A rebranded bank is going after an industry where turnover is high, tenure is low and people who work within it may be unbanked or underbanked: quick service restaurants.
Sonata Bank, a relaunch of the former Sebree Deposit Bank in Sebree, Kentucky, in June 2022, is piloting a mobile app-based bank account that quick service franchisees can extend to their employees with fringe benefits such as telehealth to sweeten the pot. (Quick service is similar to fast food.) Although Sonata's niche is quick service (think: Taco Bell) and fast casual restaurants (such as Panera Bread) to start, it will eventually expand to the broader hospitality industry.
A sizable number of banks, including all the major banks in the U.S. and some regionals, lend to franchised quick service restaurants, said Jay Bandy, president of Goliath Consulting, a restaurant consulting firm. But the leadership team of Sonata Bank say they offer the whole package, including commercial banking and a consumer-facing product with banking, banking-adjacent and other employee benefit services. Their pitch to franchisees is that by providing this product to their employees for free — that is, absorbing the monthly subscription fee that Sonata Bank charges — they can reduce churn and increase retention for a population that is often young and unbanked or underbanked.
"We're trying to create a banking application that delivers employee benefits as a service," said Will Rhoads, chief innovation officer at Sonata Bank. "Any gains we bring increase employee stability and stability for the business owner."
Sonata Bank is the third collaboration between its two founders, Dan Dellinger and Farzin Ferdowsi. Dellinger is CEO of Sonata and Ferdowsi is the chair of Sonata's board. Ferdowsi also founded Management Resources Company in 1971, which owns and operates 90 Taco Bell restaurants.
"He has seen a lot of changes in the industry," said Dellinger.
The founding team has delved deeply into which needs they can meet for franchise owners and their employees, by conducting interviews with employees and reading their collective bargaining agreements to uncover sore spots. Nineteen franchisees invested in the bank's initial capital raise.
The centerpiece of Sonata's offering is a mobile banking app that includes a spending account and a debit card that replaces the need for a paycard, the method that many franchise owners use to pay their employees, especially those without bank accounts. (Paycards are similar to prepaid debit cards.) The bank will not levy overdraft or nonsufficient funds fees on these accounts. The Sonata team is also partnering with other companies to bundle more benefits into the app using open application programming interfaces. One early example is Plinqit, a company that implements automated savings programs and financial wellness content with banks. Sonata's founders also partnered with a telehealth provider, because many employees don't receive health care through their restaurant jobs. It is using StrategyCorps to offer roadside assistance, cell phone insurance and more.
"When you look at the biggest barriers, it's often not that they don't want to have the job," said Rhoads. "No call, no shows are often due to circumstances potentially outside their control, such as their cell phone gets damaged and they can't communicate with their supervisor, or their car breaks down on the side of the road and they don't have money for a tow or oil change. We try to address those specific issues."
The idea is that employers will pick and choose from Sonata which additional services they want to bundle into the mobile banking app and pay a monthly subscription fee to Sonata accordingly. If employees leave, the cost of maintaining their Sonata account and any additional services shifts to them, but Dellinger says the fee will be low.
Sonata launched a pilot program in June to see what ticks with employees in different areas. The bank is testing its product with a handful of Taco Bells in Tennessee for 90 days before expanding to other franchisees around the U.S.
Bandy points out that one key piece here is ensuring that employees have smartphones — which is not always a given in the industry. As for the other benefits, "it has some appeal," he said. "Telehealth hasn't taken off as I hoped it would. Education is nice to have. How many people will jump on that? I wouldn't bet a high percentage, but it's a benefit. As you're stacking your list of benefits as you hire people, that's helpful."
Though the dining sector has been hit hard by COVID-19, restaurateurs have pivoted to drive-thru and curbside options, and rising grocery prices are making eating out comparatively less pricey.
Another piece of the puzzle is supporting the franchisees.
Sonata's leadership team has found that the majority of franchise owners previously worked in franchise restaurants. "We are positioning ourselves as a financial partner so when they decide to become a business owner, we can be there with a full suite of products," including loans, merchant services and treasury management tools, said Rhoads. "All of this creates a powerful ecosystem, loyal customers and a lot of opportunity in the space."
There is one physical branch in Sebree and another in Brentwood, Tennessee, but otherwise, the founders intend products and services to be digital. Sonata Bank is using Alloy for know-your-customer checks; it will work with employers to gain more information about applicants and improve the KYC process. The team chose Jack Henry's SilverLake for its core and its Banno digital banking platform to easily integrate with other fintechs via APIs.
"For community banks to thrive in the future they've got to redefine what community is," said Dellinger. "They have to have a more niche-oriented focus."
