Wells Fargo Scandal Pushed Customers Toward Fintech, Says UC Davis Study (nerds.xyz) 17
BrianFagioli shares a report from NERDS.xyz: A new academic study has found that the 2016 Wells Fargo scandal pushed many consumers toward fintech lenders instead of traditional banks. The research, published in the Journal of Financial Economics, suggests that it was a lack of trust rather than interest rates or fees that drove this behavioral shift. Conducted by Keer Yang, an assistant professor at the UC Davis Graduate School of Management, the study looked closely at what happened after the Wells Fargo fraud erupted into national headlines. Bank employees were caught creating millions of unauthorized accounts to meet unrealistic sales goals. The company faced $3 billion in penalties and a massive public backlash.
Yang analyzed Google Trends data, Gallup polls, media coverage, and financial transaction datasets to draw a clear conclusion. In geographic areas with a strong Wells Fargo presence, consumers became measurably more likely to take out mortgages through fintech lenders. This change occurred even though loan costs were nearly identical between traditional banks and digital lenders. In other words, it was not about money. It was about trust. That simple fact hits hard. When big institutions lose public confidence, people do not just complain. They start moving their money elsewhere.
According to the study, fintech mortgage use increased from just 2 percent of the market in 2010 to 8 percent in 2016. In regions more heavily exposed to the Wells Fargo brand, fintech adoption rose an additional 4 percent compared to areas with less exposure. Yang writes, "Therefore it is trust, not the interest rate, that affects the borrower's probability of choosing a fintech lender." [...] Notably, while customers may have been more willing to switch mortgage providers, they were less likely to move their deposits. Yang attributes that to FDIC insurance, which gives consumers a sense of security regardless of the bank's reputation. This study also gives weight to something many of us already suspected. People are not necessarily drawn to fintech because it is cheaper. They are drawn to it because they feel burned by the traditional system and want a fresh start with something that seems more modern and less manipulative.
Yang analyzed Google Trends data, Gallup polls, media coverage, and financial transaction datasets to draw a clear conclusion. In geographic areas with a strong Wells Fargo presence, consumers became measurably more likely to take out mortgages through fintech lenders. This change occurred even though loan costs were nearly identical between traditional banks and digital lenders. In other words, it was not about money. It was about trust. That simple fact hits hard. When big institutions lose public confidence, people do not just complain. They start moving their money elsewhere.
According to the study, fintech mortgage use increased from just 2 percent of the market in 2010 to 8 percent in 2016. In regions more heavily exposed to the Wells Fargo brand, fintech adoption rose an additional 4 percent compared to areas with less exposure. Yang writes, "Therefore it is trust, not the interest rate, that affects the borrower's probability of choosing a fintech lender." [...] Notably, while customers may have been more willing to switch mortgage providers, they were less likely to move their deposits. Yang attributes that to FDIC insurance, which gives consumers a sense of security regardless of the bank's reputation. This study also gives weight to something many of us already suspected. People are not necessarily drawn to fintech because it is cheaper. They are drawn to it because they feel burned by the traditional system and want a fresh start with something that seems more modern and less manipulative.
Corporate fines aren't necessarily working (Score:2)
Personal responsibility is what's needed. Fine the shareholders/owners and in bad cases imprison the board of directors.
If an owner is held personally responsible then it can bite harder.
If just the company is fined then it can be written off as operational loss.
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I don't think banks will want to try this one again, but as always you should only have limited trust in banks (that is, trust them as much as you trust FDIC and the law).
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Truly insignificant fines and consequences. Add a zero minimum to the financial penalties.
What WF management did was encourage, promote, and reward theft. And the employees seemed to, actually did, abandon even minimal ethics and knowingly cheat their customers. For money. Theft. Should have been jail time. And true crippling financial penalties for all involved. I doubt we can be certain the victims were even made whole, but pretending they were is part of the process.
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Buzzword (Score:1)
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Note that the Silicon Valley strategy of "move fast and break things" has serious drawbacks when dealing with people's money and health, and that's why we ended up with Theranos, Synapse, Wirecard, and FTX, and that's ignoring the actual scam companies, and not even touching on the code bugs which are plentiful in fintech (not just security bugs, also payment bugs).
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Doesn't have to be Silicon Valley. There are European fintech companies too, in particular neobanks.
The funny thing (Score:3)
Credit Unions (Score:3)
I bank at credit unions because I remember 2008. Fornicate the big banks.
I also find that a low fee treasury money market fund has better yield than most savings accounts or even CDs and is exempt from state income taxes.
The data doesn't support the claim. (Score:2)
Well, I have some bad news... (Score:4, Insightful)
To a darkly hilarious extent 'fintech' is more or less entirely regulatory arbitrage with a light skin of 'apps'.
Why use big banks (Score:2)
I have never understood people using big banks. I will admit I am not great with money, as opposed to all the self-proclaimed experts here on /. But one thing I think i am right about: I have always used community banks or credit unions for basic banking, by which I mean savings, checking, mortgage, and car loans. It is nice calling a guy down the street if you have a problem.
Disparaging an historic American institution (Score:2)
This still allowed?
Conducted by Keer Yang,
That don't sound like no 'Murrican name - he in the country legally?
What kinda grants we givin' this Californee university?