Citizens Bank is changing up its direct deposit switch process

The Federal Reserve’s aggressive interest rate hikes throughout the majority of 2023 fueled a race for consumer deposits that pushed bank executives to offer competitive — yet costly — savings rates. But as predictions that the Fed will hold or cut rates in the first half of next year continue to persist, Citizens Bank in Providence, Rhode Island, is enlisting the help of its fintech partnerships to bolster the flow of incoming deposits.

The anticipated decrease in the price of deposits will be welcome to banks. Data from the Federal Deposit Insurance Corporation showed that the growth of deposit costs for the banking industry outpaced loan yields in the third quarter.

To help both retain existing customers and attract new ones, the $225 billion-asset Citizens began working with the New York-based payroll verification and direct deposit account-switching firm Pinwheel earlier this year on adopting its tools for simplifying the process of moving paycheck disbursements to Citizens accounts.

Consumers accessing the bank’s online banking platform are prompted to search for their payroll provider through the Pinwheel integration, which uses a permission-based API to match and confirm details such as Social Security and telephone numbers between the two databases. After completing a multi-factor authentication, which substitutes the need for a second set of login credentials, customers can choose a different account to fund.

While a partnership between Pinwheel and the payroll provider isn’t necessary for consumer access, banks that want to use Pinwheel’s deposit-switching tool have to be Pinwheel customers.

The ability to streamline this process has “long been talked about” across the industry, as part of reducing the friction points during the “early days of building a relationship with the clients,” said Chris Powell, executive vice president and head of consumer checking and deposits at Citizens.

“Historically, banks were hanging their hat on the fact that it was harder for a customer to move from ‘Bank A’ to ‘Bank B.’ … In today’s environment, you can transfer those funds and move your direct deposit over with a couple of clicks, giving customers a greater level of choice,” Powell said.

Powell explained that where consumers keep their deposits is a “direct sign of trust” in their financial institution of choice, and winning that initial business can promote the use of debit products and other services. Citizens Bank also debuted a similar ability for business banking clients interested in opening their own accounts in October.

“As we look at the competitive environment, it behooves us to make sure that we’re at the forefront of providing customers with that flexibility and choice so that as they look at different providers, they could consider that we become the one that they ultimately choose,” Powell said.

Firms specializing in offering DDS tools, which include Clickswitch and Atomic in addition to Pinwheel, are not new to the marketplace. But the turmoil generated by this year’s banking crisis saw consumers flock to other institutions like credit card issuers and credit unions offering stability and attractive rates. 

This dynamic could be further empowered by the Consumer Financial Protection Bureau rule implementing section 1033 of the Consumer Financial Protection Act of 2010, which would require financial institutions offering products such as checking accounts and credit cards to permit customers to share or transfer their personal data to other organizations. Data points include transaction amounts, payment types, account balances and more.

Brian Karimi-Pashaki, partnerships lead for Pinwheel, explained how the incumbency created from the difficulty in moving funds from one institution to another would be disrupted if the CFPB’s proposal is approved, creating competition that benefits consumers and the firms that help facilitate the moves.

“As it becomes easier to switch, banks are going to have to fight harder to win your business by offering higher rates for savings and lower rates for borrowing and better product experiences that you would see more often from fintechs,” Karimi-Pashaki said.

Pinwheel, which works with organizations like Plaid and American Express, formally announced its partnership with the Dallas-based payroll provider OneSource Virtual in November as part of the proliferation of open banking concepts. The collaboration is set to go live sometime this month.

But challenges still persist on the technology side when it comes to building the connections between financial institutions and providers like OSV and many others.

Don Weinstein, former chief product and technology officer of ADP, said the number of banks, credit unions and other challenger institutions in the market when compared to payroll companies means that the larger players are increasingly selective about which organizations are granted access to their data — especially when it concerns startups.

This “many to many” courting problem, which requires a significant amount of time and money to sustain, showcases the value of intermediaries like Pinwheel to serve as a single integration point rather than multiple.

“We’re all chasing the same thing, which is financial institutions wanting to make it as easy as possible to capture the direct deposit, and the providers who want to make it as easy as possible for the consumers to get the direct deposit in place,” Weinstein said.