For some financial institutions, such as Tulsa, Oklahoma-based Regent Bank, the hunt for deposits has been fierce, especially in the past 18 months. In response, the $1.7 billion Regent developed several strategies to address their deposit growth challenges and refined its existing strategies to bring in deposits, as discussed in a recent Bank Director webinar with the bank’s CEO Sean Kouplen.
One of these strategies involved launching an affinity brand: a digital-only brand created to target niche audiences, experiment with new technologies and grow liquidity with minimal cannibalization or added costs. Regent Bank’s affinity brand, called Believe Bank, is tasked with attracting deposits from an audience that wants to support nonprofits with their charitable donations. It’s part of a broader movement among financial institutions looking to expand their balance sheet while complementing the strength of their bank brand. Launching an affinity or digital-only banking brand can set institutions up for years of healthy deposit growth, but what does this process look like?
Is an Affinity Brand Worth the Effort?
If you’re considering spinning up a full digital bank with all the features, you are looking at working with most core providers and using conventional go-to-market plans. If you go this route, then an affinity brand isn’t an experiment. It’s a massive undertaking that may not be worth the effort.
However, if you’re open to dipping your toe in with a sidecar core or a virtual ledger solution to test your affinity brand, then the answer is often, yes, it’s worth it.
The cost of launching a new banking brand or operation is typically between seven to eight figures, not to mention all the operational and compliance complexity. However, the cost of engaging a partner to launch an affinity brand to test your idea can save you between 80% to 90% in expense or capital outlay, while still bringing in much-needed deposits.
Benefits of a Digital-Only Deposit Brand
1. Expanding Your Reach
By creating a digital-only brand, you can identify new demographics and market to people far outside your physical geography, which is generally extremely difficult. A digital affinity brand can let you take baby steps without building a branch or hiring local employees.
2. Attracting Younger Consumers
Based on Plinqit’s existing clients, 43% of depositors who open a high-yield savings product through an affinity or digital brand are under 40. Most of us assume older generations are those with wealth to invest in capital, but the data show otherwise. Millennials are value-driven consumers; with the right brand, they have the potential to be loyal for decades to come.
3. Limiting Cannibalization
An affinity brand allows you to target the audience that fits your ideal user profile without spilling over to your existing account holders. To date, well over half, 69%, of those funded are deposits from other large banks, including JPMorgan Chase & Co., Bank of America Corp., Capital One Financial Corp. and Wells Fargo & Co. Several banks have tested the waters with a digital brand, and one large regional bank has already generated substantial deposit growth.
For most institutions evaluating this approach, the first step is to decide if you want to launch a new digital-first product offering, and whether it should be an extension of your existing brand or under a new brand identity altogether. Or is your bank aiming to launch a new brand that’s tailored to a specific affinity group or audience?
When deciding whether it’s worth the effort to develop a digital product offering under a new brand, consider the benefits, the potential return on investment and your bank’s resources, especially around technology and partnerships. Sometimes, the best innovations are the ones that allow you to experiment and be creative with your institution’s growth strategy but require minimal investment.
