Agility and adaptability rank as table stakes of modern banking, but anyone who has tried implementing these two traits knows it’s a difficult road. KeyBank’s quick pivot of its national lending strategy to serve a bigger purpose shows that it can be done.
Laurel Road, a digital lender Key acquired in 2019, is best known as a student loan refinance operation. It was launched in 2013. Although not nearly as big as market leader SoFi, Laurel Road nevertheless had built a successful digital-only refi business.
When KeyBank’s EVP and Head of Digital Jamie Warder spoke with The Financial Brand in fall 2020, Key was still thinking of evolving Laurel Road into a 50-state digital lending platform.
That’s no longer the plan.
Now Key is building out the unit as a national digital full-service bank, but one that focuses specifically on the healthcare market. The first big step in that metamorphosis occurred when Key launched Laurel Road for Doctors in spring 2021. Since then it has rolled out Laurel Road Checking along with a new mobile banking app. The product lineup now also includes savings, a tailored credit card, mortgages, personal loans and of course student loans.
KeyBank’s Laurel Road for Doctors unit signed up more than 3,500 doctors and dentists within six months.
Doctors and dentists are the biggest components of Laurel Road’s target market, but Warder says the unit will also provide unique offerings for hospitals, nurses, occupational and physical therapists and other healthcare-related individuals and entities.
While the bank proper does have healthcare banking capabilities, Warder says that Laurel Road is looking to expand the pie. The digital unit “focuses on the 75% of the country that is not in Key’s traditional footprint [essentially the Midwest, Northeast and Pacific Northwest,” Warder states.
The executive says Laurel Road uses highly targeted marketing (SEO and YouTube specifically, along with direct mail) to avoid cannibalizing the parent.
Why a Separate Digital Brand?
KeyBank is not walking away from the student loan refi business, despite the challenge that business has faced due to the federal student loan payment holiday imposed during Covid-19 and scheduled to expire Jan. 31, 2022. Student loan refis comprise the single largest asset category of Laurel Road, by far.
Nevertheless, the superregional bank, with total assets of $181 billion, came to recognize that its Laurel Road unit could be an important wedge to break further into the huge healthcare market.
That’s because 60% of Laurel Road’s loan balances at the time the bank acquired it were in healthcare, mainly from refinanced medical school loans for newly minted doctors and dentists. Further, Laurel Road’s founders had established partnerships — some of them exclusive — with several of the largest medical and dental associations in the U.S. (Warder declined to name them.)
A different brand may work better in a niche market than a legacy bank brand, which has its own set of associations that may not be relevant.
The bank was intent on building a business that understands and creates tailored products for healthcare workers, and adds value with financial education, discounts and other special features, according to Warder.
“We want Laurel Road customers to know this is special for them,” he says, “and it’s hard to do that with a 200-year-old brand like Key, which carries its own connotations of what it does.”
“Instead of saying to our digital bank customers, ‘Hey, sign up for a Key account,’ we’ve taken the Key account, made some tweaks to customize it for healthcare, and then branded it Laurel Road.”
— Jamie Warder, KeyBank
Warder says the company will revisit the separate brand question over time, but right now it works. They certainly don’t hide the fact that Laurel Road is part of the overall KeyBank brand, he adds.
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Internal Start-Up Assisted by ‘Sherpas’
KeyBank opted to run Laurel Road as a “start-up within a scaled company,” as Warder describes it. The engineers, marketing, product, operations and underwriting specialists all are operating together as a single unit, he says, distinct from the parent company.
Warder is head of Laurel Road as well as Chief Digital Officer for the bank overall. With feet in both camps, one of his responsibilities is to act as something of a buffer between the two, to ensure that “we don’t crush the butterfly,” referring to the digital unit.
Laurel Road is not completely separated from the parent. It shares core systems, risk infrastructure, legal and other areas with Key. In fact, there are a handful of bank employees, known internally as “Sherpas,” who serve as a liaison between Laurel Road and the various bank units it interfaces with. Their job is to help the start-up team keep moving quickly and stay focused on its mission, says Warder.
Growth and Next Steps for KeyBank’s Digital Unit
As a division of the bank, Laurel Road data is hard to come by, but Warder did note a few stats in addition to the number of new doctors and dentists mentioned earlier. Among them:
Notable data points about key’s Laurel Road unit
- 50% of the new doctors and dentists added since the March 2021 launch of Laurel Road for Doctors are using multiple products. “That starts to feel less like a monoline and more like a relationship bank,” says Warder.
- Mortgages issued through Laurel Road are up 60%, but student loan refinancings remain the largest asset class.
- Since its inception in 2013, Laurel Road has done $10 billion in student loan refinancing.
- The digital brand is serves approximately 50,000 customers.
- Partnerships with healthcare associations drive 35% to 45% of Laurel Road’s loan volume.
Warder says management views Laurel Road as a long-term strategy — a “third-horizon play,” in his words. Somewhat more than 80% of the doctors and dentists served by the unit are in the early part of their career — in residency for physicians, in the first six or seven years of their practice for dentists.
Warder says Laurel Road has introduced several products to help grow the relationships it has with these medical professionals as their careers unfold. These products include high-yield savings, home mortgages and personal loans to expand a practice.
“We’re looking at wealth advisory to appeal to doctors or dentists who are deeper into their careers,” Warder adds.
KeyBank believes the student loan refi business will continue to be solid, however, and, in fact, could pick up a tailwind once the loan holiday ends and physicians find themselves saddled once again with high loan payments.
Interesting Point About the Human+Digital Argument
Jamie Warder isn’t ready to declare that banking can operate successfully with only digital interactions. That’s why he still insists Laurel Road is a “digital-first, not a digital-only” bank.
If You Build it, They May Not Call:
‘Shockingly’ few of Laurel Road’s 50,000 customers ever call the digital bank’s contact center.
Because the division has no branches, they took pains to set up a “premium care team,” available for live calls and chat seven days a week for extended hours to meet to needs of the healthcare community. Perhaps they needn’t have bothered.
“We find that the vast majority of our members do business with us without ever talking to us,” says Warder. “They might interact through chat, but there is a shockingly low number of members who actually call to talk to us. We staffed for a lot more, but we just haven’t seen the calls, which I guess is a good thing.”