As consumers, we can probably agree that bank profits are, well, gross. In the second quarter of this year alone, U.S. lenders wrung a record $43 billion from their customers.
It’s the kind of stat that a small but growing two-year-old, L.A.-based investment company called Aspiration is increasingly using to gain new customers. In the words of cofounder and CEO Andrei Cherny, Aspiration aims to be a “Merrill Lynch with a conscience.”
So far, the company is walking the walk. After toiling quietly for a couple of years to receive the necessary approvals, Aspiration now has its own low-risk mutual fund (managed by Emerald Asset Management on the East Coast) that its clients can begin funding with just $500.
Users don’t have to pay any management fees, either – zero – though they can opt to pay up to 2 percent of their assets under management if they so choose.
Aspiration also offers completely free checking and free ATM transactions, though again, customers are invited to pay for the service – up to $6 per month — if they see fit.
It’s a pretty good deal, Cherny argues persuasively. Not only do customers enjoy being freed from onerous transaction fees but Aspiration pays 1 percent interest on checking accounts, while most traditional banks are currently paying out between .20 percent and .80 percent interest.
As if that weren’t enough, Aspiration is also donating 10 percent of its revenue to Accion, the largest nonprofit microloan provider in the country, so that more low-income Americans can start businesses.
How it will all work to create a profitable business for Aspiration is the big question, though Cherny insists it’s not much of a mystery.
For example, the company has partnered with 30-year-old, Boston-based Radius Bank on its checking product. Despite that some Aspiration customers may never pay a penny for their account, Radius can afford to rebate any out-of-network those customers incur because Radius loans the money in those checking accounts to customers wanting high-interest products like mortgages and other loans — same as any bank.
“When you put money in checking or savings, you aren’t doing your bank a favor,” notes Cherny. “Your bank is turning around and loaning it out at 3 percent and making a huge spread.”
It’s also important to note that Aspiration’s products “aren’t free,” says Cherny. “By no means is that true. We have people working hard on these products for our customers and we expect to be paid. But we believe we should be paid only if our customers feel that we’re delivering for them.”
As bizarre as it all sounds, the message is seemingly starting to click. The 16-person company – which recently closed on $15.5 million in Series A funding led by the Chinese social network Renren – says 90 percent of its customers are paying for its products and services. “If you act in a way that’s deserving of people’s trust, they respond,” explains Cherny. Indeed, it’s enough proof of concept that the company is preparing to roll out a third, sustainable-investments, product for its customers very soon.
And while it’s still early days – Cherny says Aspiration’s assets under management have just passed $5 million – he says user numbers are growing quickly, thanks mostly to social media and customer referrals.
Specifically, he says Aspiration had 700 customers two months after officially launching in April of this year and that it’s been “doubling” that user base “every six to eight weeks since then.” (That’s a tiny drop in the bucket compared with, say, the 70 million customers of Wells Fargo, but you’ve got to start somewhere.)
For what it’s worth, Cherny isn’t your run-of-the-mill founder. Certainly, he doesn’t take lightly equal opportunity, which Aspiration says it aims to provide to middle-class Americans, more and more of whom have been leaving the stock market over the last 15 years.
In 2000, at age 25, he was profiled in the New York Times for his long obsession with policy. (The piece noted that “by his senior year at Harvard, Mr. Cherny was writing speeches for President Clinton. A week after graduation, he became a senior speech writer for Vice President Al Gore.”)
Cherny also played a role in the launch of the Consumer Financial Protection Bureau, helping then-law scholar Elizabeth Warren in 2007 hone the idea of what the agency would later become. You can read about those efforts right here.
More recently, Cherny spent four years as a criminal prosecutor and Arizona Assistant Attorney General, even running for Congress in 2012 with the campaign slogan, “Save the middle class.” (He lost the Democratic primary.)
Cherny sounds just as passionate about the opportunity he’s tackling today.
“We’ve seen a lot of companies that are for-profit companies with a real social mission, and we’re bringing that to financial services,” he says. With its “greed-is-good ethos,” he adds, “it’s probably the industry that needs it most.”