REPORT

Fintech adoption in
the United States: the
opportunity for banks
and credit unions

Ron Shevlin
Director of Research
Cornerstone Advisors

© 2020 Q2 Holdings Inc. All rights reserved. Reproduction of this white paper by any means is strictly prohibited.
 TABLE OF CONTENTS

Executive Summary 1

Overview 2

Person-to-Person (P2P) Payments 3

Neobanks 7

Savings Tools 9

Lending 12

Point of Sale Financing 12

Student Loans 15
Subprime Lending 18
Marketplace Lending 20

Fintech Adoption Index 22

The Bank and Credit Union Opportunity 23

Endnotes 25

About Cornerstone Advisors 26

About Q2 26

© 2019 Cornerstone Advisors. All rights reserved. Reproduction of this report by any means is strictly prohibited without written permission.
 EXECUTIVE SUMMARY
Despite the attention that leading fintech startups get in the press, actual consumer adoption is quite low.
Across a range of 50 leading startups, only a handful have reached 1% consumer penetration. Many bankers
know that and tend to write off the startups as potential competitors. But the adoption numbers obscure
the extent to which consumers would consider fintech startups if they were in the market for financial
products.

To measure the overall adoption of fintech among U.S. consumers, Cornerstone Advisors computed a
Fintech Adoption Index taking into account the percentage of consumers who have used a fintech startup
(including neobanks, savings tools, lender, robo-advisors, insurtech firms and international remittance
startups) or would consider one the next time they were in the market for a financial product or service.
The Fintech Adoption Index is a measure of the acceptance of fintech startups as alternatives or adjuncts
to traditional financial providers.

An index score of more than 85 indicates mainstream acceptance. For 2018, the Q2 Fintech Adoption Index
stands at 46%, with a wide variation by generation, ranging from 27% among Baby Boomers to 63% among
Older Millennials. At 54%, Gen Xers aren’t far behind Older Millennials in the index and are significantly
ahead of Younger Millennials at 37%.

Although many industry observers believe that fintech startups represent a disruptive force that will
ultimately drive established institutions out of the market, there is an alternative path—one that’s profitable
(and perhaps preferable) to both financial institutions and fintech startups: Partnerships with banks and
credit unions playing a central role. Many consumers—Older Millennials in their 30s and Gen Xers, in
particular—say they would definitely use a capability provided by their bank or credit union to integrate
fintech offerings.

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 OVERVIEW
Following the financial crisis of 2008 and the emergence of fintech startups, pundits predicted the death of
banks. Books with titles like The End of Banking and Bye Bye Banks? were published. To be fair, it wasn’t all
doom and gloom—at least the author of Bye Bye Banks? put a question mark at the end of his title.

But banks didn’t disappear, of course. The zeitgeist changed and the new mantra was bank/fintech
partnerships and we began to see publications with titles like Building a Better Bank Through Fintech
Partnerships and Global Payments: How Fintech Partners Are Helping Banks Transform. Few banks and credit
unions can effectively partner with a meaningful number of fintech partners, however-they simply don’t have
the resources and competencies to do.

Even if they did, where would they start? Which fintech startups are gaining traction in the market and are
worth partnering with? Do consumers even want their banks and credit unions to partner with fintech firms?
And if they do, how would those financial institutions integrate those fintech startups, from both a product
and technological perspective?

This report will help answer some of these questions. In Q3 2018, Q2 and Cornerstone Advisors surveyed 2,436
U.S. consumers between the ages of 21 and 72 who have a checking account and smartphone. We asked
about their awareness, use and future consideration of fintech startups, as well as their behaviors and attitudes
toward other fintech-related activities.

The objective of the study is to help financial services executives understand how deep fintech adoption and
penetration is, identify which consumer segments are using (or would use) fintech services, and what that
adoption and consideration means to banks and credit unions.

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 PERSON-TO-PERSON
PAYMENTS
Despite offering person-to-person (P2P) payment capabilities on their online banking platforms for years, few
banks and credit unions saw much digital P2P payment adoption. It’s little wonder: Who wants to pay $1 per
transaction to make payments? But that lack of adoption masked the account-to-account (A2A) transaction
activity consumers were engaging in.

Today, the percentage of consumers using their bank to make P2P payments exceeds that of the popular P2P
providers except for PayPal. Interestingly, across six of the most popular P2P payment methods, adoption
among Older Millennials is higher than it is among Younger Millennials. In fact, across the payment methods,
adoption among Gen Xers is nearly equal to that of the Younger Millennials (Table A).

