Fidelity making strides as alternative to banks

Services, lack of fees spur accounts to $3b

When Fidelity Investments decided to move aggressively into consumer banking, it didn’t do so subtly. In a marketing paper issued for customers earlier this summer, the firm wrote, “Do you really need a bank?”

The Boston-based investment giant has been at this since 2007 but is lately touting itself more actively as an alternative to traditional banks, with high-tech services, debit cards, and no ATM fees.

Fidelity customers now have about $3 billion in cash management accounts — up 46 percent from a year ago, the company said. That’s bigger than many community banks, like Cambridge Savings Bank or East Boston Savings Bank. And it’s a direct assault on large national banks known for pelting their customers with fees.


John Bonnanzio, editor at Fidelity Insight in Wellesley, a newsletter that tracks Fidelity, said the goal for Fidelity is ultimately to encourage people to invest more with the firm. “It’s always about, ‘Where else do we get people’s money?’ ” he said.

Fidelity doesn’t have a banking license, and, so far, it hasn’t needed one. It’s capitalizing on trends in remote banking, with more people paying bills online and using mobile devices to transfer funds and even deposit checks.

When it comes to the one thing everybody needs, cash from an electronic machine in a bank or on a street corner, Fidelity simply reimburses its customers for using other institutions’ ATMs.

That cost the company $3.8 million last year. But it’s a modest sum compared with maintaining branches and paying to staff them and keep them secure.

Sam McLimans, head of Fidelity’s cash management program, acknowledges that the ATM expenses are rising as the business grows, but, he said, “we feel very comfortable” with the offering.

Other investment firms have similar strategies, including Charles Schwab Corp., the big San Francisco brokerage firm, which has $11.4 billion in its customer checking accounts; Etrade Financial Corp.; and others. What they have in common is many services for free: online bill payment, ATM reimbursement, and check writing.


Schwab has an in-house bank for these services. Fidelity must put its customer deposits into bank accounts overnight so the money is protected by the Federal Deposit Insurance Corp., up to $750,000.

And as Fidelity battles for market share with other investment firms, it’s clearly trying to appeal to younger workers before they have other financial relationships and complex transactions that can make changing institutions a headache. There’s no minimum deposit to open a cash management account at Fidelity.

“We’re actually beginning to see the young investors come to Fidelity and opening the Fidelity cash management account through direct deposit with their employer,’’ McLimans said.

If the goal is to groom big investors over time, Fidelity is emphasizing the no-ATM-fee aspect of its account to attract customers. In an unusually playful approach, the firm made a marketing video poking fun of ATM fees.

Beth Healy can be reached at bhealy@globe.com.