Betterment's blast across bank bows

As I noted in an earlier post, banks and automated investment advisors largely have lived in two separate worlds. This is set to change as banks explore their robo options. In the meantime, it’s interesting to see robos treading on bank turf. Or, in the case of Betterment, poking the banks in the eye. The NYC based firm’s new SmartDeposit feature lets customers sweep excess cash into their Betterment accounts by letting them cap the amount they keep in bank checking. Here, “excess” refers not to cash used for everyday expenses, or to pay bills, but to dormant funds that might as well be kept in a sock drawer. While neither the sweep concept nor breadcrumb investing is new, such a frontal assault at bank checking accounts is remarkable. In terms of boldness, it’s akin to the rollout of money market funds in the 1970s. Retail banks already struggling to right-size their branch networks will not appreciate losing the dumb money that has propped up their bottom lines. In the big picture, Betterment is still a small player, and it’s unclear whether these kinds of raids will gain traction. But rather than cry foul, banks should step up efforts to build out their own robo platforms. Here as elsewhere, innovation is the best form of response.