TABLE A: Digital P2P Provider Adoption by Generation

Younger Older
Gen Xers Boomers All
Digital P2P Provider Millennials Millennials
(39-53) (54-72) Consumers
(21-29) (30-38

PayPal 38% 64% 55% 31% 48%

Bank 26% 37% 30% 15% 27%

Venmo 26% 34% 25% 10% 22%

Google Wallet 14% 20% 16% 4% 13%

Square Cash 16% 17% 15% 4% 12%

Zelle 11% 20% 14% 5% 12%

PopMoney 10% 10% 8% 2% 7%

SnapCash 11% 10% 7% 1% 6%

Source: Q2/Cornerstone Advisors survey of 2,436 U.S. consumers, Q3 2018

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 Consumers will rack up roughly $478 billion in P2P payments in 2018—63% of that going through their banks
or credit unions, either by A2A transfers, Zelle or PopMoney (Figure 1).

F IGURE 1: 2018 P2P Transaction Volume by Provider

2018 P2P Transaction Volume ($ in billions)

Bank/Credit Union $172.3

PayPal $141.8

Zelle $122.0

Venmo $64.2

Square Cash $30.8

Google Wallet $27.8

PopMoney $8.4

SnapCash $6.3

Source: Q2/Cornerstone Advisors survey of 2,436 U.S. consumers, Q3 2018

A key behavioral difference across the generations is the number of P2P providers they use. Roughly half of
consumers between the ages of 21 and 53 use three or more providers. In contrast, just about a quarter of
Boomers do so (Table B).

TABLE B: Number of Digital P2P Providers Used by Generation

Younger Older
Gen Xers Boomers
Number of Digital P2P Providers Used Millennials Millennials
(39-53) (54-72)
(21-29) (30-38

One 25% 16% 13% 33%

Two 24% 38% 38% 43%

Three to four 22% 25% 31% 18%

Five to six 29% 21% 19% 6%

Source: Q2/Cornerstone Advisors survey of 2,436 U.S. consumers, Q3 2018

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 Despite lower adoption rates among Younger Millennials and Baby Boomers (compared to the other two
generation segments), these two segments are accounting for higher dollar volume of mobile P2P payments
(Table C). Why? Two theories: 1) Younger Millennials split rent and utility bills and pay each other for that, and
2) Boomers are sending money for school, rent, etc., to their kids.

TABLE C: 2018 Digital P2P Dollar Volume per Person by Generation

Younger Older
Gen Xers Boomers
Digital P2P Provider Millennials Millennials All Consumers
(39-53) (54-72)
(21-29) (30-38

Bank/Credit Union $2,080 $1,469 $1,307 $2,395 $1,631

PayPal $1,660 $816 $857 $918 $943

Venmo $874 $523 $293 $345 $427

Zelle $49 $470 $328 $270 $326

Square Cash $66 $248 $146 $363 $205

Google Wallet $800 $107 $96 $157 $185

PopMoney $104 $40 $69 $21 $56

SnapCash $109 $36 $35 $28 $42

Total Digital P2P $5,742 $3,709 $3,131 $4,497 $3,815

Source: Q2/Cornerstone Advisors survey of 2,436 U.S. consumers, Q3 2018

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 Reports of Zelle’s P2P volume emphasize a higher dollar per transaction than Venmo.1 This is driven by the Gen
Xers and Boomers. Conversely, P2P dollars per Venmo transaction are larger among Millennials than among
Gen Xers and Boomers—supporting our theories about splitting rent and utility bills (Table D).

TABLE D: Mobile P2P Dollars per Transaction by Provider and Generation

Older
Younger Gen Xers Boomers
Digital P2P Provider Millennials
Millennials (21-29) (39-53) (54-72)
(30-38

Bank/Credit Union $130 $122 $131 $218

PayPal $151 $43 $71 $115

Venmo $175 $105 $73 $58

Zelle $25 $94 $164 $270

Square Cash $22 $83 $73 $121

Google Wallet $40 $54 $48 $157

PopMoney $52 $40 $69 -

SnapCash $55 $36 - -

Source: Q2/Cornerstone Advisors survey of 2,436 U.S. consumers, Q3 2018

WHAT
SO

Mobile P2P payments isn’t a winner-take-all game: Half of consumers below the age of 54 use three or more providers.
Banks and credit unions are getting a share of the pie—and the expansion of Zelle may further drive volume to financial
institutions—but they will have to operate in an environment where consumers make choices on which P2P provider to
use on a transaction-by-transaction basis, and will have to learn how to provide value in a multi-provider world.

