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FEBRUARY 3, 2016 www.cpbj.com Reprinted with permission from Central Penn Business Journal. Copyright © 2017. All rights reserved. By Jennifer Wentz | [email protected] Beyond the branch Customers Bancorp offshoot hopes to lead a branchless banking revolution A round this time last year, BankMobile was still trying to figure out the best way to disrupt the inertia of tradition- al branch-based banking. The fledgling offshoot of Wyomiss- ing-based Customers Bancorp Inc. was near- ing its first anniversary and had found about 100,000 customers. But coaxing more millen- nials — BankMobile’s biggest target audience — away from their parents’ banks, where they maybe remembered opening their first savings accounts or getting lollipops from the drive-through, was proving a tough hurdle to overcome. It’s a struggle many aspiring mobile banks have encountered over the years, and one of the reasons traditional bankers have often scoffed at the notion that these fintech start- ups pose any threat to their market shares. BankMobile believes now, though, that it has cracked the code on attracting new customers. Two years after its start, the bank has about 2 million customers and markets itself as the largest mobile-first bank in the country in terms of number of consumer checking accounts. Co-founder and chief strategy officer Lu- vleen Sidhu hopes to add at least another million to that number in the next few years as the company develops new technology to not just modernize the banking industry, but disrupt it altogether. ‘We’re not crazy’ e concept of branchless banks was not new when Luvleen Sidhu and her father, Customers Bank CEO Jay Sidhu, launched BankMobile in January 2015. Jay Sidhu had even tried his hand at one, 1st Webbank Direct, in the early 2000s when he served as head of Sovereign Bank. at en- deavor fizzled out after about a year because of customer-acquisition challenges — people could only sign up via the mail — and the fact that people just didn’t want to open their desktops to access their accounts, he told the Wall Street Journal in early 2015. But technology has grown exponentially since then. Dozens of fintech businesses — companies that specialize in digital financial services — have bounded into the branchless banking scene in the past few years, touting themselves as the industry’s inevitable future. e model has nonetheless proven tricky to sustain. Many of today’s customers do much, if not all of their, banking online, but few see the need to switch to a completely branchless bank. at’s where BankMobile sees its oppor- tunity. “Our vision was that banking, in a lot of people’s minds since the economic disaster, is the evil empire, No. 1, and No. 2, was a commodity,” said Kirk Barrett, BankMobile’s chief technology officer. e company markets itself as an alterna- tive to banks that took a public relations hit during the recession by playing up its fee-free accounts, easy-to-navigate app and small personal lines of credit meant to help younger account holders build up their credit scores. BankMobile’s leaders view the bank’s of- ferings as more sophisticated than those of so-called neobanks like Simple and Moven, which Barrett dismissed as “gussied-up pre- paid cards.” e bank also unabashedly tar- gets millennial and middle-income custom- ers, setting it apart from competitor Ally, which tends to cater to higher-earning clien- tele, Luvleen Sidhu said. “e millennials get the digital,” Barrett said, noting the proliferation of businesses like the Venmo digital wallet and Square credit card processor. “Younger digital natives are using these things because they make sense and they get it. So we’re not crazy to do a digital-only bank.” BankMobile initially marketed its products directly to consumers, a strategy that netted the fledgling bank fewer new accounts than its leaders would have liked. It turned a corner about a year ago, however, when it started developing white-label relationships with colleges and universities. In these arrangements, the bank develops software for the institutions to distribute fi- nancial aid refunds to students. BankMobile, in turn, asks the students if they would like to receive their refunds in BankMobile checking accounts. at change, plus aggressively pursuing other opportunities to expand its services, has helped BankMobile grow its number of accounts out of the thousands and into the millions. ‘I hope we can set the world on fire’ Even with their successes, the leaders at BankMobile know the whole world is not going to switch to branchless banking over- night. Many people still want face-to-face interactions with tellers and the peace of mind of having a branch down the street. “We’re honestly just not a bank for those individuals,” Luvleen Sidhu said. Instead, BankMobile wants to make sure it’s ready to take on the growing number of customers who are ready to do their banking through a screen. e company launched an innovation lab in Lancaster County in 2015 to develop its technologies in a bubble free of the distrac- tions of the day-to-day bank operations. Kirk Barrett leads that roughly 40-person team with chief digital officer Dan Armstrong. Both have a long history with innovative technologies. Barrett’s accomplishments in- clude co-founding Nolinio Inc., which cre- ated a mobile sales enablement tool, while Armstrong’s include launching first-of-their- kind mobile banking services in Africa, Asia, Europe and South America. Developing identity verification and other security measures has proven a consistent theme during Barrett’s tenure with BankMo- bile as the bank tries to find the best ways to mitigate the risks inherent in digital money transfers and never seeing a customer face- to-face. “ey say on the internet, they don’t know you’re a dog,” Barrett said, referring to a pop- ular adage about the difficulties of identity verification in the digital age. “But that’s true, because that dog is a Ukrainian hacker.” e bank is also working on innovations to expand its services, including using data analytics and artificial intelligence to help cus- tomers build financial plans around the infor- mation in their accounts, Luvleen Sidhu said. Sidhu also hopes to eventually offer customers a digital home-buying experience. At a broader level, BankMobile’s leaders are keeping a close eye on the industry’s changing regulatory environment, including the possibility of national banking charters specifically for fintech companies. ey are also considering eventually separating from Customers as the parent bank nears the $10 billion asset mark — a change that would place it under more intense regulatory scru- tiny. Luvleen Sidhu hopes to see BankMobile breach 3 million to 5 million customers in the next five years. Barrett hopes to continue building on technology that blazes the trail for the future of the banking industry. “I hope we can set the world on fire,” he said. “I hope people recognize that what we’re doing is not just another bank.” BankMobile launched a completely branchless bank catering to millennial and low- to mid- dle-income cus- tomers. W h a t ’ s t h e b r i g h t i d e a ? Luvleen Sidhu is co-founder and chief strategy officer of BankMobile, an app that targets millennials by charging no fees and operating solely online. PHOTO/AMY SPANGLER
