Santander joins crowded field of online deposit gathering

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When Santander Bank said recently that it will launch an online money market account next year, the announcement raised a natural question: Is it too late to the game?

Many banks have established digital-only deposit-gathering operations in the past few years. Their motivations are clear: appeal to digital-savvy (and often younger) customers, compete with the explosion of challenger banks and other fintechs, and affordably expand outside their legacy markets in search of new customers and additional liquidity.

Some traditional banks have established digital brands separate from their brick-and-mortar business, like Citizens Financial Group did with Citizens Access and MUFG Union Bank did with PurePoint. Others, like PNC Financial Services Group, have paired some strategic branch openings with a strong online deposit-gathering effort. And they are all competing with nontraditional players such as the investment bank Goldman Sachs, which offers high-yield savings through its all-digital Marcus brand.

When asked if the online deposit marketplace has become saturated, several industry observers contacted for this story said the window is still open provided banks price and market those offerings intelligently. But there is a real danger in waiting too much longer.

“Absolutely there is a first-mover advantage,” said Adam Stockton, a director in the consumer pricing practice at Novantas. “It’s easier to grow in a less crowded market. Marketing has gotten more expensive, and it’s gotten more difficult to get customers to notice you. The rate competition is very intense. The rate you have to pay is more expensive.”

Yet it is still an important investment to make as a bank, he said. While consumers largely are not ready to totally give up branch access, Stockton said his research and analysis found that digital factors are now at least as important as physical locations. Much of the industry is currently in an “awkward middle ground,” having to balance investment in digital channels with the overhead costs of branches, he said.

“In the short term, that means online deposit gathering has become really critical for banks looking to grow deposits at above market rates,” Stockton said.

Santander, based in Boston, said it is acting now because it is responding to consumer demand for online deposit products, evidenced at least partly by the success some competitors have had.

The account-opening process for the $81.4 billion-asset bank’s new money market will be totally digital, but consumers will also be able to access their accounts in the branch network if they choose; this is in contrast to some, like Citizens Access, which are totally separate from the branch. However, Santander is planning to market the deposit account mostly outside its current footprint and therefore anticipates most people will interact on a mostly digital basis anyway, said Maria Veltre, head of digital, innovation and strategy for Santander U.S.

“What we’re really trying to do is make sure we have a competitive offering for a money market account that somebody can open online anywhere in the U.S., with our target being outside of our footprint,” she said. “We started thinking about it this year as a way to expand our digital offerings to our customers.”

Santander has not yet pinned down exactly when in 2020 it will launch the product, but Veltre said “it will be later in the year, rather than earlier.”

The bank is also still finalizing some other details, including the minimum deposit it will require and the rate it will offer. Veltre said the bank plans to offer a “competitive” rate but not one that is so high it will attract rate chasers inclined to move their money frequently in search of better rates.

“We are certainly not thinking of this as being a market-crushing rate,” she said. “We would like to attract a consumer who is looking for a very good competitive rate but isn’t always looking to move that money whenever the rate changes.”

Other regional bank executives have sounded a similar theme. Phil Green, chairman and CEO of Cullen/Frost Bankers in San Antonio, said recently that while Frost Bank tries to pay “a fair rate” on deposits, “we don’t try to be the highest rate.” Some online banks have experimented with pricing strategies to get consumers to stick around for the long term, for example by requiring large minimum balances or tying rates to regular contributions.

Veltre said that Santander has no plans to tie the money market to another product or cross-sell effort. However, some say that by at least getting into the game right now, Santander is setting itself up for new digital strategies it may want to try in the future.

“I think Santander is on the right track, and it may serve as a template for other product and engagement strategies as the bank moves forward,” said Greg O’Gara, a senior research analyst with Aite Group. “Banks are still in prime territory to scale their business through technology.”

Certain factors could work in favor of Santander and other new entrants, O’Gara said. Market volatility and a coming election year could motivate some investors to look for more stable places to park their cash.

“This could be good timing,” he said. “It’s never too late to offer your retail client base a higher return for their cash deposits.”

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