Trust in financial institutions has yet to fully recover following the economic crisis of 2008, according to communications firm Edelman, which assesses global perceptions of industries like finance via its annual Trust Barometer. As scandals from banking giants like Wells Fargo and Bank of America rocked the news, trust decline in the U.S. between 2017 and 2018 was the steepest Edelman has ever measured. Younger generations are even less likely to trust large financial companies: In a 2018 World Economic Forum survey of 30,000 millennials, only 28 percent said they trust banks to be fair and honest.
As trust in big banks curves downward, emerging financial technology companies are making serious gains among consumers. One such firm is Aspiration, a Los Angeles-based online bank that launched in 2014 and recently landed on Fast Company's Most Innovative Social Good Companies list. The company's CEO and founder, Andrei Cherny, is a former financial fraud prosecutor who served as a speechwriter for Bill Clinton and a lead negotiator of Al Gore's Democratic policy platform—giving him a unique vantage point from which to view American financial policy and practice. “Through that mix of experiences, I saw that there was a fundamentally broken relationship between people and their banks," Cherny told 3p. "There was a misalignment of interests and misalignment of values.”
Generally, the worse things are going in a customer's life, the more money big banks stand to make—in the form of overdraft fees, late fees and service charges, Cherny explained. These fees make up nearly 40 percent of some large banks' revenue. In many cases, banks invest the fees—along with customer deposits—in projects that may come as a surprise to their stakeholders. For example, a 2016 report revealed that the world's largest banks invested nearly $800 billion in extreme fossil fuel projects like coal mining and tar sands exploration over a three-year period.
"We decided to build Aspiration to invent something that hasn't been done before—which is sustainable, socially-conscious consumer banking at a nationwide scale," Cherny said. "Solving for trust is one of our core principles." The company's fossil fuel-free commitment and pay-as-you-wish fee structure have proven a fast hit. Personal finance advisory firm NerdWallet chose Aspiration as one of its best checking accounts of 2019, ranking ahead of most major banks and all fintech firms, and the company now adds more than 100,000 new customers every month, Cherny said.
Could Aspiration's sustainability-first model be the secret sauce for revitalizing trust within the financial sector? We took a closer look to find out.
Data continues to show that consumer preferences now trend toward brands with a purpose beyond profit. In a 2018 Nielsen survey, for example, 81 percent of global consumers said they feel it's important for companies to implement programs to improve the environment. However, there's often a disconnect between survey findings like these and actual purchasing patterns—indicating that even well-intentioned people often struggle to assess the impact of their daily consumption habits.
Aspiration offers a fix for this—and Cherny and his team think it can prove to be a brand differentiator, as well as a trust-building mechanism for wary customers. The company launched AIM (Aspiration Impact Measurement) in 2017, a mobile tool that allows customers to track the impact of purchases made with their Aspiration debit cards. With a few clicks on the AIM tool, customers can view their daily sustainability score—based on employee and environmental metrics of the places they shop—and learn about similar businesses with higher scores.
"People spend $36 billion a day as consumers," Cherny said. "If all of us do more to make spending decisions with people and the planet in mind, that is a way to push companies to do better and to encourage those that are already doing what's right."
All of Aspiration's financial products are FDIC-insured and fall under the company's Pay What Is Fair fee structure—meaning customers can set their own fees or even pay nothing if they choose. "Trust is a two-way street," Cherny told us. "We’re asking people to trust us with their core financial life, and we need to be able to trust them to do the same."
Most of the bank's customers choose to pay, Cherny said, which comes as a surprise considering nearly 2 in 5 Americans find bank fees more bothersome than a trip to the dentist, according to a 2018 survey from NerdWallet. "What we found is that if you treat people fairly, they will treat you fairly as well," Cherny said. "It’s up to us to earn the fee. If they think we earned zero, we need to be doing a better job."
Launched today, the company's latest fossil fuel-free banking product builds on its existing model while bringing it to the next level, Cherny said. The Aspiration Spend and Save account offers up to 2 percent in annual percentage yield (APY) interest on deposits—twice the rate of the company's prior accounts and up to 200 times more than what's offered by America’s largest banks, according to Aspiration. Customers also receive unlimited cash back on their purchases and—in a first for the banking industry—get a cash-back bonus for shopping at businesses with strong employee and environmental practices. "It incentivizes people to make spending decisions with people and the planet in mind," Cherny told us. "I think that's something really historic."
Data indicates that younger generations are great at saving money—with over a third of them tucking away 10 percent of their salaries—but are often reticent to invest it. According to a recent study, more than 60 percent of Americans aged 18 to 39 consider investing in the stock market “scary” or “intimidating.” When younger Americans do invest, they're far more likely to choose socially responsible or impact investing products, TriplePundit reported last year.
These trends are consistent with what Aspiration has observed among its customers, said Cherny, who again cited the company's trust differentiators as a key driver among first-time investors. "The great majority of our customers come in through our banking services first, because most people who open accounts with us don’t have any investments whatsoever," Cherny said. "We see people then opening their first investment products with us, I think because of that relationship of trust."
Aspiration's retirement and investment products are fossil fuel-free and firearm-free. But, in addition to negative screens that remove problem industries from its portfolio, the company also uses positive screens to invest in more companies with high environmental, social and governance (ESG) scores. "It’s the kind of product that has usually been available only to higher-wealth clients, and we made available at a $100 minimum investment," Cherny said.
Along with its flex fee structure and commitment against fossil fuels, Aspiration donates 10 percent of its revenue to charitable causes and partners with groups like the Sierra Club to promote sustainable finance. To most in the traditional financial sector, removing fees and giving away money may sound like disastrous ideas that would hurt a bank's ability to remain competitive on the open market, but Cherny doesn't see it that way. "I think it makes us more competitive," he told TriplePundit. "When we first started, even something like sustainable investing was seen as a sideshow. People might pat us on the head and say, 'That's nice, but it's not real finance.' That has shifted over the past five years."
Unlike many other up-and-coming financial firms, Aspiration doesn't use a third-party sponsorship bank. Customers open their accounts directly with the company—putting it in a solid position as more people consider breaking up with their big-name banks in the interest of their values. "What we’re doing is helping to educate people who don’t really think about the fact that the money they deposit into an ATM isn’t sitting in a vault somewhere. It’s actually being lent back out, and in many cases being lent to industries that fly in the face of their own personal moral compass," Cherny explained. "This idea of banking with a conscience and thinking about where your deposits are going, which was even more of a sideshow early on, is now something that more and more people are thinking about in their daily lives."