In addition, the rise of Zelle as a P2P payment force shouldn’t surprise anyone. Much of the transaction volume
going through the network simply reflects a relabeling of the P2P volume that was already being transacted by
the member institutions.

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 NEOBANKS
The ratio of noise-to-activity was high when neobanks like Simple and Moven first appeared on the scene
nearly 10 years ago. After some early boasting (and repudiation) of customer adoption, things quieted down
for a while.

Neobank activity has (more) quietly picked up steam in recent years, however. BankMobile, launched in 2016,
is currently the largest neobank in the United States with roughly one million accounts and $800 million in
deposits (Figure 2). Deposits held at seven of the leading neobanks total $1.68 billion, about 0.014% of all
deposits held in U.S. banks.

F IGURE 2: Neobank Accounts and Deposits

Neobank Accounts and Deposits ($ in millions)

1,200,000 $1000
1,064,000
Bank/Credit Union $900
$172.3
1,000,000
$800
$802
PayPal $141.8 $700
800,000
Zelle 637,200 $600
$122.0
600,000 $500
Venmo 444,100 $64.2426,900
$400
376,300
400,000 326,800
Square Cash $30.8 279,500 $300
$293 $200
200,000 $222
Google Wallet $27.8
$20 $164 $100
$102 $77
PopMoney $8.4 $-
BankMobile Chime GoBank Simple MoneyLion Varo Money Moven

SnapCash $6.3 Accounts Deposits ($ millions)

Source: Q2/Cornerstone Advisors survey of 2,436 U.S. consumers, Q3 2018

The account and deposit number belie the interest certain consumer segments have in doing business with
neobanks, and the numbers may be surprising. After the recent launch of Greenhouse, Wells Fargo’s digital
bank, Peggy Mangot, the Wells Fargo executive in charge of the effort, said:

“The app’s target audience is younger consumers and students who are new to banking and learning
about personal finance and budgeting.”

She and Wells may be surprised. When asked about their awareness, use and consideration of seven leading
neobanks, it was Older Millennials and Gen Xers—not Younger Millennials—who expressed the most interest
and involvement (Table E).

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 TABLE E: Awareness, Use and Consideration of Neobanks

Have you heard of this firm? Do you have an Younger Older

Gen Xers Boomers
Neobank account with them? Would you consider them Millennials Millennials
(39-53) (54-72)
if you were in the market for a new bank? (21-29) (30-38

Not aware of this company 74% 65% 70% 89%

Aware, no account, WOULD NOT consider 20% 23% 19% 8%
BankMobile
Aware, no account, WOULD consider 5% 12% 10% 3%
Have an account with this company 0.5% 0.9% 1.0% 0.2%

Not aware of this company 78% 59% 69% 91%

Aware, no account, WOULD NOT consider 16% 29% 23% 7%
Chime
Aware, no account, WOULD consider 5% 11% 8% 1%
Have an account with this company 0.2% 0.6% 0.6% 0.2%

Not aware of this company 79% 69% 74% 91%

Aware, no account, WOULD NOT consider 16% 20% 17% 7%
GoBank
Aware, no account, WOULD consider 5% 11% 9% 2%
Have an account with this company 0.1% 0.5% 0.4% 0.1%

Not aware of this company 84% 70% 78% 95%

Aware, no account, WOULD NOT consider 12% 20% 15% 4%
Moven
Aware, no account, WOULD consider 4% 9% 7% 1%
Have an account with this company 0.1% 0.3% 0.2% 0.1%

Not aware of this company 78% 67% 75% 93%

Aware, no account, WOULD NOT consider 18% 24% 18% 6%
Simple
Aware, no account, WOULD consider 4% 9% 7% 1%
Have an account with this company 0.4% 0.5% 0.3% 0.1%

Not aware of this company 81% 72% 78% 95%

Aware, no account, WOULD NOT consider 15% 19% 14% 4%
Varo Money
Aware, no account, WOULD consider 4% 8% 7% 1%
Have an account with this company 0.2% 0.3% 0.3% 0.0%

Not aware of this company 77% 61% 71% 91%

Aware, no account, WOULD NOT consider 17% 26% 20% 7%
MoneyLion
Aware, no account, WOULD consider 6% 12% 9% 2%
Have an account with this company 0.3% 0.4% 0.3% 0.1%

Source: Q2/Cornerstone Advisors survey of 2,436 U.S. consumers, Q3 2018

WHAT
SO

The debut of neobanks was heralded as the death of traditional banks. That didn’t happen, of course. But consumers
have opened more than 3.5 million neobank accounts—in addition to their existing checking accounts. Why? Consumers
are “accessorizing” their checking accounts by adding, and often linking, accounts from neobanks (and, as we will see,
from savings tools) to take advantage of better debit card rewards, personal financial management features, and
higher savings rates.

