More help (from abroad) for small banks in search of deposits
The market to help U.S. small banks gain depositors and boost lending growth is proving irresistible to European fintechs.
Deposit Solutions, which is backed by Deutsche Bank, is among the most recent overseas fintechs to plan a U.S. launch for next year. Its open banking platform enables lenders to offer customers access to third-party deposit accounts in a marketplace-type setting. Deposit has brokered over $22.4 billion in deposits in Europe with nearly 100 banks since 2011.
Philipp von Girsewald, who leads Deposit’s U.S. operations, said the company is seeking to put a digital twist on a deposit brokering market that’s existed here for some three decades.
“The underlying idea is not new,” he said. “But what is new in the U.S. is that this is now done digitally. Through our platform and distribution partners, we’re connecting banks with new customers.”
Deposit follows Raisin, an online marketplace in Europe that aggregates high-yield savings accounts and CDs. Raisin announced in the summer it was branching out to the U.S. The startup has the financial backing of PayPal and Goldman Sachs.
Whereas Raisin will market directly to consumers, Deposit will act as a broker between banks involved in their network.
Stephen Greer, a senior analyst at Celent, said platforms like Deposit and Raisin will particularly help small banks. Experts estimate the American deposit market at almost $13 trillion.
“It offers a way for smaller institutions to start quickly and cheaply acquiring customers,” Greer said. “It’s something banks outside the top 10 have struggled with and these kinds of platforms will help.”
Deposit will work with CBW Bank in Weir, Kan., as a licensing partner. The bank will “handle all of the money flows and is the custodian of the customer's funds,” according to von Girsewald.
Deposit describes itself as the “middleware” in the process. It helps connect depositors from one lender with other banks offering high-yield savings accounts and CDs.
Von Girsewald said the most straightforward implementation is that a lender would integrate Deposit’s platform in its online banking front-end, either web or mobile, or as a separate proposition — completely white-labeled.
Customers would be able to choose third-party product offers from the Deposit partner bank network and deposit funds with that third-party bank from their existing account.
“At maturity, the money is automatically returned back,” von Girsewald said. “The bank keeps the client relationship. CBW handles all of the money flows and is the custodian of these funds.”
He added that Deposit provides the infrastructure for the process, but never handles the funds. “Customers can feel secure knowing the money stays in the banking system.”
Deposit’s business in Europe was made possible largely thanks to the European Union open banking directive PSD2. Though the company was founded before the law, the directive helped Deposit connect to the more banks.
Von Girsewald said the model is ideal for any size bank.
Deutsche Bank, which has a 5% stake in Deposit, started to use the fintech’s technology in 2017 to give its customers access to fixed-term deposit products from other European banks that pay higher interest, according to the bank.
“In the digital age the only players who will maintain client contact are those who can offer the best products, even if they are provided by third-party vendors,” Karl von Rohr, president of Deutsche Bank and the management board member responsible for private clients, said earlier this year when the bank’s stake in Deposit was announced.
Through September, Deutsche customers had transferred some $2.2 billion in funds to more than 23 fixed-term deposit products with from three banks.
“Deposit Solutions has the right infrastructure to enable this in the important business segment of fixed-income deposits,” von Rohr said.
Von Girsewald also envisions a scenario where Deposit can work with a search engine, listing service, or an organization like the American Automobile Association to offer consumer access to deposit accounts.
Suresh Ramamurthi, the chairman and chief technology officer at CBW, said the bank’s involvement with Deposit is twofold.
The $64.9 million-asset CBW has been working with open banking principles the past five years, making a partnership with Deposit attractive. Ramamurthi said Deposit’s ability to help “democratize” savings in the U.S. was also appealing.
“What’s going to happen [as a consumer] is, I have an extra $500 to save, and I can go through my bank’s app and find the best possible rate I’m presented at any given time,” he said.
CBW and Deposit will use application programming interfaces to integrate their systems and exchange information in real time.
“CBW’s payment infrastructure provides for state of the art APIs for these purposes,” von Girsewald said. “Deposit Solutions has its own APIs that connects all parties involved in our microservices platform.”
As for bank engagement with Deposit’s model, Ramamurthi said it’s a low-cost, quick way to add deposits, particularly to ease liquidity challenges.
“It’s about liquidity,” he said. “If you look at this from a bank perspective, at any given point, any bank has liquidity needs.”
“You may wake up on Monday morning and find you need an extra $5 million in six months for deposits," he said. "Some extra loans were made we didn’t anticipate, whatever the reason. Do we start a campaign to attract deposits? Or do you plug into a system that enables you to gather $5 million in savings accounts? That’s kind of how we’re looking at this.”