Challenger bank tailors rates to encourage savings

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As financial companies nudge their customers in small ways to save more, a neobank is making the concept central to its business plan.

HMBradley will offer customers up to 3% in annual percentage yields on a combined checking and savings account provided they save a set portion of their direct deposits every month. The money would be held in federally insured accounts provided by Hatch Bank in San Marcos, Calif.

In the past, community banks, credit unions and challengers have doled out small financial rewards for customers who watch videos, or read material related to good money habits. Larger banks like Bank of America round up debit card purchases and deposit the difference into customers’ savings accounts.

But Zach Bruhnke, co-founder and CEO of HMBradley, says such efforts don’t go far enough to customize what he calls “positive financial behavior” on an individual level.

“We are choosing to treat each customer like an individual, offering competitive rates for all of our customers, and industry-best rates for customers who save the most,” he said.

“We tier this by percentage, not dollar amount, of their income because we believe banking can and should be truly egalitarian,” Bruhnke added.

Customers who save more than 20% of their direct deposits each month are eligible for the highest rate. Users who save between 15% and just below 20% of direct deposits receive a rate of 2.25% APY.

The percentage drops to 1.50% for those customers saving between 10% and just below 15% of direct deposits. The lowest rate is 1% APY for users saving between 5% and just below 10% of direct deposits.


Bruhnke’s idea for HMBradley, which has the financial backing of PayPal and Affirm co-founder Max Levchin, is loosely based on how ING Direct marketed itself before Capital One Financial purchased the firm in 2013.

“It was really ING that came out and said, save your money,” said Bruhnke, who said his company has an office conference room named ING Direct. “It worked incredibly well for them. We all remember them going from zero to $1 billion in deposits” in less than two years.

HMBradley’s intense focus on savings is something banks could mimic.

“That is a fascinating approach and one that hits on the really important issue of financial health,” Corey LeBlanc, chief digital and innovation officer at the $5 billion-asset Origin Bank, said of HMBradley’s approach.

“We are talking with a few companies about how to promote, maybe incentivize, ‘positive financial behavior,' " LeBlanc said. “I wouldn’t say we are close to moving on something like higher interest rates, but are diving in to try to determine what we can do to empower our customers with the right tools, services, and/or personal incentive to take control of their financial lives.”

HMBradley also will challenge customers to save money in other ways when it officially launches in the first quarter.

For instance, if an account holder chooses to save the cash-back awards they earn from the HMBradley credit card for 12 months, the company will double the amount after that period.

“We want to encourage our customers to think about cash back in a different way,” Bruhnke said. “Don’t think about applying it to your bill; think about how I can turn this into something more.”

“You’re going to see us take that mantra of savings and apply it to everything that we do,” he said.

HMBradley also will be one of the few neobanks that has a firm plan to offer auto, home equity and other types of loans.

“As consumers, this is something that we want: a bank that can actually lend to us,” Bruhnke said. “Ultimately we want a bank that can eventually give us a mortgage, sell us a car and offer us a credit card that we want to use. That’s why we felt like it was important to be able to lend quickly."

The lending products also give HMBradley a different way to go about attracting consumers to open high-APY accounts, which often have different gimmicks associated with them.

Beam, co-founded by a former investment banker at JPMorgan Chase, gamifies tasks like inviting friends and family to open an account. It enables customers to interact with the app to set their own APY.

Blast, created by Acorns co-founder Walter Cruttenden, managed to mix actual gaming with savings, and enables users to sweep rewards into a federally insured savings account with 2% APY.

That HMBradley links the APY to direct deposit activity, along with other products like credit cards and loans, theoretically should prevent customers from leaving the challenger and shopping around for the best rate.

“Banks that use rates or other rewards to influence savings or other financial behavior tend to have more success when they have a highly segmented and targeted approach,” said Julien Courbe, PwC’s financial services leader. “Understanding individual customer preferences and past behaviors are critical to have an effective program to steer behavior and to satisfy the overall consumer needs.”

HMBradley, of Santa Monica, Calif., now has a waiting list for the account where customers can lock down the 3% APY; they must make a direct deposit in the first 30 days the service is available.

It also announced a $3.5 million seed round, led by Accomplice Ventures and Walkabout Ventures with participation from Mucker Capital, Index Ventures and several others including HVF Labs, which Levchin owns.

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