Over the last few years, the retail banking industry has been grappling with a thorny predicament: While online distribution looks like the way of the future, many Americans still like to open accounts in physical branches and are uncomfortable with the notion that their money might exist only in cyberspace.

MUFG Union Bank believes it has found a solution: a largely digital bank that also has a network of small, relatively inexpensive-to-operate physical offices.

The company opened five locations this week — in Dallas, Tampa and south Florida — under the new PurePoint Financial brand. It plans to expand soon into Chicago, Houston and New York, and to have a total of 23 PurePoint locations by the end of the year. Meanwhile, the new brand’s website launched this week, and its mobile app is in development.

PurePoint is being operated as a separate division within MUFG Union Bank. For now, it is only offering savings accounts and certificates of deposit. But eventually, assuming the industrywide shift toward digital banking continues, it could be built into a full-service bank.

PurePoint’s offices, which average 2,000 square feet, do not have teller lines or vaults, and they do not handle cash — all decisions that reduced operational costs. And since PurePoint does not offer checking accounts it will avoid the administrative costs that come with frequent transactions.

It’s not unprecedented for a mainstream bank to build a separately branded digital bank, and the industry’s track record with the concept is mixed. Bank One, which was eventually bought by JPMorgan Chase, failed to gain traction with Wingspan.com, an online bank launched in 1999, and eventually folded the online unit into the bank. However, Texas Capital Bank in Dallas has run BankDirect.com as a separately branded online-only bank since 1999.

PurePoint hopes to attract savers by offering rates that are competitive with online banks such as Ally Bank, Capital One 360 and Goldman Sachs Bank. Consumers can open accounts either online or at the PurePoint branches.

“Our business model allows us to still have physical locations and deliver a great rate by essentially taking out the highest-cost parts of a physical location,” said Pierre Habis, PurePoint’s president.

He said that PurePoint grew out of extensive research that MUFG Union Bank, a $117 billion-asset institution that is owned by the Japanese megabank the Bank of Tokyo-Mitsubishi UFJ Ltd., conducted over the last three years.

PurePoint’s website includes numerous photos of older people, who may be less comfortable with an online-only bank than their kids and grandkids. “What our research told us was, the vast majority of Americans still wanted a physical place to go to speak to someone,” Habis said.

MUFG Union Bank is seeking to build its deposit base — as of Sept. 30, 2016, it held about $89 in loans and leases for every $100 in deposits, compared with an industry-wide average of $71 — in order to support loan growth.

Today, MUFG Union’s retail operations are concentrated on the West Coast, so with the launch of PurePoint, it is gaining access to six new large markets in other parts of the country.

And the new brand offers a couple of additional benefits. First, it allows PurePoint to build a name for itself around the need for consumers to save money. Habis noted that the U.S. personal savings rate has fallen by about 50% since the 1980s. “We feel like we’re going to be the voice of the saver,” he said.

And second, the introduction of a separate brand reduces the likelihood that Union Bank’s retail customers on the West Coast will start demanding the same higher yields on savings accounts that PurePoint is offering.

On Thursday, PurePoint was offering an annual percentage yield of 0.25% for savings accounts with balances under $10,000, and 1.25% for accounts with larger balances. The national average for money market and savings accounts was an annual percentage yield of 0.11%, according to Bankrate.com.

PurePoint’s focus on savers bears some similarities to the strategy pursued by Countrywide Bank in the run-up to the subprime mortgage crisis. Countrywide Bank offered relatively high rates on savings products in a bid to lure dedicated savers. Its deposit-gathering strategy was unrelated to the problems it eventually encountered in its mortgage lending business.

Countrywide Bank’s president from 2003 to 2008 was Tim Wennes, who is currently West Coast president for MUFG Union Bank. Habis was formerly a managing director overseeing retail and commercial operations at Countrywide Bank.

During an interview Wednesday, Habis suggested that PurePoint could be expanded over time into a digital bank that offers a wider range of products, though he said that there are no current plans to cross-sell any products offered by MUFG Union Bank to the new unit’s customers.

The decision to establish PurePoint as a separate unit may also help MUFG Union Bank overcome the barriers inside large organizations to disrupting their own businesses.

“This gives them tremendous freedom to build the bank of the future off this platform,” said Todd Baker, a bank industry consultant who is also a senior fellow at the Mossavar-Rahmani Center for Business and Government at Harvard’s Kennedy School.

Meanwhile, PurePoint’s near-term focus on savings products will allow the firm to market itself as a source of expert advice for those who are looking to build their nest eggs, said Dave Martin, a retail banking consultant.

“Nothing is guaranteed success. But on its surface, it seems pretty smart,” Martin said.

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Kevin Wack

Kevin Wack

Kevin Wack is a California-based reporter for American Banker who covers the U.S. consumer finance industry.