This Virtual Bank Wants to Be The Engine Behind Fintech Brands

Online-mostly player Radius Bank has launched a second-generation take on fintech partnerships. Using relationships with customer bases built by its clients, Radius bulks up on funding for multiple lending programs. And there isn't a branch in sight. It's yet another new model for banking in the digital age.

Radius Bank demonstrates that established banking institutions can put themselves successfully through a reboot that can drastically change their business model. For Boston-based Radius, virtual banking and fintech relationships have been the routes of choice.

“Fintechs love to be disruptive and love to be in industries that can be disrupted,” says veteran banker Michael Butler, President and CEO in a CNBC interview. “We kind of agree with that model. We have an agile mindset and we get things done quickly.”

“Fintechs love to be disruptive and love to be in industries that can be disrupted. We kind of agree with that model. We have an agile mindset and we get things done quickly.”
— Michael Butler, Radius Bank

Since its “rebirth” from a traditional bank, Radius Bank has constantly experimented with ways to build on the concept of virtual banking. What began with a handful of fintech partnerships is now evolving towards a “banking as a service” approach that will take the bank, which has $1.3 billion in assets, further into the realm of a modern banking platform using application programming interfaces (APIs).

The bank provides its fintech clients with white-label deposit products, cards, digital onboarding and account management. A deal with a mobile savings and investment platform was expected to be followed by between eight and ten more announcements before the end of the year.

Butler arrived at the bank in 2008, when it was still a union-owned institution that had run into financial trouble. In rebooting the bank, Butler decided to close its branches and rebuild using a virtual model. Physically, Radius resides in a large former industrial building near Boston waterfront, but Radius now is a digital bank doing business on the web and through relationships with fintechs and other organizations that want banking services, especially checking accounts, to be part of their mix of offerings. (The headquarters maintains a very small convenience branch.)

“Amazon-like experience” is what Butler says the bank strives for, and this has led it to emphasize ease and speed. In an interview with CNBC Butler spoke with pride of reducing the time it takes to open a deposit account from about ten minutes — “an eternity in the ecommerce age” — to two minutes, 37 seconds. The bank enhanced its online banking platform and mobile app using technology developed by Narmi, one of several fintech providers it relies on.

Partnering with fintechs needing to offer banking services represents a way for Radius to extend its reach beyond Boston. It cut its teeth on some early joint deals, according to Chris Tremont, EVP for Virtual Banking. One notable arrangement was with Aspiration, which offers socially conscious financial services. Aspiration has since opted to build its own insured deposits framework using brokerage accounts that sweep into a deposit arrangement with Promontory Interfinancial Network.

Expanding Banking on Someone Else’s Beachhead

The advantage to Radius lies not only in the deposits it can immediately obtain by partnering with fintechs, but also in broadening the relationships it establishes through these arrangements.

“Average balances per account could grow to the neighborhood of $2,000-$2,500. Do the math and it becomes clear that such partnerships can represent a relatively steady chunk of low-cost deposits.”

One example is a deal announced in August 2019 with Stackin’. This is a digital financial wellness platform that uses artificial intelligence to help users learn to better handle money, communicating with them by text message. The company currently concentrates on deposit accounts but intends to unveil a companion micro-investment account in autumn 2019.

Stackin’ already has approximately 500,000 consumers in its base, built up after launching in 2017. Tremont says the relationship began as a marketing deal and evolved into a white-label account. Deposit holders will be able to access their funds through either Stackin’s own systems or through the Radius online banking system and mobile app. (Stackin’ receives a marketing fee for each consumer who opens an account with Radius under the deal.)

Tremont points out that if offerings prove attractive enough to consumers average balances per account could grow to the neighborhood of $2,000-$2,500. Do the math and it becomes clear that such partnerships can represent a relatively steady chunk of low-cost deposits, versus paying up for time deposits or higher-rate savings. Radius uses these deposits for a number of loan programs in select segments, including Small Business Administration guaranteed business loans.

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Aiming to Build Primary Transaction Accounts

Obtaining the optimal deposits from groups like Stackin’s consumers hinges on the checking accounts becoming primary accounts. Tremont, in an interview with The Financial Brand, was asked about the tendency for accounts offered by challenger brands to be secondary accounts, opened by the financially adventurous or by consumers who want a second account, and grab at anything that’s free or cheap.

While Radius isn’t a startup, Tremont acknowledges that its status is similar in some ways to the challenger fraternity. He says that the key to establishing prime account status is convenience, something that he believes Radius provides.

Tremont also notes that consumers are tending to establish different accounts for different purposes, moreso than in the past. “That’s how today’s consumer operates,” says Tremont. However, holding the account that someone’s payroll direct deposit goes into is still a win.

It’s fintech clients are connected to Radius Bank’s systems using APIs developed for the bank by Treasury Prime. “They help fintechs go out and open accounts, and then manage the accounts downstream,” says Tremont. The additional deals that are pending presently involve deposit services alone, but Tremont says that in time the bank could expand relationships to include online lending in some form. He says Radius would likely launch an online loan program of its own, and then build new channels for the fintech consumers.

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A Fintech’s View of a Banking Partnership

Part of the Radius “recruitment” strategy is participation in fintech accelerators in both Boston and New York City and attending meetings of such groups elsewhere. This is a good way to mingle with fintech people as both technology partners as well as marketing partners.

Tremont met Kyle Arbaugh, President and Co-Founder of Stackin’, at a fintech gathering and soon the company’s first marketing deal was arranged. Later the deeper partnership came along.

The checking account the two companies are cooperating on is called “Stackin’ Cash,” a 1% interest account free of ATM fees and monthly fees.

While anyone can join Stackin’, Arbaugh says that he and his business partner felt that many financial literacy apps are built from a big city perspective. Their own roots are in the Midwest, and Arbaugh says that Stackin’ is oriented to under 40, multicultural consumers residing in states like Ohio, Wisconsin, Michigan, and Texas.

Frankly, says Arbaugh, “these are the kinds of people that big banks and fintechs tend to ignore.”

Rather than offering a complicated app, Stackin’ offers advice through text messages.

“I don’t think everyone needs yet another app right now,” says Arbaugh.

Arbaugh has high hopes for Stackin’ and for the joint Stackin’ Cash product. “People really, really want a different type of relationship today,” he says. Peeling away layers of bureaucracy seen in large banking players is a big part of the appeal of newcomers, he says.

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