From cars to credit cards, mortgages and investment accounts, Ally Financial is gradually trying to earn a larger share of its customers’ banking business.
Now that the bank has added on offerings from the handful of acquisitions it completed over the last five years, it’s ready to shed its auto-centric reputation, said President Diane “Di” Morais.
“We’ve been diversifying and scaling the business to have this full complement of digital-first offerings under the Ally brand,” Morais said.
Since Ally spun off from General Motors in 2009, the company has made acquisitions in areas including online trading, lending and, most recently,
The business model Ally uses is classic online retail banking: “We take all the economics that go into buildings and pass it onto our customer through rates,” said Chief Financial Officer Jennifer LaClair. “That’s how we can afford some of the best savings rates in the country.”
The concoction of economic factors that are influencing the market right now — inflation, rising interest rates, market volatility and the effects of the pandemic stimulus payments — could mean better times ahead for online banks than incumbents, said Aaron Fine, a partner at the financial consulting firm Oliver Wyman.
“As rates go up, I’d expect the online banks that use rate as a key part of their value proposition will be able to attract more customers,” Fine said. “In this environment, I’d expect the bigger banks may lag more than they have in the past [in raising their rates for depositors] because they have so much of an excess of deposits on the balance sheet.”
The prize for online banks, he said, is replacing traditional banks as the center of customers’ financial lives, an idea that has become more plausible as innovations like mobile check deposit have gained greater acceptance among consumers.
“There's a real opportunity for digital banks to challenge for direct deposit, debit cards, the chance to have the whole relationship,” Fine said.
Ally plans to turn its high retention rate for its 10 million customers — “96% of our customers stay with us,” Morais said — into deeper relationships by encouraging checking and savings clients to use Ally Invest.
The wealth management arm, which grew from Ally’s
With individual investors experiencing whiplash from market volatility, digital banks that have robo advisors may find that their customers, many of whom have never experienced a market downturn aside from the relatively brief sell-off and immediate rebound of spring 2020, lose their taste for investing, Fine said.
“This could be the first real market test of how well the hands-off advisory works when the market’s not going up and people say, ‘Gee, this isn’t as much fun as when every time I check my portfolio it’s bigger than the day before,’ ” Fine said.
Online banks in this situation may see calls and chats balloon as customers seek help, or they may see clients withdraw their money from the markets and park it in savings accounts, he said.
Although Ally has expanded beyond car loans,
The company expects supply-chain woes to keep used-car prices higher than usual, although they won’t stay as expensive as they were during the height of the pandemic, she said: “Normalization will be more gradual in autos. Unemployment is incredibly low. People need cars to get to their jobs, and they can’t get them right now.”
That low unemployment figure has Ally fighting the ongoing war for talent just like the rest of the corporate world. The bank has given its 11,000 workers shares in the firm for the past three years, with what it dubs Own It grants. “We have made every single one of our employees an owner of the company,” including call-center and maintenance staffers, LaClair said.
One benefit of this program, in addition to motivation, has been spurring employees to become more financially literate, LaClair said: “They have to learn about dividends, how to think about a stock price. It’s been a driving force.”
This fits with several projects to encourage financial savviness among Ally customers and community members, including a series of children’s books about money. The bank hired a spokes-rapper, Detroit native Big Sean, to help judge a “Shark Tank”-style entrepreneurship weekend for 50 students at historically Black colleges and universities.
“He says, ‘Don’t be a rapper; be the agent, be a lawyer,’ ” said Andrea Brimmer, Ally’s chief marketing and public relations officer. Ally gives winning teams money toward their student loans as well as internships at the bank. (One intern group, working in the bank’s innovation lab, created a Minecraft-like game to teach financial literacy to teens.)
A big part of financial literacy is making budgeting choices with an awareness of what things cost. In consumer banking, much of the recent discussion has centered around fees that customers pay, with the Consumer Financial Protection Bureau cracking down on what the agency calls “junk fees.” That regulatory approach is generally good for consumers but could be problematic for banks. Still, Ally executives shrugged off the impact of cutting fees on the bank’s financial results.
Getting rid of overdraft fees was Morais’s recommendation last year, based on her prior experience at several big banks where overdraft is a larger part of the fee structure, including Bank of America, where she previously headed customer experience. “A lot of those companies leaned in very heavily on fees for income generation,” Morais said. “I saw up close and very directly the impact of those things.”
At Ally, by contrast, “punitive fees” make up 1% to 2% of the bank’s total revenue, said LaClair: “Eliminating overdrafts was not a big economic impact for us.”
In the future, Ally hopes to move further into what the executives call its purpose, perhaps by issuing ESG-certified debt. The bank is considering various alternatives — a green bond relating to electric vehicles, for instance — but has held off “because of the whole greenwashing trend,” LaClair said.
Although it’s easy to find a vaguely ESG-related goal to pin on nearly any kind of corporate offering, Ally would insist on tying the bond to an issue that the bank focuses on more broadly, like economic mobility, she said: “Can we teach people how to make a better trajectory for themselves?”
