How fees and other traditional banking drawbacks can undermine startup success
The days of traditional banking may be coming to an end. Startup founders are realizing that the downsides of incumbent banks often outweigh the benefits. And some innovators are even combating those drawbacks by creating their own financial services and banking platforms. Fintech startups are on the rise, and many are focusing their efforts on simplifying the banking process for their fellow entrepreneurs. With new technologies in digital banking, the financial industry may look a little different moving forward- and for good reason.
Hidden fees and clumsy platforms have allowed traditional financial institutions to take advantage of startup founders’ desperation when it comes to accessing money. Think of your brain like any other muscle, with limitations such as fixed cumulative decision-making capacity. Every day, your brain is drained by an estimated 35,000 decisions, reports the Wall Street Journal. When tired, it gets careless and looks for heuristics, or mental shortcuts. This is especially problematic for entrepreneurs, whose primary occupation is decision-making - and whose most valuable resource is time.
“Deciding everything from which pair of socks to wear to which candidate to hire is cumulatively exhausting” writes Deep Patel in Entrepreneur. Known as decision fatigue, this may ultimately cause reckless or impulsive decisions, diminishing a startup’s competitive advantage. Small distractors occur more than you think, and they’re often disguised as little mind games that leaves you feeling like you’re being thrifty in the face of large banks.
But the digital transformation has made it possible for financial services startups to fight back. Here are some drawbacks of traditional banking that cause startup founders pain, and the new products that are helping to ease it.
Juggling cards to squeeze every last reward
When you pull out a credit card to pay for a meal or a last-minute Amazon purchase, do you struggle to remember which card yields which rewards? One card offers perks on office supplies, while another gives cash back on gas. A third earns you points on travel. Are you trying to beat the system by juggling all three? Is it working?When it comes to your credit card, what you trade for maximalism you pay in mindshare. Three logins, three mobile interfaces, and three payments each month is a lot to remember - and, ultimately, a cognitive drain. And it may save you less than you think. An extra 1-2% in rewards on a $35,000 yearly spend (the average across all cards in the U.S. according to Creditcards.com) offers cardholders a mere few hundred dollars - at the cost of dozens of productive hours. And some credit card points programs are so delightfully addictive that 31% of Americans play the game (read: spend the time) without ever cashing in. Before you play the game, ask yourself if the savings are worth the headaches.
Maintaining multiple bank accounts and debit cards
Startup founders, whose new businesses often fall under the retail banking category rather than wholesale, are sometimes forced into bank sprawl. With different institutional requirements and limitations, they might spread their accounts across several service providers. And with each bank comes different passwords, ATM hunts, and regulatory constraints. All of this takes a toll on your ability to operate on autopilot.
Hidden bank fees: The worm in the shiny red apple
And then there are fees. How much time and energy do you spend addressing - and paying - fees? In theory, fees exist to guide consumer behavior. But of all institutions, traditional banks are notorious for using (and sometimes abusing) them. Overdraft fees prevent overspending; balance fees discourage repeated withdrawals; and out-of-network ATM fees prohibit competition. And then there are late fees, deposit fees, and ACH and wire transfer fees. So what are the long-term effects of these fees on startup founders? Dealing with petty bank fees can add up over time, tipping a founder toward making snap decisions. Lowering standards and accepting harmful financing terms are just a few examples of what founders will do to avoid or comply with fees.
Jumping through hoops to avoid a ten dollar fee
Most of us are prone to a behavior known as irrational loss aversion. We’ll make a bigger effort to avoid pain than we would to seek out gain. Nowhere is this clearer than in small fees. Entrepreneurs worth millions still sweat $10 monthly maintenance fees because they’ve been shoehorned into a banking system designed for consumers. In general, financial systems are full of seemingly arbitrary rules, most with a financial price.
Bank fees—and their resulting cognitive load —are generally not worth founders’ precious time. That said, a financial advisor might tell you to sweat the small stuff. Because a single percentage point can actually be worth half a million dollars over one’s lifetime. But your new business doesn’t have a lifetime. Most entrepreneurs are on a runway of 12-18 months. And every moment counts.
