00:00:01
I guess - AR JC do who is the chairman and CEO of customers bank or customers bank bank mobile and Bank mobile
00:00:10
technologies and also la lien Sidhu who is the co-founder president and chief strategy officer of bank Mobile J and
00:00:19
lovely and thank you so much for coming today to speak with knowledge at Wharton
00:00:22
so happy to be here thank you thanks for inviting us so you launched Bank Mobile
00:00:28
which you call a completely digital Bank almost three years ago in January 2015 I
00:00:35
wonder if you could talk a little bit in the beginning about how did you assess the state of digital banking in the US
00:00:42
and what's the opportunity that you saw for the launch of Bank mobile yeah banking that's a very good question the
00:00:50
banking is all about attracting customers making the customers feel very good about their relationship with a
00:00:58
bank so they become customers for life so traditionally banks have used these are the built bank branches or the
00:01:07
acquired bank branches to acquire customers and then we obviously noticed that customers are coming to the bank
00:01:15
branches less and less and less and you gotta find a way to attract the customers so so we actually put created
00:01:25
a task force and said to the task force imagine if you couldn't open a single
00:01:30
bank branch how can you acquire customers how can you be engaged with the customer so that
00:01:36
they say wow this is a great experience and how can you make them customers for life and Loveleen ended up heading that
00:01:43
task force and from that idea where we said if we won't disrupt ourselves then
00:01:50
somebody else will and we don't like to do that so that's where it all started
00:01:56
and maybe Levine can tell you how that idea brew then into where we become America's biggest and fastest growing
00:02:03
digital bank today yeah and just expand upon what you said with a few stats it's kind of astounding
00:02:10
but people on average are walking into a bank branch one to two times a year but they're interacting with their bank
00:02:16
on their mobile device 20 to 30 times a month and then talking about from a business model front for a bank bank
00:02:22
branches are only acquiring 52 net checking accounts a year per branch okay that is not an exponentially growing
00:02:30
customer acquisition vehicle so we were thinking how can we create a sustainable
00:02:36
low-cost high-volume customer acquisition strategy and that's how we were able to really develop Bank mobile
00:02:44
and we can talk to you a lot more about the strategy as we go on absolutely well why don't we take a step
00:02:49
back and look at the banking move the mobile banking market in the US as a whole how do you think it compares to
00:02:56
other parts of the world because as far as I can see a lot of the action actually seems to be happening in places
00:03:01
like Africa and the US Africa and and Asia how does the u.s. compare to those markets yeah I think that it's been a
00:03:11
lot slower in the US and I think it's partly because of the regulatory environment so it's been very difficult
00:03:18
for FinTech players or non banks to enter into the banking space I definitely think that there's there's a
00:03:25
reason why that is the case to really protect the consumer but it also creates a lot of barriers to entry for
00:03:31
innovators in the space so if you look at Africa and you look at MSA and and these that are trying to create
00:03:37
opportunities for the masses to really become banks you look at India now with the $1 card and and these numbers and
00:03:44
being able to Bank them and then you look at China that is creating digital banks that's creating payment systems
00:03:50
through WeChat and Ali pay you're absolutely right but there's also less
00:03:55
you know lower barriers to entry in terms of an opportunity for these players to innovate and I think I think
00:04:01
what's happened is US banking system is built upon having giving access to the
00:04:10
vast country's population in a local way and so there's a belief among the
00:04:16
regulators like Loveleen said that if you permit digital banking it'll principally be available in populated
00:04:23
centers that the remote areas of United States which is really the middle part of the
00:04:29
country will not have access I think that's a total fallacy and I think United States my prediction is within
00:04:36
five years we'll be a leader in digital banking globally how will that leadership be established
00:04:44
it'll be established because the Innovation Center of the world is us they are there's a lot of innovation
00:04:51
taking place in the FinTech area but it's the bank charters and it's a partnership is being debated and the
00:04:59
regulator's are preventing banks to have a good solid engagement where the FinTech companies for the benefit of the
00:05:06
consumers because they believe for whatever reason that FinTech is not good may not be good for the consumer I think
00:05:15
there is no question that you need good regulation there's no question you need
00:05:20
good consumer protection but why should one has to walk into a bank branch to open an account why this and it's
00:05:29
already disrupted whereby for credit cards you never have to go to a bank but if you want to open a checking account