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 SAVINGS TOOLS
As the interest rate on savings accounts languished near zero for the past few years, and as personal financial
management (PFM) tools focused on budgeting instead of helping consumers save money and optimize their
financial lives, new fintech savings tools emerged including:

• Acorns. Acorns takes “spare change” and invests it on behalf of its customers. The app encourages users
to invest their spare change using a system Acorns calls “round-ups.” Acorns monitors users’ accounts
and automatically invests the change from daily purchases.

• Debitize. Debitize makes credit cards behave like debit cards by automatically paying off credit card
purchases from the user’s checking account (although users can still use their credit cards even if they
lack the funds to pay off the purchase right away).

• Digit. Digit analyzes users’ spending behavior, determines how much can be safely saved, and then
automatically transfers small-dollar amounts from users’ checking accounts to Digit-managed accounts
on their behalf.

• Qapital. Founded in 2015, Qapital is a rules-based savings tool that enables users to set up rules—e.g.,
“Save a dollar every time I buy a coffee,” or “Save $2 any time I use a credit or debit card”—to help users
save more money.

• Stash. Stash trains people how to invest and save by doling out points and advice as they demonstrate
certain behaviors. The firm’s Smart Save savings account product analyzes users’ spending and earning
patterns and then automates savings on their behalf.

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 Across these five startups, consumers have opened roughly 7.2 million accounts. Users of these savings tools
will save about $5.6 billion in 2018 (Figure 3).

F I GURE 3 : Fintech Savings Tools Accounts and 2018 Savings

Savings Tools Accounts and 2018 Savings ($ in millions)

4,000,000 3,828,300 $6,000

3,500,000
$5,000
3,000,000
$4,000
2,500,000

2,000,000 $3,000
$2,297 1,745,700
1,500,000
$1,536 $2,000
1,000,000
606,300 525,000 503,300 $1,000
500,000
$1,411
$170 $176
- $-
Acorns Stash Digit Qapital Debitize

Accounts 2018 Savings ($ millions)

Source: Q2/Cornerstone Advisors survey of 2,436 U.S. consumers, Q3 2018

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 Similar to the neobank findings, Older Millennials and Gen Xers display higher consideration and adoption for
savings tools than Younger Millennials (Table F).

TABLE F: Awareness, Use and Consideration of Fintech Savings Tools

Have you heard of this firm? Do you have an Younger Older

Savings Gen Xers Boomers
account with them? Would you consider them Millennials Millennials
Tool (39-53) (54-72)
if you were in the market for a new bank? (21-29) (30-38

Not aware of this company 65% 49% 55% 77%

Aware, no account, WOULD NOT consider 15% 15% 13% 12%
Acorns
Aware, no account, WOULD consider 14% 29% 27% 10%
Have an account with this company 2.7% 3.5% 3.0% 0.85%

Not aware of this company 84% 74% 81% 96%

Aware, no account, WOULD NOT consider 12% 18% 12% 3%
Debitize
Aware, no account, WOULD consider 4% 8% 6% 1%
Have an account with this company 0.2% 0.5% 0.4% 0.0%

Not aware of this company 82% 66% 75% 94%

Aware, no account, WOULD NOT consider 13% 23% 17% 5%
Digit
Aware, no account, WOULD consider 5% 10% 8% 1%
Have an account with this company 0.3% 0.7% 0.4% 0.1%

Not aware of this company 81% 72% 79% 96%

Aware, no account, WOULD NOT consider 14% 18% 14% 3%
Qapital
Aware, no account, WOULD consider 5% 9% 7% 1%
Have an account with this company 0.3% 0.5% 0.4% 0.0%

Not aware of this company 71% 55% 62% 87%

Aware, no account, WOULD NOT consider 20% 30% 24% 9%
Stash
Aware, no account, WOULD consider 8% 14% 12% 3%
Have an account with this company 1.3% 1.2% 1.3% 0.3%

Source: Q2/Cornerstone Advisors survey of 2,436 U.S. consumers, Q3 2018

WHAT
SO

Fintech savings tools represent both threats and opportunities to banks and credit unions. On the threat side, these
tools often take funds out of one bank and put them in another. On the opportunity side, financial institutions may be
able to partner with, and integrate, these tools into their own offerings to expand their services offerings and keep the
money in-house.