As an entrepreneur trying to secure venture capital and run a business, you don’t need the invisible hand of a big bank nudging you off course. Monthly fees chip away at more than your business checking account balance. They eat up your entrepreneurial mindshare, too.
That said, did you know you can just say no to bank fees altogether?
Avoid bank fees with new financial technology
The stress of bad banking isn’t always apparent - until suddenly it is. Luckily, new technologies are on the rise that aim to soften the decision fatigue of the banking industry. Fintech companies in Silicon Valley understand the pain points of existing banking services, and they’re coming to the rescue. Payment services like PayPal and Square are streamlining the process by eliminating the need for multiple credit cards and access points. Secure blockchain solutions are becoming more prevalent. And Brex is doing its own part by offering an alternative to existing banking systems: Brex Cash.
Brex Cash: The financial operating system we’ve all been waiting for
Similar to a checking account, but without the pesky application requirements or fees, Brex Cash gives you full, unfettered access to your money on a user-friendly mobile app. With a business model that prioritizes convenience for its entrepreneurial customer base, Brex Cash lets you access, move, and monitor your money from one central intuitive platform. And while other financial products penalize young businesses for transfers and spending, Brex Cash rewards its customers with cash back and points for every transaction. Plus, Brex offers small businesses competitive interest rates and lower costs, and helps boost company credit scores.
Look out, Goldman Sachs, Bank of America, and JPMorgan Chase: The new entrants are here, and they’re placing customer experience front and center.
Insured by the Federal Deposit Insurance Corporation (FDIC), Brex Cash is designed to help United States business owners spend their time - and money - wisely. No more quibbling over transaction fees, tracking down a branch to open each new account, or putting up personal capital just to get a restrictive debit card. No more worrying about enabling overdraft protection, fretting about monthly service fees, or sweating every time you use another bank's ATM. And no more blocking out days to manually pay bills, or relying on personal finances to build credit for your business.
Brex Cash is making the banking experience worry-free. With its intuitive mobile banking platform and streamlined integrations, we’re taking online banking to the next level. But don’t take our word for it; here’s what our entrepreneurial new customers are saying:
“I love how Cash connects with Card. The auto-setup feature lets me pay directly from my Cash account. Having Cash and Card in the same place is so convenient, and having a single account instead of separate checking and savings accounts just makes more sense.” - Anonymous
“Now everything coming in and out of your bank is synced and easily managed. I imagine a world where, at scale, if I’m in the Brex ecosystem, I don’t have to do bookkeeping at all. Everything is seamless. Cash is a step towards that future.” -Anonymous
“Brex provides me with peace of mind, letting me manage my company and employee expenses through a streamlined and intuitive UI. The rewards program is the best in the market, and caters its cash back to expenses that are actually relevant to startup companies.” -Alon Grinshpoon, echoAR co-founder and CEO
Brex gives its customers what they want: Real-time low-cost banking
Startup founders are already some of the most stressed individuals in the world. Managing payment systems, balance sheets, capital markets, and VC and non-bank funding, they have enough to worry about. Google the repercussions of these large- and small-scale stressors, and you’ll see entrepreneurs don’t need any added inconveniences from their banking services.
And big data’s revealing the truth. In the wake of the most recent financial crisis, McKinsey surveyed consumer expectations of banking institutions. When asked what type of support they would like from their banks, 51% cited waiving late fees on credit cards or loan payments, and 42% prioritized reduced minimum payments on their credit cards. Several responded that they’d like the freedom to skip a loan or mortgage repayment for one month (30%) or be allowed to get a line of credit for themselves or their business more easily (26%).
Brex takes customer data like this and creates a banking experience that meets the needs of startup founders and small business owners. Eliminating fees and personal guarantees are just a few of the ways Brex is making founders’ lives easier. Brex charges no fees - ever. ACH or wire transfer? No transfer fees. Hefty payout? No withdrawal fees. Business trip to Europe or the United Kingdom? No foreign transaction fees.
As emerging fintech startups begin owning more and more market share, Brex Cash is improving banking so entrepreneurs can improve the world.