Shaking Up Traditional Banking

Unlike some executives, David Becker likes to be told what he’s doing wrong. The chairman and chief executive officer of First Internet Bank in Fishers, Indiana, says bank interns speak to the senior leadership team at the end of their internships to discuss ways the bank could improve. He expects the same of staff throughout the organization.

“[Our hire] is the dissatisfied banker,’’ he says. “They were in an organization that had a boatload of rules and policies. We take the banker who says, ‘What if we did this?’ We want the person who questions the day-to-day operations.”

Running the bank in such a way has paid off.

The bank’s holding company, $1.8 billion asset First Internet Bancorp, grew loans 31 percent last year from the year before, to $1.3 billion. Net income grew to $12.1 million from $8.9 million in 2015. The bank’s return on average assets was 0.81 percent in the fourth quarter of 2016, and its return on average equity was 11.24 percent. First Internet has its headquarters in Fishers, a suburb of Indianapolis, and a loan production office in Tempe, Arizona, and that’s it. With a focus on digital banking, First Internet can grow its loan book nationally while keeping expenses low. One of its niches is digitally savvy investors who own properties or businesses in multiple states because the bank can accommodate lending that may take place in different parts of the country.

Investment bank Keefe, Bruyette & Woods has an outperform rating on the stock, in part based on its cheapness relative to the bank’s performance. The bank will have to continue to grow to achieve efficiencies, because internet banks have to pay slightly more for deposits than other banks do, says Michael Perito, a KBW analyst who follows the stock.

Becker feels as if the big banks are getting consumers more accustomed to digital banking, and therefore, more likely to leave for digital-only banks. When he first started the internet bank in 1999, customers had to deposit checks by sending them in the mail to the bank. Now, they can just remotely deposit them through the bank’s mobile banking app. If customers use another bank’s ATM, First Internet reimburses them for up to $10 per month in surcharges—making up for the bank’s lack of a branch network.

The bank has been growing lately in part because it is hiring seasoned bankers to tend to its loan book of mortgages, commercial real estate and consumer loans. Becker says the bank has managed to survive by building slowly and carefully in its early years, so as not to overstep its infrastructure. “The team we have on board are all folks at the senior level that worked at multistate, large, regional banks and have the expertise and the ability to help us grow to that multi-billion-dollar position,’’ Becker says. “It is all about the people. We can create computer tools and algorithms, but at the end of the day, somebody has to talk to you if there is a problem and know how to underwrite a loan.”

The bank is acutely focused on customer service, and in its early days, it didn’t hire anyone right out of high school or in their first job. “We needed talented people who could handle anything that came in the door,’’ Becker says. There are no tellers per se, and everyone who works in customer service needs to handle multiple functions, from wire transfers to starting a new deposit account. Staffers can communicate with their customers on the phone, in online chat rooms or via email. They keep track of customer reviews on sites such as Yelp, because bad reviews can damage the company’s reputation. Software vendors are held to account, and the bank doesn’t sign any long-term contracts with vendors, Becker says.

Although the bank relies on vendors rather than developing its own software, it follows the workplace ethic of a tech company: a 24-hour gym is available, and people can show up in jeans to work every day. “We use technology to revolutionize the banking process,’’ Becker says. “There really isn’t any limit to our potential growth. Are we a drop in the bucket in the whole community of financial services? Yes. But the consumer is coming our way. We are getting better at it and we are bigger day by day.”