When the digital-only
Bask, a unit of the $34.7 billion-asset Texas Capital Bancshares, recently began offering a high-interest savings account with a 0.70% annual percentage yield. The national average is 0.06%, according to the Federal Deposit Insurance Corp.
While the Dallas bank's airline reward account was creative, it wasn't one-size-fits-all. “One of the things we heard again and again was, 'We’d love it if you also had an interest product,’ ” said Matt Quale, Bask Bank’s president.
Still, the bank says its inaugural miles account has been successful, in large part because it resonated with frequent flyers, according to Quale, who declined to say exactly how much in deposits the account brought in.
“One of the things I’ve learned is how enthusiastic people are about seeking and collecting miles,” Quale said. “There’s a subset of the country that’s incredibly passionate about this.”
High-yield digital savings accounts date back to the dotcom era, when banks like ING Group and the New York-based Emigrant Savings Emigrant Bank launched online ventures —
It was also an era of affinity banks, with digital accounts developed for
Niche digital bank accounts have experienced a resurgence in recent years, though perhaps with a bit less whimsy. For example, KeyCorp in Cleveland
Texas National Bank President and CEO Mike Fernandez said his $171.2 million-asset institution plans to introduce a digital bank this spring to expand its reach beyond its home markets of Sweetwater and Tuscola.
A digital bank is significantly less expensive to bring to market than other expansion alternatives, Fernandez said.
“We’re going to spend $100,000 up front and we’ll have our ongoing costs. Compare that to a branch acquisition, a bank acquisition, a de novo branch. Those are seven-figure endeavors,” Fernandez said.
As part of its due diligence, Fernandez said Texas National studied Texas Capital’s experience with Bask Bank. It also looked at BankMd, launched by San Antonio-based TransPecos Banks in 2019. Since opening BankMD, TransPecos has doubled in size to $443 million of assets.
Key is reporting similarly positive results for Laurel Road, albeit on a much larger scale. The online unit’s originations have totaled $1.15 billion since it opened in March.
“We like the [digital bank] option, and we like our chances,” Fernandez said.
That said, the low cost of entry means that more and more competitors will enter the market, along with money center banks who “do a really good job,” according to Mark Atherton, head of Americas and Europe for Oracle Financial Services.
“If you’re a retail customer of Chase or Bank of America, you actually get pretty good service,” Atherton said in an interview. “It’s going to continue to be tough sledding for digital upstarts because the big banks are so sticky.”
Atherton’s advice for digital aspirants is to “take a page out of the credit union playbook” and focus on a tightly-defined affinity group rather than competing in the wider marketplace.
“I think the affinity strategy is interesting because those groups have historically been served by credit unions,” Atherton said. “The credit unions don’t always have the best technology partners behind them where they’re on the forefront of innovation.”
According to Quale, Bask Bank’s airline miles account, which is offered in partnership with American Airlines, gave it a “differentiated offering” in the increasingly competitive marketplace of national digital banks.
American Airlines also partners with Citigroup on its Miles Ahead savings account, which offers a bonus of up to 50,000 miles for opening an account but does not offer miles in lieu of interest. Customers can earn more miles by spending on a linked Citi AAdvantage credit card, according to an airline spokeswoman.
For Bask, the new high-interest account is a natural second act since it provides the bank’s travel-enthusiast clientele with a vehicle to generate cash for trip expenses beyond air fare, Quale said.
“I think part of the reason people also asked us for an interest product is they wanted to save” for other travel costs, Quale said. “Help me get to the location for free and I can spend my interest savings on my restaurants, my rental cars, my other expenses.”
Bask is already giving some thought to future products. “Everything is on the road map in terms of what we might do,” Quale said. “The thing we really try doing is listening to our customers, listening to the feedback and making enhancements along the platform.”