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 LENDING
POINT OF SALE FINANCING

New players have entered the point-of-sale financing (POSF) market in recent years, bringing not just
digital capabilities to the table but new business models—platforms—to introduce efficiencies and
opportunities to the market (Figure 4).

F IGURE 4: The Point-of-Sale Financing Landscape

Source: Vyze

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 Despite the historical dominance of large banks and providers like Wells Fargo and Synchrony Financial in
this space, fintech startups like Affirm, Bread and GreenSky are gaining traction among consumers.

F IGURE 5: Fintech Point-of-Sale Financing Borrowers and Amount Borrowed in 2018 ($ in millions)

POSF Borrowers and Amount Borrowed in 2018 ($ in millions)

2,088,900 $5,000
2,000,000 $4,315

$4,000

1,500,000
$3,000
1,129,500

1,000,000
795,400 $2,000

500,000
$1,000
$391
$211

- $-
GreenSky Affirm Bread

Accounts Amount Borrowed in 2018 ($ millions)

Source: Q2/Cornerstone Advisors survey of 2,436 U.S. consumers, Q3 2018

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 Once again, awareness, consideration and adoption are highest among Older Millennials and Gen Xers—except
for GreenSky, which has attracted Younger Millennials (Table G).

TABLE G: Awareness, Use and Consideration of POSF Fintech Providers

Have you heard of this firm? Do you have an Younger Older

Gen Xers Boomers
Neobank account with them? Would you consider them Millennials Millennials
(39-53) (54-72)
if you were in the market for a new bank? (21-29) (30-38

Not aware of this company 81% 71% 76% 94%

Aware, no account, WOULD NOT consider 15% 19% 16% 4%
Affirm
Aware, no account, WOULD consider 4% 8% 8% 2%
Have an account with this company 0.3% 1.2% 0.6% 0.2%

Not aware of this company 84% 75% 78% 96%

Aware, no account, WOULD NOT consider 12% 17% 14% 3%
Bread
Aware, no account, WOULD consider 4% 8% 7% 1%
Have an account with this company 0.4% 0.7% 0.5% 0.0%

Not aware of this company 82% 72% 78% 94%

Aware, no account, WOULD NOT consider 12% 18% 15% 4%
GreenSky
Aware, no account, WOULD consider 4% 8% 6% 1%
Have an account with this company 2.3% 1.9% 0.9% 0.3%

Source: Q2/Cornerstone Advisors survey of 2,436 U.S. consumers, Q3 2018

WHAT
SO

Younger consumers are shifting payment behavior away from credit card spending (with unpredictable interest
payments) to point-of-sale financing (with more predictable payment streams). The result is a potential loss in
interchange revenue for banks and credit unions. As consumer loan growth has become a top priority for banks to
diversify their loan portfolios (which is currently over-weighted with commercial loans), POS lending provides the
portfolio diversification banks need.

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 STUDENT LOANS

Overall, digital student loan originations will more than double between 2016 and 2021, from $9.8 billion
to more than $22.8 billion. As a share of all digital loan originations, student loans will grow from 33.5% to
36.3% of the loan volume (Figure 6).2

F IGURE 6 : Digital Student Loan Forecast

Student Loan Digital Originations and Market Share ($ in billions)

$30.00 37.0%
36.3%
35.9%
$25.00 35.7% 36.0%
35.2%
$20.00 35.0%
34.3%

$15.00 33.5% 34.0%

$22.83
$10.00 $20.32 33.0%
$17.76
$15.11
$12.37
$5.00 $9.81 32.0%

$- 31.0%
2016 2017 2018 2019 2020 2021

Originations ($ in billions) Share of digital originations

Source: Q2/Cornerstone Advisors survey of 2,436 U.S. consumers, Q3 2018

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 Three fintech startups—each with a different business model—account for the lion’s share of the 2018
estimate (Figure 7). SoFi burst onto the scene a few years ago, targeting graduates of the elite universities
and focusing on helping them refinance their college loans. LendKey, on the other hand, has built a platform
for financial institutions to offer private student loans and refis. Originally a lender to Master of Business
Administration (MBA) students, CommonBond touts its social mission as a differentiator in the market.