00:05:35
god forbid you need to go to the bank how crazy that is so Bank mobile today has really you know
00:05:44
change that whole process whereby Bank mobile today is opening up almost as many checking accounts as Bank of
00:05:51
America is opening with approximately 4,000 plus branches across the nation and I think there'll be more Bank
00:06:00
Mobile's coming up and that's why it'll become a very common way of doing
00:06:04
banking in the United States and the regulators are just slow to adapt if you look today that they've already started
00:06:10
working on the FinTech charters that's not allowing these fintax to get FDIC
00:06:15
insured deposits but it is a start where they don't have to go state-by-state and
00:06:19
register and can start you know serving customers nationally you mentioned earlier about you know customer
00:06:26
acquisition strategy and I think one of the advantages that fintechs seem to have over traditional banks is their
00:06:33
ability to come engage with Millennials that I was wondering if you have any ideas on how how banks can engage more
00:06:42
actively with Millennials in terms of customer acquisition mm-hmm I think it's
00:06:46
it's a good question but I think it's actually maybe a false perception because we hear of a couple fintechs
00:06:53
that are doing really well and and they have great PR like Sophie Robin Hood has
00:06:58
done an extremely great a great job of acquiring customers and there is a couple it's like a handful but there's
00:07:04
thousands of FinTech companies out there and one of their main struggles is customer acquisition they're actually
00:07:10
resorting to very old-school forms of marketing like direct marketing where customer acquisition costs are 500 to a
00:07:17
thousand dollars or more which is extremely high and not sustainable and that's why we're seeing a lot of
00:07:23
consolidation of fintechs where they're either shutting down or they're having
00:07:28
to partner with banks to be able to create a sustainable customer acquisition strategy so I think it seems
00:07:33
like they're doing a great job in terms of customer acquisition because they're
00:07:36
sexy and it's a great user interface and they're finally paying attention to the
00:07:41
customer experience but in in reality banks are much better at customer acquisition because of the stickiness of
00:07:48
the direct deposit checking account relationship and it's interesting we are
00:07:53
a bank for the Malayan Millennials Bank mobile and still about 25 percent of the
00:07:58
customers that we have are over age 35 okay so there's a perception that the
00:08:05
non Millennials do not want to get engaged using digital means but I think it's the age 35 to 55 maybe is less
00:08:17
receptive but above age 55 is almost more receptive because they feel like I don't want to be left behind and
00:08:25
definitely the Millennials consider it to be a real pain to deal with someone with a brick and mortar when they can
00:08:32
get a better product at a lower price and it's more convenient through digital
00:08:36
means I have a question specifically for you because you have spent so many years
00:08:41
in the banking industry in fact I think when the last time knowledge at Wharton interviewed you you were the CEO of
00:08:49
sovereign bank which was later taken over by banco santander and so my question to you is
00:08:56
as you enter this new world of digital and mobile banking from a personal standpoint are there things that you
00:09:04
have had to learn or unlearn about how a banking is going oh no question about it
00:09:09
but at the same time the basic business of banking hasn't changed at all which
00:09:15
is acquiring customers getting engaged with those customers and considering customers for life as the faz through
00:09:24
your model for the business and what is it that the customers are looking for they're looking for ways on how we can
00:09:30
make more money save more money get more money get some help on how we can manage
00:09:34
the money it's basic stuff in the bank branches it's a lot tougher to do that
00:09:41
basic stuff because there's no consistency and certain bank branches cost you millions of dollars just like
00:09:48
the one across from Wharton over here you know between the old Commerce Bank and the sovereign bank or something
00:09:54
they're bank branches the millions per year if you can find a way to attract
00:10:00
those customers through digital means and that's where it hasn't changed so
00:10:05
yes we were looking to acquire customers through bank branches all the time when
00:10:10
I was running sovereign now we say is no bank branches how do we acquire customers so we have developed
00:10:17
partnerships and partnerships is the way to go in the digital means you look at any disruptor they are all they're
00:10:25
usually not always usually going from B to B to C you look at uber you know you look at Airbnb you know the ones with
00:10:35
the unicorns they're all doing that why are banks not doing that was a question
00:10:40
that I kept asking and we kept asking and we came to an answer and it's working so so lovely I wonder if you
00:10:48
could talk about some of these partnerships that you just mentioned yeah how do partnerships fit into the
