilege of allowing someone else to hold and invest your money – and to do it in a non-transparent way,” he said.

The Change.org petition imploring Bank of America to change its ways got about 40,000 signatures and a lot of media play. But Aspiration, their CEO noted, got something even more valuable:

A giant mass of Bank of America’s customers.

“It’s absolutely an opportunity for us. We’ve directly targeted Bank of America customers upset about this news at www.aspiration.com/movefrombofa. As of today, over 25K customers have made [the] switch from Bank of America to Aspiration.”

Who They Serve

Cherny noted that while his firm serves all demographics of customers, millennials tend to be their largest audience. Their average customer is 32, and by and large people who have already migrated to digital banking – and almost never use tellers.

And – as Aspiration’s data demonstrated – as a demographic, they also distrust big banks. Their survey data, released in the wake of the Wells Fargo scandal, suggested that American consumers trusted big banks less than they trusted Charlie Sheen and Tiger Woods.

Cherny said that means big banks are losing an entire generation of Americans – only because they choose to charge high fees, not because they have to.

A better option, which is Aspiration’s model, is also fee-based, but the fees are chosen by the customer. Aspiration’s checking and investment accounts are based on a “Pay What Is Fair” model, meaning the customer can choose how much to pay, even if it’s zero.

Cherny noted that consumers don’t choose that option nearly as often as one might think.

“The vast majority of our customers consistently choose to pay – which is quite a big difference than having a bank force them to pay,” he emphasized.

Consumers make that choice, Cherny said, because Aspiration as an enterprise supports the goals that the bank is built around, including donating 10 percent of every dollar earned to charity, offering sustainable banking and investing options and offering checking accounts with 1 percent interest.

“We also allow customers to see if they’re shopping and spending ethically with our checking account’s Aspiration Impact Measurement (AIM) feature,” Cherny noted.

Because, according to Cherny, the digital era is about choice. He said that Bank of America made a bad choice about charging because they have underestimated how much choice customers really have, and how they are willing to overcome a little hassle to access it.

As of today, Cherny noted, 25,000 Bank of America customers have access to that choice – and he has a feeling there a lot more like them headed Aspiration’s way.