F IGURE 7: Digital Student Loan Borrowers and Amount Borrowed in 2018 ($ in millions)

Digital Student Loan Borrowers and Amount Borrowed in 2018 ($ in millions)

489,100
500,000 $20,000

400,000
$15,000

300,000
$12,227
$10,000
200,000

105,000 $5,000
100,000
38,800
$2,100 $1,165
- $-
SoFi LendKey CommonBond

Accounts Amount Borrowed in 2018 ($ millions)

Source: Q2/Cornerstone Advisors survey of 2,436 U.S. consumers, Q3 2018

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 With a 2018 ad budget of $200 million, SoFi is generating awareness, consideration and members—37% of
Older Millennials and 32% of Gen Xers are familiar with the company (Table H).3

TABLE H: Awareness, Use, and Consideration of Digital Student Loan Fintech Providers

Have you heard of this firm? Do you have an Younger Older

Gen Xers Boomers
Neobank account with them? Would you consider them Millennials Millennials
(39-53) (54-72)
if you were in the market for a new bank? (21-29) (30-38

Not aware of this company 83% 73% 80% 96%

Common Aware, no account, WOULD NOT consider 13% 19% 14% 3%
Bond Aware, no account, WOULD consider 4% 8% 6% 1%
Have an account with this company 0.0% 0.0% 0.0% 0.0%

Not aware of this company 86% 70% 76% 95%

Aware, no account, WOULD NOT consider 10% 22% 17% 4%
LendKey
Aware, no account, WOULD consider 3% 8% 7% 1%
Have an account with this company 0.0% 0.1% 0.1% 0.0%

Not aware of this company 73% 63% 68% 82%

Aware, no account, WOULD NOT consider 20% 25% 22% 14%
SoFi
Aware, no account, WOULD consider 7% 11% 10% 4%
Have an account with this company 0.4% 0.4% 0.3% 0.0%

Source: Q2/Cornerstone Advisors survey of 2,436 U.S. consumers, Q3 2018

WHAT
SO

Talk of a student loan crisis often overlooks the distinction between federal and private loans. According to the Cleveland
Federal Reserve, the increase in earnings from going to college more than offsets the cost of student loan payments
for most borrowers. The business case for private student loans goes beyond the lending transaction, however.
Two-thirds of consumers who take out student loans from their primary bank or credit union add additional products
after the student loan, as did 60% of those who applied with an institution other than their primary institution.4

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 SUBPRIME LENDING

Fintech startups are stepping into a void left by credit card issuers: lending to customers with poor credit
histories. Three have gained strong traction in the market over the past five years (Figure 8):

• Avant. Loans through Avant are geared toward borrowers with low credit scores who want to consolidate
debt or need money for essential expenses.

• Elevate. Founded in 2005, Elevate offers three products: 1) Rise, a state-licensed online lender meeting
their needs responsibly with unsecured installment loans and lines of credit; 2) Elastic, a bank-issued line
of credit; and 3) Today, a Mastercard-issued credit card.

• LendUp. LendUp allows borrowers to earn points toward their next loan to access more money and lower
rates where available. Points are earned by responsible borrowing behavior, like paying the loan on time
and watching LendUp’s credit education videos.

F IGURE 8: Subprime Fintech Providers

Subprime Loan Borrowers and Amount Borrowed in 2018 ($ in millions)

$2,000
500,000

400,000 370,000 $1,500

332,500

300,000
$888 $1,000

200,000 $610

114,400 $500
100,000
$104

- $-
LendUp Elevate Avant

Accounts Amount Borrowed in 2018 ($ millions)

Source: Q2/Cornerstone Advisors survey of 2,436 U.S. consumers, Q3 2018

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 Among the three, Avant has particularly broad awareness among Older Millennials and Gen Xers, and, in
fact, roughly one in five members of those demographic segments say they would consider the fintech if
they were in the market for a loan (Table I).

TABLE I: Awareness, Use and Consideration of Subprime Lending Fintech Providers

Have you heard of this firm? Do you have an Younger Older

Gen Xers Boomers
Neobank account with them? Would you consider them Millennials Millennials
(39-53) (54-72)
if you were in the market for a new bank? (21-29) (30-38

Not aware of this company 77% 64% 68% 86%

Aware, no account, WOULD NOT consider 14% 14% 12% 8%
Avant
Aware, no account, WOULD consider 8% 22% 20% 6%
Have an account with this company 0.06% 0.10% 0.07% 0.01%

Not aware of this company 83% 71% 79% 96%

Aware, no account, WOULD NOT consider 9% 11% 7% 1%
Elevate
Aware, no account, WOULD consider 8% 17% 14% 2%
Have an account with this company 0.25% 0.38% 0.13% 0.04%

Not aware of this company 83% 70% 75% 94%

Aware, no account, WOULD NOT consider 10% 13% 10% 2%
LendUp
Aware, no account, WOULD consider 7% 17% 15% 4%
Have an account with this company 0.21% 0.25% 0.25% 0.10%

Source: Q2/Cornerstone Advisors survey of 2,436 U.S. consumers, Q3 2018

WHAT
SO

Banks have (understandably) avoided the subprime market but can participate via partnerships with fintech startups
in the space. Regions Bank, for example, has had a partnership with Avant since 2016. LendUp has partnered with
Beneficial State Bank to offer the startup’s L card.

