The tech banks are using to boost deposit growth

June 4, 2019 9:47 PM

With competition for deposits heating up, many small and medium-sized banks are turning to technology to give them an edge.

First Arkansas & Trust, for example, is using Plinqit, a goal-oriented savings app from a fintech called HTMA Holdings, in the hopes of boosting deposits.

“Obviously, keeping deposits local allows us to loan to small businesses in the area,” said Roger Sundermeier, the chief brand officer at $761 million-asset First Arkansas in Jacksonville. “And that helps to keep our local communities thriving and moving forward."

Banks also are using the lure of high-yield savings accounts to entice consumers to look outside their primary banks for services. And some banks have begun to specialize in the banking-as-a-service model to increase deposits.

Following is a look at how regional and community banks are employing tech to help in the race for deposit growth:

Fintech partnerships to hold deposits

Man holding a mobile phone and a pay

Rostislav Sedlacek - Fotolia

One of the most popular methods to help deposit growth is striking a partnership deal with an existing fintech.

Lincoln Savings Bank is often seen as the model for such a relationship. In early 2018, the Cedar Falls, Iowa-based bank partnered with the popular microsavings app Acorns on a checking account and debit card. Lincoln also provided similar help to MoneyLion, which has 3 million active users.

The partnership was twofold: those fintechs received help from an established institution to offer banking products, and Lincoln got access to digital-first customers and coveted stable deposits. Lincoln also has relationships with Square and Qapital, and has added 1.5 million customers in five years thanks to the various fintech partnerships.

Many other banks have struck similar deals. Evolve Bank & Trust, a $478 million-asset bank in West Memphis, Arkansas, holds the deposits for a fintech called Zero Financial, which combines a checking account-type experience with a credit card-style rewards.

$660.8 million-asset Stride Bank, based in Enid, Oklahoma, works with Lyft on a branded checking account to its drivers, similar to the agreement Green Dot has with Uber.

Industry observers expect such partnerships to flourish this year and beyond.

Banks acting as a banking-as-a-service

The Green Dot Corp. website is displayed for a photograph on an Apple Inc. iPhone in Washington, D.C., U.S., on Thursday, Feb. 15, 2018. Green Dot is expected to release earnings figures on February 21. Photographer: Andrew Harrer/Bloomberg

Andrew Harrer/Bloomberg

There is an alternative fintech partnership model championed by the likes of BBVA and Green Dot. Those effectively make banks serve a deposit custodians for high-profile fintechs where the customer may not even be aware who they are banking with.

BBVA Compass, the U.S. subsidiary of the Spanish multinational Banco Bilbao Vizcaya Argentaria, last year introduced its BaaS service called Open Platform, which is meant for early-stage to enterprise companies to integrate financial services into their products.

Digit, the popular savings app, earlier this year became one of the first third parties to use Open Platform for its Digit Pay offering. Digit Pay enables users to create a savings goal to help pay down credit card debt. BBVA holds the funds in the customer’s name.

BBVA also acts as the deposit custodian for online-only bank Simple. BBVA acquired Simple in 2016.

Green Dot in recent years has staked its claim in financial services as one of the more fintech-friendly companies.

Intuit, Stash, Uber and others use Green Dot’s BaaS platform to offer their customers affinity bank accounts. Pangea, a digital remittance fintech, is on the verge of becoming the first such company to offer branded checking account and will do so via Green Dot.

Green Dot in March announced plans to offer a simpler version of its BaaS platform called Bank OS to app store developers, social media influencers, midsize retailers and mom-and-pop shops.

Small banks offering high-yield savings accounts

The high-yield savings account in recent years has emerged as a key driver in helping community and regional banks build a national presence while adding coveted deposits.

A quick check of Bankrate’s monthly list for the best savings accounts nationwide routinely feature offerings from the online divisions of community and regional banks. Those banks could be on the verge of getting an assist from a European fintech to add more deposits.

Germany-based fintech Raisin is set to introduce in the U.S. an online marketplace that aggregates high-yield savings accounts and CDs. That model has garnered 13 billion euros ($14.5 billion) in deposits brokered across 75 partner banks in Europe since 2013.

Raisin, which has PayPal as an investor, believes it can not only help midsize banks had more deposits but also decrease customer acquisition costs, which average about $200 per new account.

"Everybody we spoke to has been really interested in hearing our proposition because these deposits are becoming an interesting topic again,” said Michael Stephan, Raisin’s chief operating officer.

Raisin plans to officially launch the marketplace here in the U.S. in the next 12 months.

Savings to the rescue

Kathleen Craig is one of the better allies small banks can lean on to increase deposits.

As a former banker, she understands the need for community banks and credit unions to look outside the core technology providers for inspiration and help when it comes to adding deposits. That’s one of the reasons why her company, HTMA Holdings, created the goal-oriented savings app called Plinqit.

“The cores are doing well at what they're doing, but that it's hard to innovate in companies that size,” Craig told American Banker in May. “I think they’ve identified it too, and realize they also need the fintechs that can be nimble and that can innovate and try things.”

Sparta, Mich.-based ChoiceOne Bank, with $666.7 million of assets, and First Arkansas Bank & Trust are the first two banks to offer the Plinqit to existing and potential customers. Plinqit is meant to work best in partnership with a financial institution though any consumer is free to use it without that incentive. Users link their primary checking account to Plinqit and can set various savings goals within the app.

ChoiceOne holds the deposits for national Plinqit users.

A simple bank switch?

Accenture study of bank account switching by demographic

Consumers often talk a good game about switching banks, but few actually follow through on those threats for a variety of reasons. A recent J.D. Power survey found only 4% of consumers changed banks in the past year.

But Minneapolis-based fintech ClickSwitch has developed a way to help banks lure perspective customers with the ability to change direct deposit and bill-pay information to a new institution without missing a beat.

ClickSwitch offers banks two options for the service. One is a stand-alone option which is used inside the branch. Front-end staff can start the switch at the branch and then give customers unique codes they must enter on the ClickSwitch website to complete the process.

The company’s more popular option connects to the bank’s core system, which includes account opening and online banking, so that a new customer is hit with messaging to ease the transition from another institution.

ClickSwitch recently launched a mobile API banks can integrate into their apps.

“Our new mobile API integrates into the bank’s mobile app, so if the banker runs out of time in the branch to introduce ClickSwitch, we can still target the customer in their mobile environment to easily “setup your direct deposit” within mobile or online banking,” said Cale Johnston, the company’s founder and CEO.