Digital Banking Strategy: Four Essentials to Finding Success

In stark contrast to the traditional approach to banking — geographic market focus and undifferentiated products — there is now a niche market for nearly every business and demographic. To capitalize on the opportunity, banks must find the right segment, features and technology to succeed.

The growth of fintech and digital-only banks with personalization strategies and products catering to specific market niches has created a serious challenge to the traditional approach. But the trend also presents incumbents with the opportunity to follow suit.

As banks strive to compete, some are spinning off niche bank entities and products. Many more are thinking hard about it. Niche banking is now the new local banking for community banks. Because digital capabilities have made location irrelevant, they also offer banks an excellent opportunity to expand outside their geography. The trend has taken hold to the point that vendors now specialize in helping banks set up niche brands.

However, niche banking can also be a tough nut to crack. Institutions need to offer products and services specifically geared to the niche market delivered with new technologies, and have leadership that has a personal connection to the specialized market.

Here are four keys to success with a niche banking strategy distilled from bank and fintech examples.

1. Choose the Right Niche Banking Segment

Finding success with a niche banking approach starts by choosing the right segment at the start. Often, the banks and fintechs that have the most success are the ones that go after niche segments the big players don’t even bother with.

The best niches are often narrow — yet high-value — markets. For example, Texas-based Transpecos Financial, holding company for Transpecos Banks, created BankMD, a national digital-only niche bank for physicians. It has a specialized mobile app and technology platform and offers physicians mortgages, personal lines of credit and business loans.

Learn More: How a Small Bank’s Big Bet on Digital-Only Paid Off

In 2021, Moses Luevano, Founder and President of BankMD told The Financial Brand in a 2021 interview that the specialty unit was “ridiculously successful” and had blown through its growth goals. He credits part of that success to choosing the right market and understanding (and meeting) the market’s unique needs. BankMD’s employees include former physicians.” Comfort with social media marketing is also a requirement for most niche markets.

Real Bank doctor t-shirt giveaway

James Robert Lay, founder of the Digital Growth Institute, told CU Management that focusing on a niche remains a crucial path to increased digital growth. “As counterintuitive as it might seem, the best approach is to go small, not big,” he said. “When you segment your audience down into smaller, more well-defined groups, each with specific needs, you can more confidently create value for them, making your marketing efforts more effective.”

Key Point:

There really aren't hard and fast rules about what makes a good niche. But whatever you choose, be sure you understand it like an insider.

Many banks struggle with this idea because they equate small communities to limited opportunity. Additionally, going niche often means walking away from the idea the bank has to be all things to all people. For example, Massachusetts-based Leader Bank doubles down on its strengths in mortgage lending rather than spreading itself thin on a wide range of products.

We don’t offer credit cards, we don’t do trust services or wealth management, we don’t make auto loans or student loans,” Jay Tuli, President of Leader Bank, said in an earlier article. “We want to be better at only a few things.”

Other niche banks speak to specific demographics. For instance, several banks and fintechs now cater to Black and Hispanic consumers. One is Greenwood, a Black-owned mobile banking platform, with Coastal Community Bank as its banking-as-a-service partner. Greenwood features products, services, and content all geared towards the Black community.

Greenwood digital mobile banking for the culture

2. Identify the New Technologies Needed

While nonbank players like Greenwood must look to plug-and-play BaaS partners to offer debit cards or insured accounts, traditional banks already have the basic infrastructure. But legacy technology won’t cut it if a bank’s niche play hopes to match consumers’ digital expectations. Because niche banking brands are usually digital-only and mobile-heavy, with innovative features, they typically require new technologies or platforms.

So the next step for a successful niche banking venture is finding the right new technology platform required to personalize products and services to the market. “If they want to succeed, [banks] need to come with the newest banking features these segments require, such as real-time onboarding, virtual card issuance, P2P payment capabilities, advanced card controls, and much more,” says Arcady Lapiro, Founder and CEO of Agora Services, in a BAI post.

Recognizing it needed different technology, BankMD outsourced its infrastructure to bank technology provider Nymbus, which enabled the parent to avoid a core conversion project. Nymbus has made a specialty of niche-bank tech platforms going so far as to create the niche bank and sell it to an existing institution.

Keeping the existing core is key to success in niche banking, Lapiro told BAI. He noted more than seven out of ten banks don’t plan to replace their core systems as part of their niche rollout. Instead, many use a modular banking model that builds services on the existing infrastructure using a collection of microservices and application programming interfaces (APIs).

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3. Offer Essential Niche Banking Features

Niche banking involves more than just slapping a new logo or brand on basic banking products. All the basics, such as mobile functionality, integration with third parties, and even access to credit and budgeting, must be specifically geared to the market. Elizabeth High, Executive Vice President at Nymbus, said in a post on Medium that the two essential components of a niche bank are a clearly defined customer and tailored products and services.

While this sounds simple, it’s often a challenge for banks to execute in a way that fits the true definition of niche banking, she said. Without the right “hook,” a niche bank is unlikely to succeed. “A proper niche goes beyond career, location, or life stage. Niche audiences act on deep, granular insight about customer behavior, emotions, and needs,” High contends.

Beyond the Name:

Niche banking is as much (if not more) about targeted product features as it is about branding.

By digging deep and truly refining that segment, banks can deliver offerings these consumers cannot find elsewhere. For example, Kontist, a German mobile banking platform geared specifically to freelancers and the self-employed, offers business banking, bookkeeping, and tax services in an all-in-one financial solution. This includes money transfers, real-time tax estimation, auto-categorization, notes, and receipt scanning.

In other words, the value proposition isn’t just another business account labeled for the self-employed — it’s a variety of embedded features they need, conveniently tied to the bank account.

Kontist self-employed digital business account

In other cases, these “needs” may be emotional, philosophical, even spiritual. Another fintech mobile app provides an example. Insha, a digital bank supported by Albaraka Turk, a Turkish Islamic bank, and Solaris Bank, manages its customers’ money according to 13 principles aligned with Islamic law. This includes an interest-free business model focusing on sustainability and charitable donations.

Insha sustainable account principles

At the other end of the niche market spectrum, Wisconsin’s Incredible Bank created a national online bank built around financing of luxury motor homes, a market in which it had developed expertise.

Dive Deeper: How a $1.3 Billion Institution Launched Its Own Digital Bank

4. Find Niche Talent and Leadership

A bank or credit union that builds a niche banking concept should at least have some leadership with experience and skin in the area. Take, for example, the neobank Nerve, launched in 2021 specifically for musicians. Its CEO and co-founder is also head of a boutique funk and soul record label.

Daylight, a banking app geared to the LGBTQ+ segment, is led by a diverse C-suite that has experienced the same issues its target customers have. “We were founded by queer Millennials to solve problems we’ve experienced already. We’ve been there, so we get it,” says the website. “It’s more than just slapping a rainbow on a card.”

Daylight LGBTQ owned

While fintech companies and neobanks may develop that talent organically, banks and credit unions must often look outside their walls for the right talent. Carie Kelly, Vice President of Marketing at BankProv — which has several niches, including cryptocurrency and renewable energy — wrote in a post on The Financial Brand that banks also need to find the right talent to execute the strategy.

This includes the right people who understand what the future of the financial institution looks like, the data needed to support it and how to elevate everyone to the next level. Often, that means looking outside of the financial industry for the right leaders. However, Kelly believes the marketing team within a bank often is ideally suited to coordinate a successful niche banking strategy.

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