Branching Out with a Branchless Bank

By Monica C. Meinert

The number of digital-only bank players in the market is growing. Challenger banks like Chime and Monzo have gained ground in recent years, and in response, many of the nation’s largest banks are now building out their own direct bank brands, including BBVA with Simple and Azlo, Goldman Sachs with Marcus and Wells Fargo with Greenhouse.

Spinning off a digital-only brand can have several advantages for the parent company. It can be another avenue for deposit gathering, a way for a smaller institution to move easily into new markets or a way to test out a new concept or product without disrupting existing customers or risking the bank’s reputation. It can also be expensive and—as was the case with JPMorgan Chase’s short-lived digital-only endeavor, Finn—not always successful on the terms under which it was launched.

Here are some insights from bankers and industry experts on how to get it right.

1. Let strategy guide you

Starting a digital bank is far more than simply standing up a new technology solution, says Rob Lee, EVP of digital and banking solutions at FIS. In fact, technology is often “the least complex and probably the least expensive” part of the process. Instead, it’s about answering the strategic questions first. “It’s things like: how do you position a separate brand? Will [your]customers expect to drive into the branch if they have a question? How do you market—what is the investment required?”

In 2014, Wyomissing, Pa.-based Customers Bank set out to bring to market a fee-free digital bank. “We were seeing consumers were looking for a more affordable banking experience,” says Luvleen Sidhu, co-founder, president and chief strategy officer of BankMobile, the direct bank brand that Customers Bank successfully launched in early 2015. Sidhu says that the goal from those earliest days was to give customers “a financial support system and partner” in their bank.

The bank recruited a team—a mix of seasoned industry veterans and younger, innovative thinkers—and gave them a clear mandate based around core several pillars, Sidhu says. First, the banking product had to be more affordable and easier to use than what was currently available in the market. It also had to have a revenue and growth model that was equal to—if not better than—the traditional bank model. Finally, Sidhu adds, “branches were illegal.”

With those strategic goals in mind, the innovation team got to work designing and building their new offering. The result was BankMobile: a retail-focused, digital-only bank that would complement Customers Bank’s largely commercial operation. Within the first year, BankMobile had close to 100,000 accounts; today, it’s opening close to 10,000 accounts a week for customers nationwide, Sidhu says.

2. Be unique

You’d be hard-pressed to find a digital bank that’s more unique—at least from an aesthetic point of view—than Redneck Bank, which was launched in 2008 by All America Bank and offers its customers a place “where bankin’s funner!

Visitors to the Redneck Bank homepage are greeted by whimsical farm animals that pop up and scurry across the screen amid signs for the bank’s product offerings—including the Redneck Rewards Checkin’ Account, which boasts a 3 percent APY—and a conspicuous assurance that “Yep! We’re uh real bonafide bank.”

If that makes you chuckle, you’re probably part of the bank’s target market, which All America Bank President Wade Huckabay says “was and still is customers with a sense of humor.”

But that humorous approach didn’t come overnight. “The leadership team had mixed emotions about the idea,” Huckabay recalls. What sold them, ultimately, was the knowledge that if the concept was a flop, they could shut the website down and re-brand with a different name, without endangering the reputation of All America Bank.

Redneck Bank was, of course, anything but a flop—and has continued to see year-over-year growth. “Our customers love it because it is a fresh, funny and happy website,” Huckabay says. “Existing customers forward the link to a friend, and show off their Redneck Bank debit card when buying something. This propels more customers without [us]having to spend advertising dollars.”

For Redneck Bank, it was the humorous appeal that brought customers in through the digital doors. For Surety Bank— a $125 million community bank which launched its brand Booyah! in 2019 in partnership with Nymbus—a unique, referral-based system targets a younger, tech-savvy crowd.

With a sleek, colorful website, Booyah! offers its users an opportunity to make money from customer referrals—each direct referral an accountholder makes to a friend (using a unique code) earns them $25. “Second-tier” referrals—where the referred customer then refers a friend—earn $10. Third-, fourth- and fifth-tier referrals pay slightly less.

Surety Bank President and CEO Ryan James explains that the referral structure is a powerful marketing tool, particularly with younger generations—who can refer friends to join the bank the same way they would to join Uber, Lyft or a food delivery service like Postmates. And at the end of the day, the word-of-mouth marketing helps boost the brand’s credibility, James adds. “Word of mouth holds so much credibility in the marketing world. That’s what you want: to have such a strong bank that individuals are telling their friends about [it].”