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 MARKETPLACE LENDING

LendingClub and Prosper may be the granddads of the marketplace lending space, but in 2018, relative
newcomer LendingHome will facilitate nearly $1.7 billion to 6,700 borrowers on its platform—half the
expected dollar volume to be transacted on Prosper (Figure 9).

F IGURE 9 : Digital Marketplace Lending Providers

Marketplace Loan Borrowers and Amount Borrowed in 2018 ($ in millions)

1,000,000 946,000 $15,000

900,000
$11,824 $12,500
800,000
700,000
$10,000
600,000
500,000 $7,500
393,100
400,000
$5,000
300,000 $3,217
200,000 $1,675 $2,500
100,000
6,700
- $-
LendingClub Prosper LendingHome

Accounts Amount Borrowed in 2018 ($ millions)

Source: Q2/Cornerstone Advisors survey of 2,436 U.S. consumers, Q3 2018

© 2019 Cornerstone Advisors. All rights reserved. Reproduction of this report by any means is strictly prohibited without written permission. 20
 More than a quarter of Older Millennials and more than a fifth of Gen Xers would consider LendingClub if
they were in the market for a loan. LendingHome, with a narrow focus on home lending, would be in the
consideration set for roughly one in five Older Millennials and Gen Xers (Table J).

TABLE J : Awareness, Use and Consideration of Digital Marketplace Lending Providers

Have you heard of this firm? Do you have an Younger Older

Gen Xers Boomers
Neobank account with them? Would you consider them Millennials Millennials
(39-53) (54-72)
if you were in the market for a new bank? (21-29) (30-38

Not aware of this company 65% 57% 61% 70%

Lending Aware, no account, WOULD NOT consider 21% 16% 16% 17%
Club Aware, no account, WOULD consider 13% 27% 22% 13%
Have an account with this company 0.28% 0.63% 0.63% 0.48%

Not aware of this company 78% 64% 68% 85%

Lending Aware, no account, WOULD NOT consider 10% 16% 13% 10%
Home Aware, no account, WOULD consider 12% 20% 19% 5%
Have an account with this company 0.01% 0.00% 0.00% 0.00%%

Not aware of this company 80% 69% 75% 89%

Aware, no account, WOULD NOT consider 11% 12% 9% 7%
Prosper
Aware, no account, WOULD consider 9% 19% 16% 4%
Have an account with this company 0.29% 0.20% 0.30% 0.09%

Source: Q2/Cornerstone Advisors survey of 2,436 U.S. consumers, Q3 2018

WHAT
SO

Despite the press and attention marketplace lenders have received over the past few years, consumer intention to
borrow from leaders like LendingClub and Prosper is not significantly higher than it is for specialty lenders in the
POSF and subprime segments. This has caused the marketplaces to shift strategies and become platforms, providing
technology services for banks. Through the first half of 2018, banks accounted for 44% of LendingClub’s loan
originations.

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 FINTECH ADOPTION INDEX
To measure the overall adoption of fintech among U.S. consumers, Cornerstone Advisors computed a Fintech
Adoption Index taking into account the percentage of consumers who have used a fintech startup (including
neobanks, savings tools, lender, robo-advisors, insurtech firms and international remittance startups) or would
consider one the next time they were in the market for a financial product or service.

For 2018, the Q2 Fintech Adoption Index stands at 46%, with a wide variation by generation, ranging from 27%
among Baby Boomers to 63% among Older Millennials. At 54%, Gen Xers aren’t far behind Older Millennials in
the index and are significantly ahead of Younger Millennials at 37% (Figure 10).

F IGURE 10 : Q2 Fintech Adoption Index

Fintech Adoption Index

100%

90%

80%

70%
63%
60% 54%
50% 46%

40% 37%

30% 27%

20%

10%

0%
Total Younger Millennials Older Millennials Gen Xers Boomers

Source: Q2/Cornerstone Advisors

WHAT
SO

The Fintech Adoption Index is a measure of the acceptance of fintech startups as alternatives or adjuncts to traditional
financial providers. An index score of more than 85 indicates mainstream acceptance.

