Small bank’s big digital goal: Launch 3 niche banks

While several banks are experimenting with digital-only brands in the hopes of broadening their deposit footprint, Surety Bank in DeLand, Fla., is planning to launch three, each aimed at a different niche market.

The first one, introduced this summer, is called "booyah" and is aimed at college students and young graduates. The $122 million-asset bank sees it as a way to target a specific audience outside the central Florida area and boost deposits in order to ward off competitive threats from fintechs.

It already has two other similar efforts in the works.

“We’re looking to launch two more banks in 2020,” said Ryan James, Surety Bank's CEO. “We’re currently working with former and professional athletes on creating a digital bank to support professional athletes and fans.”

Surety's efforts speak to the continuing challenges facing traditional financial institutions, which have watched as fintechs have steadily made inroads among customers. It is a particular challenge for smaller banks and credit unions, many of which are reluctant to branch out with a digital-only offering because of compliance and resource concerns.

Other small banks have created their own online-only offerings — the $231 million-asset TransPecos Bank in Texas last year launched a digital brand, BankMD, for medical professionals — but it remains relatively rare.

Surety partnered with the alternative core provider Nymbus to update its own legacy system, which enabled James and his team to move forward with the digital bank. (Nymbus also helped set up TransPecos Banks' digital brand.)

Challenger banks with over 1 million accounts

James argued that Surety's size was an advantage, allowing it to focus on a new product that might have taken a larger institution months to launch. “And our technology is just as good, if not better in many cases, as the big banks,” he said.

Booyah offers consumers much of the same features as today’s most popular challenger banks: no overdraft or monthly maintenance fees, no minimum balance and early direct deposit. The bank said its ideal target market for the brand is 20- to 40-year-olds earning $50,000 in their first or second job out of college.

James said one of digital bank’s key differentiators at the moment is a referral program that continues to reward the original account holder if their friends also make referrals that become active accounts. A booyah customer receives $25 for what is labeled a tier 1 referral when that first friend or family member opens an account and continuously meets the criteria for an active account.

A referral’s account must either have a direct deposit of at least $1,000; an average daily balance of $1,000; or $1,000 in general deposits. If that first referral recommends booyah to another friend, the original account holder receives $10, a tier 2 reward, for another active user.

The original account holder can continue to earn referral rewards at different tiers so long as the new accounts remain active and meet the requirements.

“We are taking the traditional bank marketing customer acquisition costs and putting it in the hands of clients,” James said. “This is something the client can be proud of to share with their friends, co-workers and family.”

As a result of the referral program, James expects booyah’s initial acquisition costs to decrease the longer the digital bank operates.

“We’ll have a large cost upfront for awareness,” he added. “As awareness grows, your customer acquisition costs go down as opposed to doing traditional advertising.”

Booyah says on its website that the bank is able to afford to pay the referral bonuses because it does not use its profit to advertise with Google and Facebook.

James declined to specify how many customers booyah has signed up, but he said it is test marketing in different areas, including cities like Miami and Orlando, as well as rural parts of Florida.

“You can have large customer adoption in a rural setting because consumers there are used to running everything off their cellphone,” he said.

David Mitchell, president of Nymbus, helped Surety shape its target market.

“Surety’s asset is their charter,” Mitchell said. “They can monetize that. And how you do that is looking to expand outside your brick-and-mortar footprint without opening up branches that nobody is walking into.”

Ryan said the name booyah stands out.

"It's an exciting term, and we decided to attach a lot of different colors to it. Let's make it fun," he said.

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