Why Radius Bank Engaged A Young Startup to Digitize Account Opening

startup-5-30-18.pngWhen Radius Bank started working with small fintech companies a couple of years ago, the management team knew it would have to accept a certain amount of risk. After all, young startup companies don’t have the five years of audited financials and other assurances that reduce the risk associated with partnering.

We decided in the company that we were going to have to take some risks as it related to working with fintechs, and we were going to have to find alternative solutions to what are being, I guess, prescribed as best vendor risk management strategies,” said President and CEO Mike Butler at Boston-based Radius, a privately-held bank with $1.1 billion in assets.

Brooklyn, New York-based Alloy was in its relative infancy when Radius engaged it to digitize its customer onboarding process, a critical move that aimed to make the process more efficient and reduce drop-offs.

Radius and Alloy are the winners of Bank Director’s FinXTech Startup Innovation of the Year, one of three annual awards that recognize successful collaboration between banks and fintech companies. The awards were announced at Bank Director’s FinXTech Summit, held in May in Scottsdale, Arizona.

Butler says the relationship with Alloy came after another fintech company, Mantl, suggested they meet after Mantl had revamped the bank’s online banking interface.

Before partnering with Radius, Alloy had been largely focused in the credit arena, working with credit card companies to make application review more efficient. When the Alloy team met their counterparts at Radius and realized that the firm’s model could apply in a retail banking channel, they jumped.

“We love companies that get passionate about our challenges. When somebody can come to us with a high degree of passion and energy, that’s a lot of due diligence right there when somebody wants to do that for you and do it well,” Butler says.

Radius did review Alloy’s financials, but also relied on references from other companies that had worked with the firm, which smoothed the bank’s concern about the risk of working with young startup.

“Prove it to me in a weekend that you think you can get this and how can you do it,” is how Butler describes the early relationship building dynamic.

What the technology does is combine multiple data points associated with typical retail account applications into a single platform and decision engine, reducing the cost and time that was associated with the old onboarding process.

Prior to Alloy’s system being integrated behind Mantl’s interface, often 30 to 40 of every 100 applications could be flagged for manual review, which adds time and cost to the approval process, says Chris Tremont, Radius’ executive vice president of virtual banking.

Now, the automated review process has reduced that manual review by a factor of 10 to only maybe three per 100.

“That gives you the magnitude of what this saves for us from what the number of people who were manually reviewing the process to those who are now being done from a technology perspective,” according to Chip Clarke, the bank’s chief data officer, who says Radius typically averages about 1,000 applications per week for standard retail deposit accounts or CD’s, where the technology is used.

From a bottom-line perspective, Tremont says what used to cost as much as $30 to open a single account has been reduced to $10-15.

It’s no secret that banks have been focused on their strategy and competitive positions with an increasing focus on growing deposits after years of being flush with deposits in a low-rate economy. But as banks begin to shift strategies with rates on the rise, the impetus has been to continue adding deposits to fund its lending operations. Retail accounts are an easy way to do this, though they can be expensive.

The technology can also be easily adjusted to customize the type of depositor the bank wants to attract.

Butler says the bank hasn’t collected enough data to fully understand the impact of the new feature, but there are clear signs it’s paying off.

“If you believe that the online or virtual channel is a source of deposits over the next three to five years, we have given ourselves a huge competitive advantage over those who haven’t even begun to think about the challenges associated with this segment,” Butler says.

Between February and March 2018, Butler says the month-over-month deposit growth was between 8 and 10 percent. And that trend is expected to continue through the latter half of the year.

“We’re just figuring out how to drive this puppy,” Butler says.

Jake Lowary