When Andrew Varga joined Republic Bank & Trust Co. in Louisville, Ky., 16 months ago as its chief innovation and strategy officer, he was tasked with developing innovative products that would address the needs of current and future customers.
In the early months, the former advertising executive and onetime chief marketing officer of Papa John's brainstormed with Steve Trager, Republic's chief executive, on various ways it could ramp up the bank's digital transformation. They discussed offering digital-only products to customers and investing more heavily in digital channels.
The idea that they landed on was far more ambitious. They decided Republic would launch a digital-only bank, dubbed MemoryBank, that would stand alone from Republic and would aim to offer simplified products. And, in perhaps an unexpected twist, this digital bank is courting those in Generation X, as opposed to the digitally obsessed — and oft-fretted over by marketers — millennial generation. The bank launched this week.
"Steve [Trager] is a forward-thinker, and we looked at opportunities to allow the bank to compete more aggressively," Varga said in a recent interview. "It was evident that this was the best opportunity for us, [Republic] has a small regional footprint, the digital bank model gives us the ability to have a national footprint. From a branding perspective, we thought it was better to establish an entirely new brand name," he added.
By launching MemoryBank, the $4.2 billion-asset Republic joins a small but growing list of banks that have established digital-only arms. For instance, Customers Bancorp's BankMobile, a unit focused on millennials that has attracted 1.5 million customers since its January 2015 launch. Toronto-based Equitable Bank operates the digital only EQ Bank. BBVA operates Simple, a neobank it acquired in 2014 and earlier this year Groupe BPCE acquired Fidor Bank, a German challenger bank. Fintech partnerships, such as the one between TD Bank and Moven, are also good examples of how banks are eyeing the digital-only space.
Despite tapping into clear trends towards bank customers adopting digital channels, a digital-only bank still faces an uphill battle to achieve mass success because many customers still like the face-to-face interaction the branch network provides, said Mark Schwanhausser, director of omnichannel financial services at Javelin Strategy & Research.
"Even the Simples and Movens of the world, which have a great concept and execution, find it tough," he said. "I think a bank that has a combination of standout digital services, plus that branch network, is still going to have quite a bit of appeal."
Where a digital-only bank can stand out from the pack, Schwanhausser said, is "around the principles of personal finance, and positioning the bank as a financial guide to the customer."
"If you can bring that to the digital world, and offer the customer a deep, digital financial relationship, that could be very appealing," he said.
While MemoryBank is envisioning a scenario similar to what Schwanhausser described, it is first product is a bet on simplicity. Its EarnMore deposit account collapses the functions of high-interest savings accounts and day-to-day checking accounts into one. It pays a 1% annual percentage yield, an additional 0.5% on all deposits for the first year, no minimum balance and Mastercard that offers cashback rewards.
"The banking world has too many products out there, and too much confusion," Varga said. "We're aiming to de-commoditize financial products."
MemoryBank has entered into agreements with ATM providers that give its customers access to some 80,000 ATMs nationally, Varga said. Also, it mobile app supports remote deposit capture, features Eyeprint ID and fingerprint ID login functionality. MemoryBank customers can also reach bank representatives via a call center or via live chat from their mobile device. According to Republic's third-quarter earnings, the bank has spent $754,000 on its digital bank initiative. Varga said that most of that was earmarked for MemoryBank, but some of it also went to improving Republic's digital offerings.
Varga said the bank has "already gotten great feedback" from its beta customers. He added that the bank is aiming to have 20,000 to 30,000 active deposit accounts in the first year.
"We'd feel really good about that," he said.
Starting a digital bank can be an attractive option for those banks that want to break free of their existing legacy infrastructure and create new bonds with customers through a new brand, said Nicole Sturgill, principal executive advisor at CEB.
"The challenge is to not just recreate the traditional products and services under a new name, but to offer new products and services that meet customers' needs better than anything on the market," she said. "Biometric security and personalized alerts are a good start."
Trager said in an email that the team has put together "our best-in-class digital offering that opens us up to opportunity beyond our current geographic boundaries."
"We are eager to serve more people in more places with products that are of great value to customers," he said.
MemoryBank is also hoping to differentiate itself by 'zigging' where everyone else is 'zagging' by going after Gen-Xers. Varga said the bank sees Gen-Xers, defined loosely as those born from the late 1960s through the early 1980s, as the ideal customer. They are typically comfortable with technology, but have accrued more wealth than their millennial counterparts.
"You have millennials on the one end. They are really digital but haven't accumulated much wealth yet. And the boomers on other end. They have money and are dipping their toe in the water [of digital] but not completely gravitating there," Varga said. "We felt Gen-X was where the greatest return on investment was."
Sturgill agrees that courting Gen X is a smart move.
"So much of the marketing bandwidth is focused on millennials and the transfer of wealth from boomers to millennials that it's easy to overlook Gen X, which has unique and vast financial needs at this stage of their lives," she said. But its approach has to go further than just marketing, Sturgill said.
"To be revolutionary, MemoryBank will need to add services that meet Gen X-specific needs, such as college savings plans for their children and financial planning for elder care," she added.
To get the word out on this new brand, Varga said MemoryBank is planning an integrated marketing and advertising campaign. In select markets, it is running television ads and using billboards, along with digital campaigns. It is working with digital marketing firm El Toro.
Nationally, it is relying on "a mix of PR and social media" to raise brand awareness, Varga said. The advertising messaging will have a nostalgic aspect to it, Varga said. After all, 1990s nostalgia is trending and this demographic, just by the virtue of their age, has amassed more memories than its younger counterparts.
Indeed, Varga said the name MemoryBank is meant to invoke "the literal idea of digital storage with the positive emotional memories collected over a lifetime."