Gabe Krajicek, CEO of the financial solutions provider Kasasa, joins us to discuss the challenges community financial institutions face in today’s competitive landscape and how strategic products and marketing support can drive long-term, relationship-based growth.
With nearly two decades of experience working with hundreds of institutions and managing a $20 billion portfolio of deposits, Krajicek offers valuable insights on how community banks and credit unions can generate strategically significant deposit growth while maintaining lower costs and fostering customer loyalty.
In a candid conversation with Jim Marous of The Financial Brand on the Banking Transformed podcast, Krajicek delves into the unique pressures facing smaller organizations, the importance of distinguishing between real growth and transient gains and the role of innovative products like Kasasa Cash in helping institutions achieve sustainable success.
Understanding the Challenges Faced by Community Financial Institutions
Q: With the rising cost of funds challenging almost any institution, what unique pressures do smaller organizations have compared to their larger competitors?
Gabe Krajicek: We’re seeing across the board that the primary financial institution relationship is very difficult to defend. I used to describe the mega banks as the big whales in the ocean, the big killer whales. And now you’ve also got the piranha of just thousands of fintech companies that provide little niche services that disintermediate little components of what the primary financial institution relationship would otherwise provide.
A lot of those fintechs are offering high rates. One of the things that we do as a service for our institutions is look at where their outbound deposits are going whenever outbound ACHs are sent. It’s shocking how much is going to companies like SoFi and other fintech providers of these high-yield products.
Q: How can institutions combat this phantom growth and drive sustainable deposit growth?
Krajicek: What we go out and do with a product like Kasasa Cash is, instead of putting the highest rate at the institution on the CD, which is guaranteed to be a disloyal consumer, somebody who will leave you for 10 basis points at the end of term, all the stuff, instead of giving the highest rate to them, give it to the checking account holder.
But only if they meet the monthly qualification criteria indicating that they’re using you as their primary financial institution. The qualification criteria are using your debit card 10 times, having your direct deposit go there, etc. We’ve got a suite of things different financial institutions do, but it’s really easy for consumers to do if they bank there. It’s really annoying if you don’t.
So, we create this scenario where we’re paying consumers the best rate at the institution for checking accounts, but only if they use that checking account — like that’s what they do for all their banking. And so, it attracts these PFI relationships.
Read more about deposit growth opportunities:
- Winning the War for Deposits: Strategies to Drive Real Growth
- Are Teaser Offers Worth the Trouble in Banking?
- How Data Can Defend Against Deposit Attrition
What’s the Institutional Impact?
Q: Can you explain how the Kasasa Cash product benefits institutions financially?
Krajicek: If you went out with a lot of our consumers today with a 6% free checking account, it sounds crazily high, but what you know is that about a third of the people will fail to qualify, which means that 6% becomes about 4% cost of funds, which is already lower than the CD would’ve been at that same institution. So, it’s cheaper money — it’s not more expensive, it’s cheaper.
You also have the fact that and this gets a little bit technical, that promoted rate of, for example, in this case, 6%, is only paid up to what we call a cap. It’s a balance tier. And typically, in today’s rate environment, that might be like $50,000.
You would pay 6% up to $50,000; on balances above 50, you might pay something like 1%.
That also blends the cost of funds down to at least another 50 basis points. So, you’re at about 3.5% in your total cost of funds with a 6% promoted rate. And it gets better because they swipe the heck out of their debit cards. When you ask them to swipe it 10 times, they’ll swipe it on 30 because it becomes the top of the wallet card. You also have other sources of non-interest income that far exceed the non-interest expense.
And when you put all that in the blender, it comes out to about a hundred basis points of additional cost to subsidization. So, you went out with 6%, your cost of funds was 3.5 and your true cost net of subsidization from non-interest expense and non-interest income is about 2.5%.
Mitigating Liquidity Risk and Driving Real Growth
Q: How does the Kasasa Cash approach help mitigate liquidity risk for institutions?
Krajicek: When you do it that way, as I said, with an example of a $50,000 break point where the promoted rate is paid up to about 50, the average balance will be about $11 to $12,000.
That’s different for every market and institution, so we would need to look at somebody to make that prediction.
But I know the average would be about $11,000. And that’s going to be comprised of a few people with $50,000, some people with 25, a few folks with 100, lots of people with 5,000 and lots of people with 7,000.
What that means for the institution is that they have much less liquidity risk in each individual consumer. The balances that they’re bringing in are spread across many consumers and they basically change the math on the incoming volume of deposits coming into checking accounts.
“We’re seeing across the board that the primary financial institution relationship is very difficult to defend. I used to describe the mega banks as the big whales in the ocean, the big killer whales. And now you’ve also got the piranha of just thousands of fintech companies that provide little niche services that disintermediate little components of what the primary financial institution relationship would otherwise provide.”
In the old strategy, the average balance per checking account was about $2,000. Now, every checking account is about $10 to $12,000. You can turn your front line, which is normally just a source of members or customers, into an actual source of retail deposits at a volume that would challenge what you could generate on a CD.
But it takes that checking account as the headline product, with the highest rate at the institution. And that’s also what unlocks all the cost savings in the model.
Q: How does Kasasa help institutions deploy and market these products successfully?
Krajicek: We don’t stop at building a great product solution or a nice package of services that an organization couldn’t implement. We actually go as far as helping an organization deploy and market those products, which is where the deployment is a part of and where many financial people just get overwhelmed.
They’ll put a product in place, make it sit and hope it gets better. And it doesn’t. You have to monitor these things. What kind of components do you put in place at Kasasa that help your clients succeed from the standpoint of marketing metrics and simply and I’ll call it, holding hands?
I don’t mean that in a derogatory way, but in a way that says none of these firms have a massive marketing department. How do you make it so these firms really have to work to not succeed?
Bottom Line
In this insightful discussion, Gabe Krajicek shares how community banks and credit unions can leverage innovative products like Kasasa Cash to drive sustainable deposit growth, mitigate liquidity risk and foster long-term customer relationships.
By offering high-yield checking accounts with qualifying criteria that encourage primary financial institution relationships, institutions can attract loyal customers while maintaining lower funds costs than traditional CD promotions.
Krajicek emphasizes the importance of comprehensive support in helping institutions successfully deploy and market these products, ensuring that even smaller organizations without extensive marketing departments can achieve significant growth.
By understanding community financial institutions’ unique challenges and providing strategic solutions, Kasasa aims to help these organizations thrive in an increasingly competitive landscape.
For a longer version of this conversation, listen to “Beyond Phantom Growth: Building Real Relationships,” an episode of the Banking Transformed podcast with Jim Marous, available here or wherever you get your podcasts. This Q&A has been edited and condensed for clarity.
Justin Estes is an award-winning writer, strategist, and financial marketing expert with expertise in banking, investments, and fintech. His clients include the NYSE, Franklin Templeton, Credit Karma, Citi and, UBS, and his work has appeared in Forbes, Barrons and ThinkAdvisor as well as The Financial Brand.