Community banks and credit unions are at a crossroad. They are tasked with leading change management initiatives to digitize their business operations while simultaneously supporting their existing legacy infrastructure. This challenge to innovate while maintaining status quo urges leaders to consider alternative strategies in order to survive. As a result, financial institutions are beginning to launch separate online-only bank brands as part of their digital transformation strategy. As online and mobile banking become more ubiquitous, it only makes sense to consider this approach. Here are the top 10 reasons to launch a digital-only bank brand.
1. Launch an Internet Bank to Remain Competitive
The digital landscape in the financial services industry is ever-changing. While margins are shrinking, competition continues to grow. Big banks are launching online-only banks, like Finn by Chase, while technology companies like Amazon are threatening to disrupt the industry. Many community banks and credit unions are launching a standalone internet bank in the short-term to remain competitive while they look to streamline their branch networks and update their core technology for the long-term.
2. Target an Affinity Market with a Direct Bank
Launching an online-only bank brand is a strategic way to tap into a niche market to attract loyal new customers. If you already have an established affinity partnership, such as a sports team or school, launching an affinity bank will also help to generate sustainable new revenue without disrupting your current customer base. You can also consider targeting a specific group of people, like doctors or lawyers.
3. Test and Learn with a Separate Banking Brand
When you launch an online-only bank brand, your institution has the opportunity to test out new products, features and marketing strategies without disrupting the core business. This can help your team gain valuable insight for your traditional bank or credit union and reduces overall risk.
4. Offer Better Rates with a Digital Bank
Mobile and online banking offer a convenience to consumers that no longer requires them to visit a branch location. Without the costly overhead of traditional operations, digital-only banks are afforded the opportunity to offer consumers better rates on deposit accounts. It only makes sense that people will gravitate towards branchless banks with lower-cost products, fewer fees and mobile banking capabilities to help them manage their busy lives.
5. Reach Bank Deposit Goals
Some bankers worry that this strategy may cannibalize their current customers. However, many financial institutions are discovering that launching a separate online-only bank can help them target a new audience outside of their traditional footprint. This enables the institution to expand their reach to bring in sustainable new deposits and revenue growth.
6. Innovate Faster
Frustrated that your institution is lagging behind competitors? It can seem nearly impossible to enable business growth that keeps pace with how fast technology changes. When you launch an online-only bank brand by partnering with a fintech company, your new bank is able to remain agile and maintain a true leadership position.
7. Avoid Regulatory Scrutiny
Regulatory requirements in banking are complex, and there’s tremendous pressure to demonstrate Return on Investment (ROI). When you launch a digital-only bank, you can avoid the increased regulations that come with surpassing the $10 billion asset mark. Other bankers have found that regulators are more at ease when a traditional bank tests out new products on a smaller customer base.
8. Benefit from a New Core Banking System
Converting your legacy core platform can increase risk. That’s why launching an online-only bank that runs in parallel to your traditional banking business not only helps you attract new deposits and try new products and features, but also allows your institution to operate on a new core banking system without disrupting your current consumer base, thus reducing operational and reputational risk. If you happen to love the core, you always have the option to convert your technology in the future. Working with a fintech can help accelerate this transformation at a fraction of the cost.
9. Target Millennials
Under pressure to market to millennials? You’re not alone. If your current core banking functionality can’t keep up with what millennials want in a bank, then it may be wise to launch a distinct internet-only banking brand built with them in mind.
10. Start Fresh with a New Digital Bank
Change is hard, especially in banking. Starting a standalone digital bank on a new modern core gives financial institutions a fresh way to be able to work with open architecture and APIs. This allows for constant innovation by seamlessly integrating new and emerging products and third parties, without the time and cost of fixing fragmented middleware.
Launching an online-only bank has many benefits that allow you to think outside the typical banking box. When you partner with NYMBUS, we can help you launch a digital-only bank brand with our SmartLaunch business model, which enables your separate bank to be powered by our SmartCore technology. This bundled service outsources the entire operation of a bank’s new digital brand—from a customer-facing call center to back-office operations to targeted digital marketing and website services—to NYMBUS’ team of industry banking experts, all without needing a technology conversion.
Contact us to learn more or schedule a demo.