Startup Aspiration takes on big banks

Online bank positions itself opposite Wells Fargo

By Matt Egan, CNN Business

Aspiration Bank attempts to compete with banking giants.

MARINA DEL REY, Calif. - An online bank backed by Leonardo DiCaprio is luring hundreds of thousands of Wells Fargo's customers by promising to be the opposite of the scandal-tarred big bank.

Aspiration is specifically marketing itself as an alternative to dissatisfied Wells Fargo customers. The California startup has a website urging customers to "switch banks from Wells Fargo" to save money and be with a lender they can trust.

Unlike Wells Fargo, which sparked national controversy by admitting it charged overdraft fees to customers for accounts they never signed up for, Aspiration allows customers to pay any fee they want — or no fee at all. Environmentalists have criticized Wells Fargo for financing controversial oil pipelines. Aspiration is trying to help save the planet by offering fossil-fuel free accounts.

Aspiration's strategy of positioning itself as the anti-Wells Fargo is working: It has gained than 1.5 million customers since launching in 2015. The company told CNN Business that more than 200,000 Wells Fargo customers have signed up for Aspiration. It's unclear how many of those customers remain with Wells Fargo.

"People are looking for something different than a bank like Wells Fargo," Aspiration founder and CEO Andrei Cherny told CNN Business from the sidelines of last week's Fortune Brainstorm Finance conference in Montauk, New York.

'Fed up with big banks'

Cherny, a former financial fraud prosecutor who helped Senator Elizabeth Warren launch the Consumer Financial Protection Bureau, said the Wells Fargo situation put an exclamation point behind an inherent problem with banks' business models.

"Wells Fargo went over the line of what was legally allowed, but a lot of banks everyday tiptoe up to that line and sell products that customers may not need or want," Cherny said. "People of all ages — and especially young people — are fed up with big banks. There is this massive distrust of financial institutions."

Cherny, a Democrat who unsuccessfully ran for an Arizona Congressional seat in 2012, pointed to how banks make a lot of money through fees, everything from overdraft fees and ATM fees to monthly service fees.

At Aspiration, customers can choose their own fees and can opt not to pay one. "It's up to us to do such a great job that they pay us even though they don't have to. The great majority has chosen to pay," Cherny said.

The average ATM surcharge hit a record high in 2018 for the 14th year in a row, according to Bankrate. The average overdraft fee fell slightly last year, though it was still the second-highest in history.

Those fees generate significant revenue for lenders. Large banks charged consumers $11.45 billion in overdraft and non-sufficient fees in 2017, according to a report by the Center for Responsible Lending.

JPMorgan Chase reported lending and deposit-related fees of $6.1 billion in 2018, representing about 11% of its total noninterest revenue.

Rather than fees charged to consumers, Aspiration says it makes money off the spread around interest rates and interchange, the charge that retailers pay banks when shoppers pay with a card.

Other challenger banks are trying to seize on the backlash against fees.

For example, fintech startup Chime doesn't charge overdraft, service, transaction or minimum balance fees, though it does charge some out-of-network ATM fees. Chime says that over the past year it has quadrupled its accounts to 4 million and recently attained a $1.5 billion valuation.

"These institutions have become too large and reliant on fee income. It will be hard to get stakeholders to wean off of that. It's almost like a drug," Chime CEO Chris Britt told CNN Business.

Wells Fargo still has 24 million checking customers

Wells Fargo declined to comment directly on a competitor, though the company underscored its philanthropic efforts and pointed to its recent retail banking metrics.

The bank has apologized for the series of scandals that have rocked the company, including the creation of millions of fake accounts and charging customers for auto insurance they didn't need. Wells Fargo has removed the sales goals that drove employees to create fake accounts and clawed back millions in pay from senior executives.

Wells Fargo recently pledged to commit $1 billion in philanthropy through 2025 to address the US housing affordability crisis, including homelessness. The bank said it plans to give away 2% of its after-tax profits.

Wells Fargo has not experienced a sharp decline in customers. The bank listed 23.9 million primary checking customers as of the end of the first quarter. That's up 0.3% from the end of 2018, though it's down from 24 million at the end of the third quarter of last year. Part of that decline was due to Wells Fargo's sale of 52 branches. Wells Fargo said that its customer surveys of branch experiences hit a three-year high in March.

Fossil fuel-free bank accounts

Aspiration is not just trying to make inroads with dissatisfied Wells Fargo customers. The online bank wants to appeal to people worried about climate change by launching a cash management account that ensures customer deposits will be 100% fossil fuel-free. To do that, Aspiration holds the deposits in a network of FDIC-backed banks that don't lend to fossil fuel projects. Cherny said these are mostly smaller community banks.

Aspiration also rewards customers for shopping at businesses with strong environmental and employee practices. And the company allows customers to track their sustainability score based on their spending habits.

"A lot of people are looking to be part of the solution," Cherny said.

In March, DiCaprio, the actor and environmental activist, became an Aspiration investor and a member of the board of advisors.

"To bring about long-term solutions for our planet, we need alternatives that empower everyday consumers to take action against climate change," DiCaprio said in a statement at the time.

For its part, Wells Fargo has acknowledged the risk from climate change and calls itself a leader in financing environmentally friendly projects.

"Climate change represents one of the greatest challenges of our time, but it also represents a tremendous opportunity — to work together to help our customers, communities, and business thrive," Wells Fargo said in a statement on its website.

Aspiration isn't for everyone

But Aspiration isn't just trying to save the planet.

The bank also promises to give away 10% of its profits to nonprofits. And Aspiration pledges that deposits never go toward funding firearms. Aspiration offers customers a mutual fund, the Aspiration Redwood Fund, that is 100% fossil fuel free and 100% firearm free.

Cherny conceded that Aspiration's stances risk alienating parts of the country, especially those who work in the fossil fuels industry or own guns.

"If you disagree with Aspiration on an issue like climate change or stopping the flow of guns, you're probably not going to come to Aspiration," he said. "We're going to be a home for people who share those values and want to reflect that."

Correction: An earlier version of this report misidentified Leonardo DiCaprio's role with the company.

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