Why don’t people need FDIC insurance?
95% of people we’ve spoken to at Eco fall in one of four groups. And for each of them, FDIC insurance doesn’t matter — but for a different reason! Here’s the breakdown.
People living paycheck-to-paycheck
As you might know, most Americans can’t come up with $400 in an emergency. As such, when deciding which financial service to use, they’re understandably much more concerned with how the fees, how quickly they can get access to their money, and how the service can help them make every dollar they earn go as far as possible. Given the above, FDIC insurance almost never comes up, and if it does, it’s at the bottom of their list.
Note that Square’s Cash App is not FDIC insured. If you’re thinking Cash App is just another peer-to-peer app like Venmo, think again. Jack Dorsey has said that a material part of their considerable traction (they’re at 30,000,000 users overall) comes from the previously under or unbanked in southern states, many of whom view Cash App as their primary account.
People with $5-40k in their bank accounts
Most in this group still live closer to “paycheck-to-paycheck” than you might think. They spend the vast majority (usually at least 80%) of their paycheck every month towards rent, transportation, food, health insurance, and other essentials. Their bank balance of $5k-40k sits in their account and doesn’t change much — since they aren’t materially saving or earning interest. We make a point not to push people on moving their whole bank balance to start earning at Eco right away. They usually start by using Eco for their monthly “money-in, money-out,” like they would have used cash back in the day. And with that volume, FDIC insurance doesn’t matter for them because it’s a relatively low dollar figure.
As these users see their rewards grow, they get curious about the deeper workings of the financial system and best practices — and we help them learn more. The more sophisticated they get, the more they want to move most of their money over to Eco — because they realize the opportunity cost of leaving money in their bank account is just too high. At the end of the day, it’s simply rational to have most of your money working for you, even if it means forgoing FDIC insurance on that part of it.
People aggressively invested into the stock market (sometimes crypto too!)
These people are already choosing to skip out on FDIC insurance in favor of trying to have their money work for them. They usually have as little in their checking accounts as possible. So the question never even comes up!
People who are affluent
The most financially sophisticated users are usually the easiest to convince. Most of them are accustomed to keeping large amounts of their money in brokerage accounts or in bank accounts that often far exceed the $250,000 FDIC limit per bank account, so those ones are more than happy to start using Eco.
The others in this group are a bit trickier. When we ask them “why are you comfortable keeping so much money in your brokerage and in bank accounts where the majority of the balance isn’t insured,” their response more often than not is simple: “if my banks go down, we have bigger problems.”
The biggest challenge in getting these people to sign up is actually getting them to believe that we’re able to sign up anybody else besides them to use Eco. This is because they don’t want to invest any time, energy, or money into a platform they don’t think will be around in a few years — their main concern isn’t the need for FDIC, it’s trusting their money with someone who will be able to build a sustainable business serving a broad swath of people. Since they hold a belief that most Americans won’t trust a solution without FDIC insurance, they’re skeptical of what we’re doing. Once we walk them through what you just read, they realize that they had a simple misconception — and sign right up.
At the end of the day, the vast majority of people we’ve spoken to don’t actually care about FDIC insurance for their own purposes — they just assume it matters for other people. There’s something funny and reassuring that the biggest objection to using Eco isn’t even a concern for themselves — it’s a concern for others!