00:10:56
way in which Bank Mobile is being growing yeah so for us we call it our leverage growth strategy
00:11:02
so how in essence can we have one distribution partner to give us access to potentially millions of customers and
00:11:10
so today the way that we've really done it is through virtual digital banks that
00:11:15
are actually eight hundred campuses across the country so we have contracts with 800 campuses and what we really
00:11:22
provide for them is proprietary technology and a lot of regulatory oversight for any payments that they
00:11:29
need to send between the school and the students and we actually saved these colleges on average about a quarter of a
00:11:35
million dollars every year for our services and in return the students at these schools get to choose this money
00:11:42
that they're receiving from the school do they want it ACH to an existing bank
00:11:46
account or do they want to open a bank mobile checking account and this has been a great way for us to open about
00:11:53
300 to 400 thousand new checking accounts each year which really makes us the number one are close to the number
00:12:01
one checking account acquirer in the nation with zero bank branches essentially so I understand that you
00:12:07
have something like 1.7 million customers that you've grown to in the past three years was this primarily your
00:12:14
growth strategy yes so right now we're really dominating the student banking
00:12:18
market so our 1.8 million customers today have an average age of 27 and primarily they are students so a lot of
00:12:27
people don't know but the student the education system in the u.s. is 60% two-year Community Schools and
00:12:33
vocational schools and and 40% traditional four-year schools and that's why our average age of 27 is a little
00:12:40
higher than you'd think you know a 20 year old or a 22 year old but it's great because we're able to
00:12:45
serve these customers when they're looking for a bank account it's an inflection point in their life
00:12:50
and to there's such a knowledge gap about credit and how to use money and money management and there's an
00:12:56
opportunity for us to play in that space as well I'd like to come back to that
00:13:00
last point you made but I have another question before that and that is both of you talked about the importance of banks
00:13:08
engaging with customers in a way that makes customers you know as you said feel good about themselves
00:13:16
if you look at more almost all the large banks today each of them has a sort of banking app and are trying to add more
00:13:23
and more digital services so whether it's Bank of America or Samsung there they have apps that you can use for
00:13:30
checking your balances for transfers bill payments basic services like that how can a mobile first you know bank
00:13:38
like bank mobile differentiate your offerings from the digital offerings of the legacy banks
00:13:44
I wonder if how do you differentiate yourselves in position yourselves yeah that's a that's a 4-game good question
00:13:52
what they are focused on is engagement with a customer and what we've shared
00:13:58
with you the business of banking first is attracting customers engaging with the customers and making them customers
00:14:05
for life so they are still totally focused on attracting customers to bank branches they haven't yet had that
00:14:13
so-called Kodak moment Kodak was the one that developed a digital camera and the
00:14:19
digital camera put Kodak out of business so they have all these hundreds and thousands of bank branches they are
00:14:26
hoping that the customer doesn't stop going to the bank branches so they are
00:14:30
very focused on making their branches slicker open different hours glass around it for stand outside invite
00:14:38
people what the for have video screens in the bank branches but guess what everybody's walking with a video screen
00:14:45
in your pocket why would they want to go talk to you in a video you know in a bank branch that's sort of crazy so they
00:14:53
need to disrupt it themselves and the reason they are not disrupting themselves is because of their
00:15:00
infrastructure and this they are making money by keeping customers misinformed and I'll be very specific today the
00:15:12
interest rates are such that consumers as an example should be getting at least 1% of their savings accounts and you
00:15:20
know what Bank of America and JP Moore and Wells Fargo's are proud of we only
00:15:26
pay point zero five percent interest they're proud of that fact imagine a business that says we are so proud that
00:15:34
we charge the highest prices but we give them an app to get it but guess what we
00:15:40
have found a way to attract customers pay them a competitive price not rip them off that is true engagement all
00:15:48
right give them the benefit of how do you make more money and that's why they are
00:15:53
either gonna have to change themselves or they'll have a gradual death that is
00:15:58
my belief haven't been a banker for the last 40 years and they're realizing this
00:16:05
and the shift is taking place but at a snail's pace so if you recently read about JP Morgan launching fin and then I
00:16:14
think it was a Wells Fargo of greenhouse so they're trying to create these sort
