Instead of going directly after students, totally branchless BankMobile builds relationships with colleges and universities looking to cost-effectively refund student accounts. And oh, by the way, those students can have those refunds deposited in a totally free and no-fee BankMobile account.
BankMobile’s strategy is to acquire a lot of deposits quickly while spending very little money, says Luvleen Sidhu, BankMobile’s Co-founder (along with father Jay, Customer’s CEO) and Chief Strategy & Marketing Officer. While the all-digital bank’s focus is on students, they also market to Millennials, the under-banked and middle-income markets.
Today, BankMobile boasts $800 million in assets, 1.8 million student accounts and relationships with more than 800 college and university campuses — not too shabby for an institution that was just launched in 2015. The bank has no overdraft fees and no branches.
In this exclusive interview with The Financial Brand, Sidhu discusses why the industry’s reliance on branches to acquire customers is flawed and how BankMobile’s back-door approach through colleges and universities allows the bank to attract deposits quickly and cheaply.
TFB: What’s wrong with the traditional customer acquisition strategy in the banking industry?
Luvleen Sidhu: Branches typically open only a handful new checking accounts per week. In terms of customer acquisition, it’s very costly and inefficient. Financial institutions then subsidize those branch costs with overdraft fees — more than $33 billion 2016 — largely charged to Americans who struggle financially and live paycheck-to-paycheck. In terms of making customers happy, it’s not a sustainable model.
TFB: How should banks and credit unions approach acquisition?
Luvleen Sidhu: Don’t rely on bank branches because they are too costly. Either reduce the number of branches, or create a hybrid model of branches and digital to lower your operating costs. Examples of a successful hybrid model are Capital One acquisition of ING and creation Capital One 360 and MUFG Union Bank online PurePoint Financial subsidiary that now includes financial centers in select markets.
Another high volume/low cost customer acquisition strategy is to create a completely digital offering that attracts customers based on high rates, like Ally Financial and Capital One 360.
TFB: What’s BankMobile’s approach?
Luvleen Sidhu: We don’t want to play the rate game. We want to attract primary checking account relationships and then turn those acquisitions into customers for life.
We also wanted to grow fast, and a direct to consumer strategy is just too challenging Instead, we solve a pain point for colleges and universities, turning that pain into a vehicle to acquire customers. It’s a business-to-business-to-consumer (B2B2C) acquisition model.
TFB: What pain point did BankMobile solve?
Luvleen Sidhu: Colleges and universities need to disperse funds to students, maybe for a financial aid refund, a refund for dropped classes, or pay for work/study programs. It costs schools about $250,000 per year, on average, to process those refunds.
We charge an average subscription of $10,000 to disperse the refunds and handle compliance and reporting. Students can then decide whether they want the money deposited into an existing account or open a BankMobileVIBE account. With this funnel we acquire 400,000 new accounts per year. It costs us about $10 per acquisition versus $300 to $500 per acquisition via a branch.
This is also a self-refreshing model. There’s about 20 million students in the U.S. and we have relationships with campuses that serve about five million of that market. As students graduate or un-enroll, other students take their place.
TFB: BankMobile’s acquisition strategy obviously works. But what about retention?
Luvleen Sidhu: Our retention strategy is to create enough value with the products and features we offer and combine that with affordability and an exceptional customer experience that students stay with us after they leave school.
Our BankMobile VIBE customers have an average FICO score of about 610 and tend to be credit starved. They are also more likely to attend a two-year rather than a four-year school and their average age is 27. Since a portion of our market is low to middle income students, we make our accounts affordable.
Many of these students would be hit with fees. We hate overdraft fees. Our overdraft fees are $0. We have a network of 55,000 ATMs located close to the campuses we work with. The only fee associated with a BankMobile VIBE account is a replacement fee if the student loses their card.
We also offer students credit building tools and education. Students can sign up for free credit education led by our in-house financial expert Ash Exantus. In November, we are adding personal and debt consolidation loans and a credit card product in January. We’re looking at adding student loan refinancing in the first quarter 2018.
TFB: Do students take advantage of the financial education?
Luvleen Sidhu: We offer 25 two to three hour education sessions per month and they fill immediately. Once a student takes the course, they can sign up for free one-on-one coaching. Our students are motivated to learn and be better.
TFB: What happens when students graduate or leave school?
Luvleen Sidhu: They can transfer to BankMobile BOLD, our open market account. Since these former students are presumably now working, we require that they deposit $300 per statement cycle or pay a $5.95 monthly fee. The fee reinforces that we want to be their primary bank. Otherwise, there are no fees for a BankMobile BOLD account. The BOLD platform also has a personal line of credit product.
TFB: Do you have any retention statistics ?
Luvleen Sidhu: We are in early stages of measuring retention. It’s actually difficult to quantify how many graduating students we retain because many students are enrolled at two-year schools. In these schools, students are more likely to take classes one semester, take a semester off, and then re-enroll. This makes it hard to track graduation rates.
TFB: What’s next for BankMobile?
Luvleen Sidhu: We want to replicate our model in other industries or verticals that want to offer employees or customers banking services but don’t want to become a bank. We have some partnerships already that I can’t disclose but we’re confident we can bring our model to other markets.
(Postscript: In March 2017, Flagship Community Bank agreed to buy BankMobile for $175 million. That deal hit a snag when Flagship was unable to raise the needed capital. With restructuring, the Flagship deal may still go through, but in the meantime, Customers Bank has received two other all-cash offers for BankMobile.)