Where Luvleen Sidhu is taking BankMobile now that she’s in charge

Luvleen Sidhu, recently named CEO of BankMobile, one of the country’s first digital banks, says she is expanding it from a service for college students to a mobile bank that serves multiple segments.

Along the way, she plans to pursue more banking-as-a-service partnerships as part of a cost-conscious growth strategy.

BankMobile, the digital-only division of Customers Bank in Wyomissing, Pa., serves students at nearly 800 college campuses in the United States. It offers a digital checking account as a convenient place to store refunds of unused financial aid and other deposits.

But other consumers are using products created by the digital bank, founded in 2014, without even realizing it. BankMobile is the white-label partner behind T-Mobile’s checking account, T-Mobile Money, which made a splash in 2019 with its 4% interest rate on balances up to $3,000. According to the T-Mobile Money website, that 4% rate persists even as the Federal Reserve has slashed the federal funds rate to nearly zero.

“My goal is to have at least a million accounts opened every single year through our white-label strategy,” says Luvleen Sidhu, CEO of BankMobile.

The company is eyeing potential new partners and will soon round out its suite of services with a workplace banking program that features bank accounts, loans and financial wellness tools.

Seeking new partnerships is part of Sidhu’s strategy to secure a steady stream of loyal customers at lower cost. “There are a lot of companies that are constantly looking to attract, engage and retain customers, and we help them with financial services,” Sidhu said.

A former pre-med student, Sidhu got her first taste of financial services as a college intern of Lehman Brothers before its collapse. She became a full-time employee of Lehman Brothers the day of its bankruptcy, and ended up at Neuberger Berman side of the business as an investment analyst. She later headed up business development at the $11.5 billion-asset Customers — which her father, Jay Sidhu, has led since 2009 — before getting her MBA from the Wharton School. She and her father co-founded BankMobile in 2014, and in January she was promoted to its CEO from president and chief strategy officer.

BankMobile’s first foray into direct-to-consumer banking was disappointing, with small account balances and inactive users. In a bid to become more profitable, it shifted to a banking-as-a-service model and pinpointed colleges as its first partners, thanks to Customers’ relationship with the financial aid disbursement company Higher One.

“Instead of going on campus and paying millions of dollars to sponsor the football team and have a bank branch and ATM, we went in saying, hey, we recognize you have a pain point trying to send payments between yourself and your students in a compliant way, so we’ll take that over for you,” said Sidhu.

BankMobile Disbursements routes refunds from colleges to students, with a choice of how they receive their money: as a deposit to an existing account, to a BankMobile Vibe checking account or a paper check (this is an option at some schools).

With college campuses acting as their stand-in retail branches, schools do most of the marketing for them. This enables BankMobile to rake in approximately 5,000 new accounts each week at an average acquisition cost of $10 per customer. One third of their customers are single mothers, and two thirds are minorities, Sidhu said.

The bank’s all-digital service also means customers can interact with them as usual while more traditional businesses close due to coronavirus, and the company says it has noticed a slight uptick in activity among its Vibe customers in recent days.

Customers for life

BankMobile’s relationship with students should continue when they graduate, Sidhu said. “Instead of just becoming a payment company that disburses money between colleges and students, we thought this could be our customer acquisition strategy and create customers for life,” she said.

If students choose to deposit their financial aid credits into the Vibe checking account, they will earn a 3% yield on balances under $1,001 and avoid the $2.99 monthly fee as long as they receive qualifying deposits of $300 or more each month (excluding financial aid refunds). Savvy academic and financial practices can also get them awards. Signing up for mobile alerts, setting a budget, maintaining a high GPA or other steps earn the user “stamps” toward a quarterly $10,000 sweepstakes as well as deals with merchants such as Apple and Target. Customers can also open a savings account.

Recently, BankMobile sweetened the pot with exclusive discounts from two other partners, the bill-negotiation service Billshark and the student educational service Bartleby.

Beyond its bank accounts, BankMobile provides personal loans in partnership with Upstart and student loan refinancing with LendKey. Its two no-annual-fee credit cards are available to the public, while a secured credit card, intended for students struggling to build their credit, is in the works.

Stephen Greer, senior analyst at Celent, pointed out that many consumers tend to jump around among credit cards rather than relying on ones offered by their bank. Still, “bank relationships tend to be very sticky,” he said. “If the experience to refinance a loan is good, I think a customer is more likely to stay with their bank.”

Michael Perito, managing director at KBW, said that Department of Education regulations require financial providers to present students card and checking acccount options in a neutral manner. That means the retention rate after students leave school have likely fallen short of expectations, he said.

But “ultimately, they acquire these students at a low cost, so they don’t need the highest retention rate,” he said. “It’s a self-filling bucket. After the seniors graduate, freshmen come in and refill the bucket.”

Hitting its stride

BankMobile reported its first quarterly profit last year: $890,000 in the third quarter on revenue of $24 million, Customers said. Revenue was slightly lower the following quarter, but BankMobile stayed in the black, the company said.

Sidhu attributed the back-to-back profits to year-over-year increases in organic deposits (or funds the students deposited above and beyond their financial aid refunds), stronger fee revenue and cost cutting.

“My goal is to have at least a million accounts opened every single year through our white label strategy,” she said.

At the end of 2018, after deals to spin off BankMobile fell through, Customers Bank said that it expected to retain the digital division for up to two or three more years.

The uncertainty has weighed on Customers Bank’s overall valuation, said Perito. “It’s hard to know what the real outlook is at this point.”

Sidhu said the bank is continuing to look for new opportunities, whether that means spinning out as an independent company or merging with another firm.

“We want to continue to be an innovative, world-class digital bank that focuses on our mission — to be affordable and transparent, in a way where we are also high growth and profitable,” she said.