At a current score of 63, fintech is poised to become mainstream for Older Millennials by 2020. Although Gen Xers’
Fintech Adoption score isn’t far behind, we don’t expect to see as rapid growth and adoption for Gen Xers as we do
for Older Millennials.

We expect that many readers will be surprised at the relatively low index score for Younger Millennials. That will change
rapidly over the next few years as their financial needs become more complex and they start looking for more products
and services.

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 THE BANK AND CREDIT UNION
OPPORTUNITY
Why are so many consumers opening accounts and using tools from fintech providers? One survey found the
top reason to be the ease of setting up accounts (Figure 11).

FIGURE 11: Top Reasons Consumers Adopt Fintech Solutions

Top Reasons Consumers Adopt Fintech Solutions

Easy to set up account 43%

More attractive rates/fees 15%

Access to different products/services 12%

Better experience 11%

Better quality of service 10%

More innovative products than available from banks 6%

Greater level of trust than traditional institutions 2%

Source: Fintech Ranking

WHAT
SO

That doesn’t seem right. Consumers wouldn’t open neobank accounts, use savings tools, apply for loans and invest
their money in robo-advisor tools simply because those tools and accounts are easy to open. Instead, the more logical
explanation is that they’re looking to improve and optimize the performance of their financial lives.

© 2019 Cornerstone Advisors. All rights reserved. Reproduction of this report by any means is strictly prohibited without written permission. 23
 Banks and credit unions can play a role in consumers’ quest for better performance. As we have shown
throughout this report, the bank/fintech relationship can be symbiotic—not necessarily antagonistic or
competitive. Many consumers believe that, as well. One in four Older Millennials and one in five Gen Xers say
they would definitely use a capability provided by their bank or credit union to integrate fintech offerings
(Figure 12). And we believe that, over time, Younger Millennials will increasingly be interested in this capability
as their financial lives become more complex over time.

F IGURE 12: Consumer Interest in a Bank-Provided Fintech Integration Capability

If your primary financial institution made it easy to integrate fintech companies’ offerings with your
existing account(s), how likely would you be to use this capability?

100%
8% 10% 15%
90% 22% 25%
15%
80% 20%
70% 24%
28%
60% 33%
50% 51%
49%
40% 45%
33%
30%
37%
20%
10% 25% 21%
17% 17%
0% 5%
Younger Millennials Older Millennials Gen X Boomer All

I would definitely use it I might use it I probably wouldn't use it I definitely wouldn't use it

Source: Q2/Cornerstone Advisors survey of 2,436 U.S. consumers, Q3 2018

Financial institutions will need help to evaluate, integrate and operationalize fintech partnerships. The
megabanks can afford to hire teams of people to perform these tasks, but mid-size banks and credit unions
will need help from their core apps and digital platform providers.

JUMPSTARTING FINTECH PARTNERSHIPS AND COLLABORATIONS

Before turning to outside help, mid-size banks and credit unions can improve their ability to partner by
developing a digital strategy and—potentially—by creating a Chief Digital Officer (CDO) position. In How Do
Banks Interact with Fintechs? Forms of Alliances and their Impact on Bank Value, the authors of a study looking
into the fintech-partnering behavior of banks found that:

A digital strategy increases the number of bank-fintech interactions [a bank has] three to four times.
Employing a Chief Digital Officer increases the number of bank-fintech interactions by two to three times.

This isn’t to imply that appointing a CDO is a panacea. Instead, it means that having an explicit strategy for
tying fintech efforts to the overall business strategy and having organizational accountability for fintech
partnerships accelerates the collaborative efforts.

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 ENDNOTES
1
https://www.emarketer.com/content/zelle-will-overtake-venmo-in-2018

2
2017 US Fintech Landscape, https://www.snl.com/web/client?auth=inherit#news/docviewer?id=42877606

3
https://www.fastcompany.com/40539348/sofi-pays-premium-prices-to-acquire-its-prime-customers

4
Hornuf, et. al., How Do Banks Interact with Fintechs? Forms of Alliances and their Impact on Bank Value,
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3252318

5
https://ssrn.com/abstract=3252318

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 ABOUT
CORNERSTONE ADVISORS

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the So What? of the news, fintech trends, research and ideas impacting
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ABOUT
Q2
Q2 is a leading provider of secure, cloud-based digital banking solutions CONTINUE THE CONVERSATION
headquartered in Austin, Texas. Q2’s digital banking solutions are designed
www.q2ebanking.com
to deliver a compelling, secure and consistent user experience on any
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Have questions
about this report?

Contact:
Ron Shevlin, Director of Research rshevlin@crnrstone.com
Cornerstone Advisors 480.424.5849