Financial institutions eager to kick their digital customer acquisition into high gear often weigh two options.
One is to invest in overhauling their existing online and mobile channels — in other words, their so-called “digital branch” — so that users are wowed by the functionality, speed and seamless service. The other is to create an entirely new digital-only brand, an increasingly popular trend among community banks.
Both can be worthwhile, but with budgets constrained and internal resources taxed, many have to decide which approach should be prioritized.
The choice varies, depending on several factors that we get to in more detail below. A key one is: What are the goals being pursued with the digital initiative and how do they fit into the existing strategy of the institution?
“At the end of the day, launching a standalone digital brand and establishing a digital branch are both proven strategies to drive growth,” says Nathan Harley, co-founder and chief executive of MANTL, a company that provides digital account-opening software.
The only choice that is always wrong, in Harley’s view, is doing nothing. “For financial institutions that have fallen behind the digital transformation curve, the opportunity cost of not modernizing now is a matter of survival,” he maintains.
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In some cases, pursuing both the digital branch overhaul and a separate digital brand is doable. Flushing Bank’s experience illustrates as much.
The $8.3 billion-asset Flushing Bank has operated two separately branded digital banks long before it became a trend: iGObanking, launched in 2006, and BankPurely, launched in 2017.
But more recently, Flushing underwent what it describes as a “digital transformation” to modernize its legacy brand.
Here’s an overview of how Flushing and several other banks pursued their digital initiatives and the results they achieved, along with key considerations for executives tasked with determining the best course of action for their financial institution.
Results of Flushing Bank’s Digital Branch Initiative
Undertaking a major overhaul of digital channels and better integrating them with other customer touchpoints — as with the digital branch strategy — allows a smaller financial institution to better compete with their flashy big rivals.
The intent with this type of initiative goes beyond just having a great website. It is meant to bridge the physical and digital worlds, allowing customers to conduct transactions across all channels with minimal friction.
With this initiative, Flushing Bank, which has about 25 branches in the New York City metro area, aimed primarily to expand core customer relationships and attract new customers.
To achieve these goals, its plan called for launching a new, mobile-friendly website, a process that took about seven months to complete. Key components of the work included implementing an automated know-your-customer decisioning process and ensuring a superior online customer experience with easy navigation.
Flushing Bank's new mobile-friendly website added customers as hoped, including many younger adults.
Flushing found that the digital services — which included online account opening that could be completed in five minutes — did as it hoped. The bank was able to add customers, including those who did not live near a branch or were less likely to visit a branch in person.
In an encouraging development from the perspective of future growth potential, the demographics skewed younger than had been typical for Flushing previously: 17% of the online account openings were by people ages 31 and younger and 5% were by people under 25, according to a case study from MANTL assessing the results about six months after the launch.
Flushing was also pleased with the impact on core customer relationships. It found that checking accounts represented 76% of new deposit accounts opened online and those accounts had average initial deposits of more than $9,000.
A digital branch approach like Flushing’s is most effective at bringing in new customers within the area where a bank or credit union operates, MANTL’s Harley says. With an established brand presence, the digital channels benefit from existing offline marketing, magnifying the impact.
Can Your Digital Brand Stand Out in a Crowd?
A lack of consumer awareness for the legacy brand outside the existing footprint can be a challenge for any broader marketing ambitions following a digital makeover.
That’s one reason it can make sense to take the digital bank approach and craft a separate brand and value proposition from scratch to compete for customers nationally. Some banks have taken this route specifically to appeal to various niche audiences.
New Account Magnet:
An effective way to attract new customers from outside your market is with a separate digital bank brand.
Texas Capital Bank in Dallas, for example, with $34.7 billion in assets, goes after frequent flyers with the digital-only brand it launched in early 2020, Bask Bank. Texas Capital executives have described Bask as an alternative to opening a physical branch that enables customer acquisition far beyond its footprint. As is typical for digital banks, Bask offers higher rates on deposits than a traditional bank, but its differentiator is that customers are rewarded with one American Airlines AAdvantage frequent-flier mile per dollar saved annually.
In Flushing Bank’s case, it’s iGObanking and BankPurely brands help attract customers across the country, but with different approaches. The iGObanking brand offers competitive high-yield accounts to fuel deposit growth without cannibalizing the legacy bank. BankPurely, which targets sustainability-minded consumers, pledges to plant a tree for every account opened.
Two More Takes on the Digital Brand Strategy
Cambridge Savings, a 187-year-old mutual savings bank in Massachusetts, is casting its net broadly with its digital-only Ivy Bank band, the main goal being to extend its deposit-gathering reach.
As with the other digital-only brands, Ivy operates as a division of the legacy bank. Its website and mobile app feature high-yield savings accounts and money management tools. The simple design lets customers view spending by category, set budgets, and see all accounts — even those at other financial institutions — in one dashboard.
Ivy also offers easy access to human support, which Wayne Patenaude, the president and chief executive of $5.7 billion-asset Cambridge Savings, sees as a differentiator.
The pursuit of growth was the motivating force for Midwest BankCentre, but its digital brand strategy also yielded other benefits, like improved efficiency.
Over the course of several years, foot traffic had declined at its 17 branches in Missouri. The 113-year-old community bank also noticed that national online brands had been successfully capturing local consumers.
So, in 2019, it launched a digital brand called Rising Bank to offer competitive interest rates and cutting-edge features.
By marketing itself on well-known referral channels like Bankrate.com and Depositaccounts.com, it raised more than $100 million of deposits in five months. “The launching of Rising Bank has resulted in the same deposit growth as building ten new branches,” says Dale Oberkfell, who had been president and CFO of the $2.4 billion-asset Midwest when Rising launched, said at the time.
The digital brand also achieved a 60% reduction in cost per application and an 82% automatic decisioning rate. Overall Midwest experienced a tenfold increase in operational efficiency from Rising’s performance compared to physical branches.
Midwest’s plan now is to add more digital products and services.
The Affordability Factor
The benefits of being able to offer different rates and test new strategies without impacting their existing operation continues to be a draw for digital-only brands.
Offsetting that, extra marketing muscle is required to build awareness for the new brand, along with a comparatively higher cost on the technology investment.
Such digital-only initiatives have become more feasible, though.
In the past, community banks and credit unions were often constrained by legacy technology. But these days, new tools are available to help smaller financial institutions act more nimbly and close the “technology gap” with the banking behemoths that have trillions to invest in their digital strategy, observes MANTL’s Harley.
Some vendors offer what amounts to a “digital bank in a box,” which is a platform for digital banking that financial institutions can customize. Technology providers like Nymbus, Q2 and Fiserv, through its acquisition of Finxact, are among those that provide these types of services.