Retirees, Be Aware of the Dark Rules Behind Financial Apps

Long gone are the days when every financial transaction involved a trip to the bank. In fact, if you’re like many Americans, the tools you rely on to deposit checks, pay bills, and track your budget — all from the comfort of your couch — might not even belong to a bank. . Instead, you might be using a fintech app on your smartphone to manage your finances.

The number of older adults turning to fintech services is soaring. Seventy-nine percent of baby boomers used fintech last year, up from 39% in 2020, according to a survey by Plaid, a financial services technology firm. Many older users find the apps handy, according to the survey.

The applications are often those of neobanks, which are fintechs that offer banking services, although most neobanks are not banks. Customers are drawn to neobanks with the promise of no fees or for features that traditional banks may not offer. But neobanks and other fintechs operate in a regulatory gray area, with less oversight, which can sometimes leave customers in limbo if something goes wrong.

Beautiful Distinctions

Neobanks should not be confused with online-only banks, such as Ally Financial and Marcus of Goldman Sachs. Online banks are federally insured and offer the same deposit and lending services as traditional physical institutions.

Neobanks are not insured by the Federal Deposit Insurance Corp. and cannot legally hold deposits. Instead, they partner with an FDIC-insured bank, which holds the deposits and is usually the issuing institution of a credit or debit card. Although deposits are federally insured (up to $250,000 per account holder), this is still a neobank account, and it is the neobank that customers interact with for service or questions. .

The partner banks are supposed to control the neobanks, which may also be subject to state and federal supervision depending on the products offered. This oversight, however, is not as strict as for banks, which undergo routine reviews, including those of financial performance. “You have a certain level of protection and security with banks because of regulatory requirements,” says Vincent Hui, managing director of banking advisory firm Cornerstone Advisors in Scottsdale, Arizona.

This protection includes an established process for resolving a problem when, for example, a bank fails or customers cannot access their accounts. With neobanks, the processes are less clear. Customers of Chime, a neobank, found out when they couldn’t use their debit cards or temporarily access their money last year. Chime said it closed a slew of accounts, some of them by mistake, after detecting suspicious activity. Eventually, most filers seemed to resolve their issues by working with Chime, says Stephen Piepgrass, a partner in the enforcement, compliance and investigations group at law firm Troutman Pepper. Nevertheless, the situation has highlighted a murky area for neobank customers. “The Chime situation is a good example that there are always growing pains in new industries,” says Piepgrass.

Another fintech, Beam Financial, was banned from offering banking services after its mobile banking app, Beam, failed. The company had promised consumers they could transfer funds from their accounts within three to five business days, but requests sometimes took months to process.

Look for clues

Consumers often find it difficult to distinguish neobanks from banks. The company’s website should identify which one it is. Banks will indicate that they are members of the FDIC, while a neobank should note that they work with an FDIC-insured institution. The FDIC also lists insured banks in its directory; go to the FDIC’s “BankFind” tool to see if your bank is insured.

Another clue: a business that isn’t FDIC insured can’t call itself a bank. In fact, last year California regulators forced Chime to drop “bank” from its name. “You can’t use the word ‘bank’ unless you’re licensed and licensed to take deposits and make loans. This is to make sure consumers don’t show up at your door and assume you’re insured by the FDIC,” said Steve Reider, Chairman. of Bancography in Birmingham, Ala. Reider experienced this firsthand after Alabama regulators objected to the name of his banking consulting firm, which was originally spelled with a “k.”

If the company is a fintech, verify it the same way as any other company. “It’s safe if you do a little planning and commitment,” says Tom Kamber, founder and executive director of Older Adults Technology Services, which educates older adults about technology. Hui suggests doing a Google search on fintech and reading reviews from other customers. Also check that a particular company has the seal of approval from a trusted organization, such as AARP.

Some Fintech apps are aimed at retirees

Not all fintechs are neobanks. Some fintechs, like EverSafe and SilverBills, which are designed specifically to help seniors manage their finances, don’t offer banking services, such as checking accounts, so they don’t need a banking partner.

Karen Kali, senior program manager at the National Community Reinvestment Coalition in Washington, DC, says the EverSafe and SilverBills apps are great examples of products that could benefit seniors. While EverSafe monitors bank and credit card transactions for potential financial abuse, SilverBills helps users manage and pay bills on time, checking for fraud or errors.

Both apps are paid. Customers can choose from three tiers of EverSafe services, with the cheapest costing around $61 per year. SilverBills costs between $10 and $99 per month, depending on the plan. The tools can also be a way for caregivers to help an aging parent manage their finances remotely. “Given the prevalence of fintech apps and the number of older people living away from their families, it’s unrealistic to stay away from fintechs altogether,” says Kali.

Comments are closed.