00:16:20
of millennial branded cool names where it will be powered by JP Morgan so they have some of the reputational
00:16:27
credibility behind them but they're trying to use this as a customer acquisition strategy the way that we
00:16:34
created Bank mobile but but it's taken than what we we launched Bank mobile like three years ago and and now they're
00:16:41
finally you know piloting these ideas so they're thinking about it but it's it's
00:16:46
it's a slow pace I think within five years you'll see at least a 50 to a 75%
00:16:53
reduction in the number of bank branches and I think these banks will wake up and
00:16:58
they have the resources to wake up and they will be fine like the Bank of America and the JP Morgan Chase for the
00:17:05
world but Loveleen is so right that they are moving at us very snail's pace Bank
00:17:11
of America closed 20% of their branches last year hmm what will the bank branch of the future look like Bank branch of
00:17:18
the future will be where people are working out of their ok to interact with their customers in the main segments and
00:17:26
they don't expect a single customer to walk in but the customer will see it just in case they ever need to walk in
00:17:32
they can walk in it's not going to be the most expensive street corner all right it could be in the 15th floor I'll
00:17:40
give you an example of customers back customers Bank has a branch at 101 Park Avenue in New York it's on the 11th
00:17:49
floor okay has 1.8 billion dollars in deposits that by itself is in the top 50 tanks in the country in size and it's on
00:18:04
the 11th 4th floor of our building imagine that is so much more efficient than all these little branches all over
00:18:13
the place in the streets of Philadelphia it's happening woken up yeah so let me
00:18:25
ask you coming back to Bank mobile you have I believe you're spinning off Bank
00:18:29
mobile and merging it with flagship Community Bank what are your goals for doing that yes so for us so we basically
00:18:40
have a regulatory sort of arbitrage that exists today because 70% of our non-interest income is coming from what
00:18:48
you call interchange revenue that is when someone swipes their debit card or their credit card but here specifically
00:18:55
we're just looking at the debit card being a bank under 10 billion in assets
00:19:00
which is what customers bank our parent company was when we started our partnership we were able to leverage as
00:19:08
much of this interchange revenue as we possibly could but under the dodd-frank it's part of the Durbin amendment banks
00:19:15
that are over 10 billion in assets make about 4 or 5 times less an interchange revenue so for us to protect our growth
00:19:23
and our future opportunity it really makes sense for Bank Mobile to be able to again be part of a banking
00:19:30
institution that's under 10 billion in assets and so we have a lot of room for
00:19:33
growth and you can give a customer's bank perspective yeah we don't like to
00:19:40
charge fees we like to have tremendous engagement we think in the technology model ok you gotta be able to have a
00:19:48
very low cost operation and the only way like Lavigne said that we make money right now is when when the
00:19:57
our customers swipe their cards so today we are making about forty five million dollars a year just with customers
00:20:04
swiping their cards if if we wouldn't spin-off Bank mobile and make it a little baby Bank again then that forty
00:20:13
five million will go down to about thirty million and that fifteen million would have to be recovered by charging
00:20:19
fees which is not a part of our model okay so we are basically spinning it off letting the team flourish and we believe
00:20:27
there is so much room for growth in this partnership banking that besides students we've announced that we will be
00:20:34
having a very large white label partner with a top-notch retail institution in the nation and we believe that was in
00:20:43
two to three years you know our customer acquisitions will go from 300 400 thousand a year to perhaps a million
00:20:51
checking accounts a year 1 million that's what I meant by that would be more than what Bank of America is doing
00:20:58
and that's only possible by spinning it off that wouldn't be possible for us to
00:21:04
do if it was part of customers Bank brings me back to a point you made earlier about you know providing banking
00:21:13
services to those who may not be part of the banking world today how important is Financial Inclusion for
00:21:23
you as a goal he's passionate about that you should you know part of the reason
00:21:28
we launched Bank Mobile is because there's millions of Americans that are really locked out of the banking system
00:21:34
whether it's you know because it's cynicism and and they don't trust the
00:21:38
banking system whether it's they can't afford the monthly fees the minimum
00:21:42
balance requirements and in reality big banks are charging Americans thirty three billion dollars a year in just
00:21:50
overdraft fees that doesn't create a sentiment of trust so we wanted to really provide a banking experience that
00:21:58
is affordable and that can really serve these individuals that are underbanked that
00:22:03
