We don’t need to stay in the student market’: How BankMobile wants to grow its offering and replicate its model
BankMobile, the digital-only bank that offers checking accounts to students, wants to start offering them credit.
The three-year-old Customers Bank subsidiary launched a personal loan product for its customers at the end of December, but that was just the first of a suite of credit products the bank plans to roll out this year as part of its “customer-for-life” strategy, according to Luvleen Sidhu, president and chief strategy officer.
“We wanted to be able to go beyond checking the account that we currently offer and extend them credit because they are credit-challenged and credit-starved,” she said.
BankMobile has 1.8 million customers to date and has opened about 300,000 new accounts each year in the student demographic through its university partnerships. It markets the Vibe account, its non-interest bearing checking account designed specifically for students, as one that “empowers and guides them in their pursuit of financial and academic success.” But to become lifelong financial partners to those student customers, it’s going to need to grow its offerings as their needs evolve.
Tearsheet caught up with Sidhu about its forthcoming credit products, how it plans to grow with its student customers and replicate its customer acquisition model beyond that demographic and why it’s important to partner with non-banks — not just fintech startups. The following has been lightly edited for length and clarity.
Why are you expanding into credit now?
We’re just looking at our demographic. Many in our current customer base are living paycheck to paycheck — that’s why personal loans make sense. We’ve seen what they need from the focus groups and surveys and talking to our customers to understand what they need. They are credit-file thin individuals but we’ve had relationships with them while they’re in school… we have much more information than another institution that’s trying to offer them credit so we’re able to provide them attractively priced credit.
How do you plan to expand your products after the personal loan?
We have a lot of products to introduce on the credit side: credit cards in the second quarter, student refinancing in the second quarter, auto loans and home equity by the second half of next year. We’re rolling out an interest bearing checking account in the first quarter; our customers live paycheck-to-paycheck and we want to be able to reward them for money they have in their account, even if it’s not a lot that comes in and out. We’re excited about rolling that out — as well as a savings account.
You’re partnering with Upstart on credit products. What are the advantages of that approach?
In the longterm you could say it’s more expensive to partner but those costs outweigh the fact that we get to market much faster. This took two or three months to roll out; on our own it would probably be a six-to-nine-month process. Once we work with their engine and feel good about the way we describe their risk parameters and underwriting models — if we decided to do other credit products with them, it would help us get them to market much faster and more cost efficiently.
You talk about a “leveraged growth strategy.” What does that mean?
We have partnership model where we find distribution partners to have access to millions of customers. In 2016 and 2017 we focused on the student market. We have relationships with 800 campuses across the industry. Instead of paying millions of dollars for to be on these campuses we provide them with technology to solve their pain points when it comes to distributing any payments between the colleges and students — typically in the form of financial aid refunds, or if a student is working on campus and needs to be paid, or a student drops a class. Then these students have a choice to ACH this money to an existing bank account or to open a BankMobile Vibe account.
Do you plan to expand your customer base? You’re creating “customers for life” and those students won’t be students forever.
In the future I don’t think we need to stay in the student market. We’d like to be able to replicate this. We’re in alignment with bank-fintech partnerships but that’s also a myopic way of looking at the future, which is way beyond partnerships between banks and fintechs but also between banks and nonbanks; being able to deliver financial services to customers of these non-banks to create more engagement, loyalty, customer data and additional revenue streams.
How has competition changed since BankMobile launched?
It’s accelerated. Challenger banks and Neobanks like Moven, GoBank, Simple and Varo continue to flourish and grow. Digital banks like Ally, USAA and Captial One 360 have really done a push in 2017 attracting millennials, tweaking their product, tone, messaging, branding to make sure they start penetrating that segment. Traditional banks are finally realizing the branch based customer acquisition model is not sufficient. That is still their primary customer acquisition strategy.
And traditional banks are bigger competitors now?
Traditional banks are true competitors because they own 80 percent of the market share of consumer deposits. It’s been slow movement but you’ve seen JPMorgan launch Finn and Wells Fargo launch Greenhouse; there will be more to come when they launch these digital banks in essence with a new brand to appeal to a new market. That increases the competition. The Lending Clubs, SoFis and Marcus and Discover have focused on building a solid customer base from the lending side. They now realize that lending relationship is a good start but not enough to sustain an emotional connection with their customers and feeling they need to offer a broader suite of banking products.
What would sustain that emotional connection?
There’s definitely that sense that being a full service banking institution is much more fruitful in creating a customer for life. The beauty of banking is every customer is a potential customer. Every person needs a bank and it’s one of those products everyone is in need of so there’s room for ample competition. You have to always look at what value you’re providing … If you just offer a student refinancing loan, is that really enough? You just make your payments and then you’re done.
What are some of your industry predictions for 2018?
We’ll see a lot more blockchain from the back-office to create more efficiency, cost reduction and security and eventually more on the customer side to create more efficient payment streams. Alexa is growing in popularity; having more of a conversational AI experience with your bank than a transactional experience and focusing on creating financial advisor capabilities. From an HR benefits perspective, bringing banking products in to large employers and being able to provide more of that customized community experience in banking co-branded with your employer.
Are these things BankMobile is exploring for its own business?
We’re interested in all of them. Were not at a rollout point but definitely are brainstorming and seeing how we can effectively and successfully play in each of these spaces.