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Why Digital Startups Are Courting Consumers 'IRL'

First things first: Don't call what these startups have "branches."

It turns out that some digitally focused fintech companies are turning to the physical world to market and sell their services and products because it is a cheaper way to gain customers.

Consider Compte-Nickel, a French payments startup and subsidiary of Financiere Des Paiements Electroniques. Unlike most fintech disruptors, Compte-Nickel launched its product in physical stores, though it is managed online.

Online banks in France cough up about $220 to acquire a single customer online, according to Hugues Le Bret, co-founder and chairman of Compte-Nickel. That price is too steep for a startup that wants to lower the cost to bank — it touts no overdraft fees as one of its main attractions — but still make a profit.

"We had to find a way to get a lot of customers without investing a lot in solutions," Le Bret said.

The fintech company is partnering with tobacconist shops — which collectively get 10 million shoppers on a daily basis, says Le Bret — to sell its accounts. People pay 20 euros to sign up for the service on terminals inside the stores. The clerk checks the person's ID and activates the payment card. Within minutes, a person gets a debit card, an international bank account number and online access.

The shops get 3 euros per account opening, as well as some additional revenue from transactions, the company says.

The atypical approach for a startup speaks to the evolving way people view banking, their money and the digital world. Fintech startups are taking advantage of the eroded trust between banks and consumers caused by the financial crisis. Still, some people seek the reassurance of a physical presence when it comes to their money, specifically in the account-opening process. So, even the companies that are looking to thrive in the digital space can still benefit from offering a human touch. After all, most accounts are still opened at branches.

"When we talk about customers being more digital, it doesn't mean only digital," said Nicole Sturgill, principal executive adviser with CEB TowerGroup.

"Physical touch is very helpful. ... It gives people reassurance," she added.

The industry may discuss disruption and digital services as synonyms, but as Sturgill sees it, "it's not mutually exclusive."

The model seems to be working for Compte-Nickel. Since launching in February 2014, the company has secured 245,000 customers. It is aiming to double its customer base by the end of the year.

Bee, a mobile prepaid startup, is another company relying on the physical world to gain customers. It has peddled its product on the streets of New York for the past eight months. Like Compte-Nickel, the startup says the in-person distribution approach is not only cheaper than using a branch network but is also at least 50% less expensive than that of online marketing costs.

The in-person approach also address a concern smartphone savvy consumers still have: who's behind the app.

"We believe that our in-person interactions help us earn customer trust in a way that is very difficult to match online," said Vinay Patel, chief executive and co-founder of One Financial Holdings, the firm behind Bee.

Compte-Nickel agrees. Not only does its approach give it a physical presence, it leans on the relationships the consumers likely already have with their local tobacconist shop.

"People don't trust big institutions," Le Bret said. "They trust what is close to them."

As startups look to bring tangibility to their products and services, banks, too, are looking for ways to attract new customers outside of digital and branch channels.

Incumbent, but tech-savvy banks like Umpqua Holdings Corp., Wells Fargo and others have turned to street teams to drive awareness of products and services in new markets.

Jay Sidhu, chairman and chief executive of Customers Bank and its digital-only BankMobile unit, is particularly interested in the topic. Although he sees the branch as an archaic way of acquiring customers, BankMobile has used in-person marketing in its mix to drive awareness.

BankMobile has hired college ambassadors to spread the word — in-person and on social media channels — and enlisted street teams to promote the brand in Manhattan. Over the summer, seven BankMobile teams were spread across the city to build brand awareness and drive membership sign ups. BankMobile said it secured about 150 membership sign-ups — people who are interested in learning about the bank and are likely to open a bank account — at each street fair it attended.

Such investments are part of spreading the word and among the many tools used to humanize the brand. Ultimately, as Sidhu sees it, the way to secure acquisitions is to have satisfied customers who recommend the easy-to-use service to friends.

It was launched in January 2015 and already counts more than 100,000 customers.

Sidhu said he sees the digital referral approach as more effective than branches. Even if branches are the place where most accounts are opened, there is still not a lot of activity going on in them.

"Banking is antiquated and the most inefficient business I know of," Sidhu said.

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