banks that are low middle-income Americans so today we do that by creating a very affordable banking
00:22:08
product which we have today we also have a very strong educational component so we have curriculums that help people
00:22:17
understand the psychology of money basic money management to be able to understand that credit components of
00:22:22
credit because even as a you know a Wharton grad myself there was a learning curve for me to understand what is
00:22:28
actually the components of credit and credit is so important for all of us to be able to you know aspire and reach our
00:22:35
dreams we're all going to need some form of credit so we have one on one coaching
00:22:39
with our financial coach as well and we have a blog that is be empowered and we're rebranding as paradigm money
00:22:46
coming out in in January so there's all different formats from visual from auditory you know different ways that
00:22:56
people can learn and really connect with us and and and really get a solid financial foundation 20% of Americans
00:23:03
are spending more than 15% of their income just to have access to financial services 20% of Americans and that Bank
00:23:16
mobile will end there we think the ones who can least afford it should spend nothing and we should have a we have a
00:23:26
duty to help those who are underserved become more financially literate and financially less dependent upon the
00:23:35
society where do you hope to go with bank mobile or the next couple of years you know for us we want to become the
00:23:44
number one acquire of checking accounts and it's not just about high volume and
00:23:49
getting as many customers that we can but it's really about this social mission that we've been talking to you
00:23:53
about there is 65 million Americans that are unbanked and underbanked there's
00:23:58
such an opportunity to serve these customers and and provide them with the financial foundation they need to really
00:24:05
reach their dreams and so it's it's really about creating customers for life
00:24:11
adding value to their banking experience all the way from convenience to your products and services that they
00:24:18
really need and I hope that in the process that we serve our customer customers we also have 220 employees to
00:24:27
be able to impact their lives and in beautiful ways and be able to expand their lives professionally personally
00:24:34
our shareholders we hope to really grow Bank Mobile in terms of very profitable endeavor over the next three to five
00:24:41
years which should be a awesome opportunity for our investors and the communities that we serve so really
00:24:47
excited about the opportunity I think we are doing good and at the same time doing really well you know and those
00:24:54
kind of opportunities exist using technology I've been in like you said in the banking business for forty five
00:25:01
years this is about the most exciting times I have ever been in the business you see an opportunity to use a new
00:25:10
means to really has your exponential growth it's no longer that 10% growth American businesses have been going
00:25:20
through either cutting the cost or finding Schloss small ways to incremental ease have slight increases
00:25:27
in revenues so that the street expects if you get 10% increase in revenues you are a growth company well I think with
00:25:37
technology the street is gonna be realizing that 20% sustainable growth is possible and that's only possible if you
00:25:47
do something unique in and deliver it in a unique way and you have a disruptive model so the future of banking in my
00:25:56
opinion is going to be based upon doing few things really well it'll be niche banking I believe
00:26:02
business banking will remain at least in the foreseeable future as a human contact that relationship at the
00:26:11
eyeball-to-eyeball level but consumer banking is going to go through a very disruptive change and that's why like we
00:26:19
were talking about the role of the bank branches is going to be totally different I just hope there are more
00:26:24
entrepreneurs looking for restaurants because bank branches to we'll make some very nice restaurants
00:26:29
you know easy to get in and out of because I can't imagine banks being able to continue to afford them anymore and
00:26:37
we have found a way to continue to attract those customers that is the key you cannot get engagement unless you
00:26:47
attract them and just like if knowledge at Wharton could get over 3 billion 3 million users globally you know we think
00:26:57
just bank mobile should have between three to five million checking account customers within a five to a seven year
00:27:07
period that is very possible and when I was running sovereign sovereign was the 20th largest bank in the nation and we
00:27:16
had 1.2 million checking account customers that's it so you're talking about three times bigger than sovereign
00:27:24
in consumer banking within a ten year period because it's been in business three and I'm talking about maybe seven
00:27:30
more years that's called exponential growth thank you both very much for speaking with knowledge at Wharton it's
00:27:37
been great to have you here thank you so much for more insight from knowledge at
00:27:43
Wharton please visit knowledge Wharton UPenn edu [Music] you