By Kate Young
What’s the bank marketer’s version of having a cake and eating it too?
It might involve presiding over a venerable local brand, known and trusted for its deep community roots—while also attracting deposits from across the country with a slick online offering.
Or it might mean maintaining a diverse range of loyal customers, while also capturing a niche market with messaging and imagery that’s entirely new and different.
It could even be the ability to offer both the intimacy of a small bank and the capabilities of a large bank.
Pull up a chair. It’s cake time.
It turns out that some forward-thinking community banks are using internet-only branches to reach wider geographic footprints, grow deposits or loan demand, or even experiment with new branding—without sacrificing their original brand or community identity.
What’s the difference between an internet-only branch and the online banking offered by a bank’s website or mobile app?
Unlike the online banking offered by most banks, an internet-only branch is accounted for in the bank’s core software (DCI) as if it were a separate branch of the bank. So instead of having physical locations with subordinate online capabilities, you have a fully-functional virtual location.
This is a particular advantage for community banks, because an internet branch has the potential to operate under the same charter as the original bank, while doing business as a very different brand.
In a recent profile of what might be the country’s most famous internet branch—Redneck Bank—Wade Huckabay, president of All America Bank, explained the predicament his institution faced over ten years ago: While the board recognized the need to attract depositors across the country, they suspected that their local identity and branding would not appeal to a national market. After generating 130 potential bank names and launching three internet branches with three distinct brands, Redneck emerged as the resounding winner. And the rest, as they say, is history.
Is an internet branch something every bank should consider? Robert Mendez, EVP at BankOnIT, works with community banks on a variety of IT solutions. He advised that “different banks have different goals and objectives. But many do need another way to interact more with the client.” He sees internet branches simply as the latest iteration in a long line of innovative delivery channels.
Assuming that internet branching is right for your bank, how can you replicate Redneck Bank’s success?
Huckabay shared a thought-provoking to-do list, and Mendez weighed in with a wealth of advice.
Here are the keys to launching a successful internet-only branch.
- Treat the internet division as a separate branch of your bank. Faced with the need to increase the customer base, Mendez explained, banks would traditionally look at opening new physical branches. “But an online branch can give you a greater reach. You can get to anyone who’s on the internet.” Although it is cheaper than building a new physical location, Huckabay cautions that you do need to be willing to dedicate sufficient resources. “This is your national branch,” he said. “Have a branch manager.”
- Make it easy to open accounts. Customers should be able to open accounts with nothing to sign, mail, or fax. This eliminates the need for a customer to have to come into the bank to complete the onboarding process.
- Offer a few desirable products. “Make it simple,” Huckabay advised. Checking, savings, and CDs should suffice for banks aiming to increase deposits. “The fewer products, the less complexity.” That will reduce risk and ensure better customer service. For banks looking to increase loan demand, Mendez suggests going after a niche market. “Community banks often have expertise in specific industries” such as doctors or dentists, he noted. An internet branch is an easy way to package specific messaging and products.
- Deliver on services. This is no place to skimp. Make sure you offer the full range of digital capabilities, including online and mobile banking, mobile deposit, bill pay, interbank transfers, electronic statements, debit cards, and bank-to-bank transfer.
- Open a call center. Huckabay pointed out that this is “the nucleus of your internet-only branch.” You must have real people answering the phone. Invest in professional customer service training, and make sure all staff know every aspect of the website, products, and services.
- Create a website loaded with information. A top-notch website will help minimize the number of phone calls fielded by your call center. Have every bank employee proofread the site. Include a strong Q&A section, and plan to revise the site on a regular basis.
- Be able to make changes to your website on the fly. While some changes will require an outside programmer, it’s more efficient to make website changes in-house whenever possible. It’s also critical that bank staff have the ability to post urgent messages to customers as needed.
- Automate everything that you can. “If required, purchase the software module for the new account to be automatically uploaded to your core system,” Huckabay recommended. “Not having this piece of software increases the chances for error—and takes too much time.”
- Pay attention to compliance. “Compliance needs to be at the top of the agenda,” Mendez said. Standing up a digital bank has similarities to creating a new bank. “You need to create a brand name, preferably get the name trademarked, and get it approved by the appropriate banking regulator.” And don’t forget all the other categories of compliance: IT, marketing, BSA, and consumer disclosure.
- Make security your paramount concern. Fraud is your biggest risk. “When you’re doing business in all 50 states,” Mendez pointed out, “you’re dealing with multiple time zones. You can’t treat your business like a nine-to-five operation. You’ve got to have bullet-proof security 24 hours a day.” This includes software to alert you of possible fraudulent activity, with processes and procedures for bank staff to follow up on items that need further review. Management also needs to have reporting systems in place and review reporting every day on activity and transactions. “Work through the possible scenarios, and make sure you have the infrastructure and support you will need down the road.”
“Bankers tend to be very risk-averse,” Mendez said. As with any product or service, the bank’s board must decide on the level of risk they are comfortable accepting. But this is an area where you can create an opportunity for your bank and tailor the risk to a level that fits the bank. “That’s the number one requirement,” Mendez added. “If it works—great. If it doesn’t, you’ve minimized your risk and can then learn from it.”