In January 2015,Wyomissing, Pa.-based CustomersBancorp Inc. launched BankMobile,a fee-free online and mobile bank platform that offers checking accounts,savings accounts, joint accounts, lines of credit and overdraft protection.Luvleen Sidhu is the division's chief strategy and marketing officer, anddaughter of Customers Bancorp Chairman and CEO Jay Sidhu. She talked to S&PGlobal Market Intelligence about fintech disruption, millennials and thediminishing role of the branch.
The following is anedited version of that conversation.
S&P Global MarketIntelligence: How are communitybanks losing out to fintech disruption? Why can't they experiment withtechnology more than bigger banks who sometimes have to battle that bureaucracyand that burden of scale?
Luvleen Sidhu:There's absolutely nothing stopping them. They are at an advantage because amajority of the ways that these banks are making money ... mainly is throughinterchange income, which is every time someone swipes their debit card. Whenyou're under $10 billion, you really have that in [your favor]. The biggestbanks need to have four or five times more volume than a community bank togenerate the same revenue per dollar.
So these smaller banks are at a huge advantage and theyreally should be doing this. I hope that there are more players out there thatdo do this. I think the fact is that it's more of a mindset. It's the peoplerunning the organization. They really have to believe in this vision and theyreally have to feel motivated because it's an investment, it's a change. Noteveryone is willing to do that, especially not from what I've heard and whatI've seen with community banks out there.
Are there any otherbanking peers who you admire for developing banking platforms or productssimilar to your own?
I think that I look up to GoBank, Moven, and Simple forbeing first movers and realizing that this need exists to create a digitalbanking experience that really focuses on a user experience that is much betterthan what currently existed in the market.
That being said, I do think that they've all struggled withdirect-to-consumer. It's not easy even though a lot of people hate their banksand they want to move, in actuality, only 5% of them actually change out of the40% that say they hate their bank and they want to move. So it's a toughstrategy and I think that they all had a lot of trouble getting customers. Outof the three, GoBank is probably the one that has done the best job in gettingcustomers and the reason I say is because of their Wal-Mart distribution andtheir partnership with Uber. They're really finding ways to do theseinteresting distribution models to acquire customers.
BankMobile expects tospin off as anindependent company in the coming years. What sort of advantages would thatprovide and what sort of challenges would it present?
The one obvious benefit is to stay under $10 billion. Thedifficulties are having to build the infrastructure around the way that we'rereliant on CustomersBank right now. We would have to build that and replace any sort ofreliance we have on Customers Bank.
There's a lot of hypearound the millennial factor in bank strategy and it seems like there's alwaysanother research report coming out that tries to demystify the group. How doyou sift through all that noise?
At the end of the day, the details and what they're findingout in the surveys don't really matter. I'm a millennial myself. Yes, I'm onthe older end of being a millennial, but I do think I'm pretty in touch withwhat this generation needs in general and we're just looking for a 'wow'experience. We're getting that everywhere else that we're using a technologypartner, but we're not getting it for banks. I just keep that in my head aswe're developing our products and developing our strategy.
To me, it's also one thing to say that you want to go aftermillennials and it's another thing to actually do it. What I mean by that isthat we have acquireda business called Higher OneHoldings Inc. That was a very strategic acquisition on our partbecause we wanted to be able to target this demographic and to do it in a realway with a recurring, sustainable customer acquisition model. We're gettingthese students when they're coming into either a two-year program or theirfour-year college program and opening up bank accounts with us.
We really have an opportunity during the time when they'reat school to do what I just said, which is really 'wow' them, to show that we'rereally adding value to their life.
I'm 23 and justgraduated from college last year. I'm pretty open to the banking options outthere. Why does a platform like BankMobile make more sense for me?
We were the first fee-free bank in the country and that'skind of the value proposition that we started with. That was a very big moverand shaker. As you know, a lot of banks, after you graduate they start stickingyou with the overdraft fees, with the minimum balance requirements, with themonthly fee requirements. We really didn't want millennials and young studentsthat have just graduated and young professionals to be burdened with that.
I think that was our first step in that direction ofproviding value. Now it's really evolving. Especially with this Higher Oneacquisition where we are getting students, these students don't have solidcredit. So, it's looking for ways that other banks really wouldn't cater tothem or provide them with credit after they graduated because they just aren'tgoing to be “good customers” for them. We view it as an opportunity over atwo-year or four-year period while they're in school to really teach them aboutsaving, to reward them for saving, for paying bills on time, for practices thathelp build financial responsibility and then rewarding them with things likecredit building products and credit building education and eventually extendingcredit when no one else would have done that for them.
That's definitely a unique way that we would be reaching outto the millennial generation, specific to our Higher One acquisition, which isone of our main feeders.
The entirely mobileplatform makes sense because millennials do most things on the phone. But onthe flipside, I think we've latched onto the small and local, the craftbusinesses of the world because we view them as genuine and authentic and maybeable to offer more of a personal service. So what's so wrong with stepping intoa bank branch? Specifically a community or regional bank where those people mightknow you better?
That sounds great, and for some people that is great andthat's probably the way they want to go. I think there are a lot of people outthere that don't need that. They don't need that friendly smile when they walkin. They don't need that hand-holding. There are other ways to createcustomization and personalization that is much more robust than the teller atthe bank remembering your name and helping you deposit a check. This is realconcrete, quantitative analysis that we can do to create something that's muchmore personalized for you than what the person can do.
Yes, I think there's a role for bank branches. I don't thinkthey're disappearing, I just think that they're going to be cut downdramatically. There are some people that are still going to enjoy that humantouch and then there are others that realize that they're getting that personalcustomization through technology-enabled ways and they're going to enjoy thatmore. That's kind of the position and angle that we're going for.