Last week, American Banker editors debated this question: what impact will BBVA Compass' decision to buy Simple, the first of the brat pack of "neobanks," have on bank innovation?
One move worth watching comes from Jay Sidhu's Customers Bancorp, which announced on Wednesday that it is building a "high-tech, high-touch" mobile-only bank that, like Simple, will target a demographic that feels no particular affinity toward traditional banks.
It's unclear if Customers' BankMobile will catch on — recall that mainstream banks' attempts to establish separately branded Internet banks in the late 1990s gained little traction among consumers — but there's no denying that the move is a bold one, observers say.
"It's interesting to see Jay's bank take this assertive move into mobile," says Jim Van Dyke, the chief executive of Javelin Strategy & Research. "With just 14 branches to support a lot of customer assets, this gives them the retail-expansion option to go the route of the two clear consumer mobile-usage leaders in the U.S.: USAA and Navy Federal Credit Union."
BankMobile has a lot in common with Simple. It will be separately branded to try and attract an audience that's different than Customers' typical clientele, the way Simple will presumably do for BBVA Compass, the U.S. banking unit of Spanish banking giant Banco Bilbao Vizcaya Argentaria. The initial target audience will be 18- to 33-year-olds, the biggest users of mobile devices.
The bank is building technology to let customers do anything they might have previously done in a branch, such as apply for a mortgage, from a mobile device. It expects to have all the pieces completed and ready to launch on Apple and BlackBerry smartphones by the third quarter.
"We want to make banking through mobile effortless and quick, always accessible and, of course, safe," says Warren Taylor, president of the $4.2 billion asset company, which is based in Wyomissing, Pa. "If the products are super simple to understand and use, they're going to elicit fewer questions."
Taylor vows that the bank will charge "none of the fees that get customers upset and create a lot of the cost." The bank can afford to do that with the mobile offering, he says, because it's a low-overhead model and the bank is not relying on mobile banking fees to be profitable.
The bank's claim that BankMobile will be "high touch" is curious: mobile banking isn't, generally speaking, high touch - it's a means of handling transactions quickly, on the go. But Taylor says that to provide virtual hand-holding, BankMobile will include a video chat feature to help customers with big decisions, such as buying or refinancing a house, retirement planning or college education planning.
Ron Shevlin, a senior analyst at Aite Group, is skeptical. "What exactly does 'high touch' mean?" he says. "With a poorly-defined buzzword, anybody can claim to deliver it. The more important question is: Do consumers who want a mobile-first bank even want 'high touch'? I would argue that the answer is no. On a day-to-day basis, they only want high touch when there's a problem that needs to be resolved."
Javelin's Van Dyke says there is ample room for banks to distinguish themselves in online banking. He points out, though, that banks don't have to go to extreme lengths, like buying an online bank or launching a separate brand, to have great mobile banking. "If they do acquire customers and technology, they should not over-pay because the organic-growth option exists," he says. (The $117 million BBVA is paying for Simple is viewed by some as high considering that the virtual bank has only 100,000 customers.)
Shevlin praises Sidhu, Customers Bancorp's CEO and the longtime CEO at Sovereign Bank, for having "an amazing track record in banking," but he believes the bank has major challenges to overcome.
For one thing, it takes a lot of money to build a consumer brand, he observes. "After four years, Simple didn't really acquire that many customers, and it had the benefit of being the technology press' darling," he says. "Can Customers Bancorp afford to invest what it takes to build a new brand as well support its existing brand?"
Another challenge is of managing two brands, one for the traditional bank and the other for BankMobile.
"Remember back in the dot-com boom when Bank One launched Wingspan? It caused a lot of customer confusion," Shevlin says. One source of confusion is emerging already: the bank says it will charge no hidden fees. "What does this say for the existing bank? Is this an admission that they charge hidden fees?"
A related challenge is convincing customers that BankMobile is truly different. "The primary reason consumers choose to do business with a 'neobank' like Simple or Moven has more to do with a desire to do business with an 'anti-bank' than it does with a desire to do business with a 'mobile-first' bank," Shevlin says. "The mobile-first stuff is nice, but what the customers of Simple and Moven are really looking for is an alternative to the traditional banking system. Customers Bancorp, in order to build a new neobank, will have to create a brand that is seen as having no ties to Customers Bancorp."