BankMobile Forms Innovation Unit as Its Digital Ambitions Widen

BankMobile in Lancaster, Pa., is dreaming big.

The mobile-first offshoot of Customers Bancorp launched in January with a formal goal of getting at least 250,000 customers in five years.

It has 6,000 so far, which is a decent start, but it recently upped the ante by setting an informal goal of 500,000 customers.

To help meet its ambitious target, BankMobile this week established a new tech division that is focused on finding technologies that help its digitally-minded — and vendor-reliant — operation acquire customers.

In so doing, BankMobile is confronting an industrywide challenge: signing up new customers online at a quicker rate than at branches — which are still the No. 1 sales channel.

"Nobody has really cracked the code on acquiring customers," said Jay Sidhu, the chief executive officer of the $7.1 billion-asset Customers and its BankMobile unit.

And until a digital service works on a large scale, it cannot seriously threaten traditional banking, he said.

"A true bank of the future hasn't been created," Sidhu said. "We are on the path to try to do that."

BankMobile faces the same challenge as banks across the country. A December 2014 report from CEB TowerGroup estimates that branch sales will decline by at least 30% from 2012 to 2017. And as they do, the pressure to boost digital sales will rise.

Sure, not all consumers want to sign up for accounts online, but a growing number of people are expected to have an interest. Brand awareness, poor onboarding experiences and security concerns are among the issues discouraging many consumers.

Even digital-only startups, which must focus their attention on wooing customers on mobile and online channels, find that trying to expand their businesses is almost like trying to catch fireflies. Officials at Regalli, a remittance and bill-pay startup, candidly blogged on the challenges they have encountered — including the heavy expenses associated with acquiring customers. It is not alone: fintech startups often find they must partner with, if not sell themselves to, a bank to stay solvent.

Getting someone's attention online when many brands are peppering the Internet with financial advice is difficult, said Nicole Sturgill, principal executive advisor with CEB TowerGroup.

And even if a company manages to attract eyeballs, it may lose out on a new customer if it lacks a smooth onboarding process, Sturgill said. That is especially challenging in the current regulatory environment where know-your-consumer compliance has been intensifying.

Some firms — including neobanks — may have trouble verifying if someone is who he says he is because, for example, he moved to a new state and has a different address than the one listed on his driver's license.

"This can slow the process down," she said. "And you can't be known for denying accounts to people … or people won't apply."

Then there's the matter of consumer concerns on security.

"News of data breaches doesn't help regardless if it's not financial services news," said Jeff Marsico, executive vice president of The Kafafian Group. "People think, 'If Ashley Madison gets hacked, why can't I get hacked?'"

Inside BankMobile Technologies
Sidhu, however, sees two big hurdles: getting young consumers to open their first account and persuading customers of other banks to take a chance on a new service.

"We need to make our delivery channel and the exceptional experiences we are offering go viral," Sidhu said.

BankMobile's new division is tasked with navigating the labyrinth of the latest and greatest tech developments just as an innovation lab at a big bank might. The engineers, who will report to Sidhu, will spend their time uncovering tech that has potential to improve BankMobile.

The division will be led by Dan Armstrong, a chief digital officer, and Kirk Barrett, the chief technology officer. All told, 12 people — some of whom are still getting recruited — will work in the unit that is on a mission to expand the BankMobile customer base out of a Silicon Valley-like office in Lancaster. It also has employees working in a Manhattan office.

But what will emerge from the new division remains to be seen. Broadly, Sidhu is keen to experiment with biometrics and video to get an edge over the branch network. And he is hopeful the group can partner or develop tech that can help capture market share within 32 to 36 months.

The latest investment by BankMobile builds on its other pursuits, including hiring college brand ambassadors to evangelize BankMobile on campus beginning this school year.

"All are experiments by us," Sidhu said. "We want to find a way to acquire customers in the thousands [per month]."