The most successful direct banks are typically those that offer a product or a solution that clearly differentiates them from the competition in a meaningful way, observes Rahm McDaniel, VP of strategic solutions for Q2 Open. (ABA endorses Q2’s digital banking platform.) A good question to ask is: “Does the direct bank actually solve a problem for the people who use it in the marketplace?”

That was the approach TransPecos Bank—a community bank in San Antonio—took with its subsidiary, BankMD, which targets a niche market of med school grads. Often, these individuals come out of school and need credit to get their practices up and running but carry a significant student debt burden. BankMD—another Nymbus partner—offers young doctors specialized expertise and products specific to their needs, delivered digitally.

“You’re dealing with a generation. . . where you have younger doctors who are coming out of school. They’re used to being able to do everything on their phone. We knew we had to be able to meet them there,” says Dub Sutherland, VP of TransPecos Financial Corp.

3. Deliver on the experience

It almost goes without saying, but if you’re standing up a digital-only bank, then the digital experience you’re offering must be top-notch.

“One of the most important things when establishing a direct bank is making it incredibly easy to open your first account,” says John Rosenfield, president of Citizens Access, a digital offshoot of Providence, R.I.-based Citizens Bank that offers its customers several fee-free online savings products.

Citizens Bank worked with FIS to stand up the digital bank within eight months, and Rosenfield says the designing an excellent customer experience was the highest priority. As part of the development process, the bank worked with the User Experience Center at Bentley University in Waltham, Mass., to test its prototype before rolling it out to customers.

“Self-service is key,” notes Rosenfield. “People believe they can accomplish things on their own faster, rather than having to wait for someone else to do it for them. If you make everything capable of self-service, you’re giving the customer back time and time is probably the most valuable resource they have.”

4. Allow yourself to adapt

One of the advantages of a direct bank is that it can be launched fairy quickly and at a reasonable cost, and changes can be made nimbly. “What is important to think about when you’re standing up any new business—including a direct bank—is the need to be agile: the need to fail or succeed, in a modest way, quickly,” says Q2’s Rahm McDaniel. That way, “you can take the lessons you’ve learned, iterate on them, and make a change very quickly.”

For example, In the first year after BankMobile launched, the team noticed that the accounts they were bringing in “were low-balance accounts,” says Luvleen Sidhu. The bank was also dealing with some fraud issues.

It was then that they decided to pivot to a “bank to business partner to consumer” strategy. They started with higher education—building relationships with colleges and universities across the country to solve a critical pain point: the transfer of funds between the students and the school. By helping to facilitate these payments for the school, “it’s become a great acquisition channel for us,” Sidhu says. “Students get to choose: do they want to use an existing bank account, or do they want to open a BankMobile account?” A good number of them choose BankMobile, and from there, Sidhu says it becomes a “customer-for-life strategy—how can we help them grow, save, manage their money, build credit and build a strong relation that can last a lifetime?”

Today, BankMobile has relationships with 800 campuses nationwide. They have also expanded into the telecommunications space, partnering with T-Mobile to offer T-Mobile Money, a white-label banking app that offers a fee-free, interest-earning checking account.

Meanwhile, Wade Huckabay and the All America team launched two other online banks in conjunction with Redneck Bank back in 2008—AmericaNet Bank, which had a patriotic theme, and Evantage Bank, which targeted a more tech-savvy crowd. All three banks offered the same products, which allowed the bank to gauge which of the branding approaches would most resonate with customers, while keeping it simple for the staff who worked the single call center. “It was an experiment to see what worked best,” Huckabay says. Today, Redneck Bank is All America’s sole digital subsidiary.

Will digital banks dominate the future?

As the banking industry evolves away from the traditional branch banking model, it’s clear that digital-only banks will have a greater role to play. Banks that can identify specific customer segments to target, offer meaningful product offerings and position themselves in a memorable way are likely to win out.

“The focus really needs to be: what problems for this customer group are we actually solving with this bank?” says McDaniel. “If we don’t have a clear answer to that question, chances are that the bank won’t be successful, regardless of how good the technology stack is.”

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About Author

Monica C. Meinert

Monica C. Meinert is deputy editor of the ABA Banking Journal and editorial director at the American Bankers Association, where she oversees ABA Daily Newsbytes.