November 26, 2018
By Andrew Beatty, SVP Global Banking Product Management
We’ve shared the five business reasons direct banks are popping up everywhere. We’ve told you that direct banks are forecasted to attract more than 50 million new deposit customers by 2020. But how do you make the leap from thinking you could benefit from a direct bank model, to bringing a successful one to market?
Having supported dozens of clients in their direct bank launch, we recommend financial institutions consider these four questions to shape their successful direct bank strategy.
How digital will/can you be?
Are you planning to be completely paperless and fully e-sign capable? This approach can reduce your technology costs and improve efficiency ratios—and is the preferred model for many direct banks. In addition, an automated online account opening process that allows the customer to open an account in minutes removes friction points, while improving efficiency and lowering customer acquisition costs.
Key Fact: Mobile emerged as the most used banking channel in our 2018 PACE report, for the first-time ever. Further, 72% of bank interactions now take place digitally.
What are your intended revenue streams?
Will you rely on fees and similar charges as a revenue stream source, or market your offering as completely ‘free’? Your answer to this should coincide with the target markets you’ve identified; it will dictate the products and services your direct bank offers.
Key Fact: Online bank customers generate more than double the revenue of a traditional bank customer for some direct banks, according to The Financial Times.
Is your goal to increase lower cost retail deposits?
Many banks seek to replace higher cost deposits with lower cost retail deposits, in the very near future. If this is one of your objectives, consider offering savings or timed deposit accounts (like a certificate of deposit), with higher minimum balance requirements and a higher interest rate to attract deposits and reduce the likelihood that customers will move funds if they find a more competitive rate.
Key Fact: Tap the right marketing channel to drive deposits: According to a 2018 JD Power study, 50% of Gen X, Gen Y and mass affluent customers cited social media as having been influential in their decision to choose and use a direct bank.
Do you want to expand your customer base?
Direct banks offer the opportunity to reach an entirely new customer base (including the unbanked/underbanked)—any time and from anywhere. But what do you want that relationship to look like in the longer term? If you plan to cross-sell products like credit cards, insurance or mortgages, consider offering savings and timed deposit accounts with no minimum balance requirements, and checking accounts with direct deposit capability.
Key Fact: Nearly half of the clients surveyed in our 2018 Pace report had two or more banking relationships.
To read the complete list of questions you need to answer to develop your direct bank strategy, click here.
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