With the ranks of health savings account custodians swelling, Webster Financial Corp. of Waterbury, Conn., is trying to protect its early position as the market leader.
HSA Bank, a Sheboygan, Wis., division of Webster Bank, manages about 29% of the nation’s health savings account deposits. That makes it the largest administrator, according to the newsletter Inside Consumer-Directed Care.
But HSA Bank, which has more than 150,000 accounts owned by depositors from all 50 states, is aware that large rivals, community banks and credit unions, and even health insurers are out to build their own market share, said Kirk Hoewisch, the bank’s president.
Will they soon topple the leader?
“It’s hard to say,” said Mr. Hoewisch, who says the bank is adding 5,000 accounts a month. “We’re going to fight to stay there.”
That effort includes building distribution partnerships with technology companies that cater to insurance carriers, and with third-party administrators that help corporations handle their health insurance programs, he said.
“We want to tie claims, insurance, banking, and investing in one portal in a seamless operation,” he said, noting that HSA Bank has struck partnerships with CareGain in East Windsor, N.J., and Quality Care Solutions Inc. in Phoenix, and is working on others.
The new industry is growing fast. In 2005, the number of financial institutions offering health savings accounts soared from 100 to 600, and total deposits topped $2 billion in March, according to Information Strategies Inc., a media and marketing company.
Experts say the $17.9 billion-asset Webster will have its hands full fending off large nationals.
“It’s likely that the big banks will overtake them in terms of growth dollars, but not necessarily in average account size,” said Alenka Grealish, the manager of the banking group at the Boston consulting firm Celent. “It’s definitely a land grab.”
Among those gunning for the lead is Mellon Financial Corp. The Pittsburgh company sold its HSA business last year to Affiliated Computer Services Inc. of Dallas but still handles custody and other back-end functions.
The business is nearing 100,000 accounts and $70 million of assets under custody, said Darren Baer, a first vice president with Mellon.
Mellon and Affiliated are “absolutely” aiming to snare the HSA lead, and are targeting large corporations to do so, Mr. Baer said. He added that Smaller employers have powered the HSA industry thus far, but a “second wave of larger corporate adoptions” is coming, he said. Affiliated’s consulting and training strength should help sway those companies.
“In our first year, we focused on locking down distribution agreements with large health plans,” Mr. Baer said. “Now we are using the Mellon channel to go to the big companies.”
Wells Fargo & Co. is “very committed” to investing in the HSA field, said Jose Becquer, an executive vice president in the San Francisco company’s bank wholesale services group.
Wells had 55,000 accounts and $37 million of HSA deposits at the end of 2005, according to Inside Consumer-Directed Care.
“We believe there is a huge opportunity, and we are positioned to be a significant player in this space,” Mr. Becquer said.
Accessibility and visibility for account holders is crucial to HSA success, Mr. Becquer added. Wells plans to emphasize, for instance, the ease of moving HSA funds between different investment options, he said.
JPMorgan Chase & Co. had 80,000 accounts as of February, based on estimates from Inside Consumer-Directed Care. It plans to build on that through its alliances with 10 insurance partners, said Martha Beard, a senior vice president and the head of the New York company’s health-care solutions business.
It touts easy navigation for online management. Ms. Beard said customers can do everything from seeing their HSA balances to allocating the money into different investment vehicles with one logon.
JPMorgan Chase is also studying cobranding opportunities. For example, it is considering a rewards program that puts dollars into a health savings account based on purchases with the bank’s credit cards, Ms. Beard said.
But JPMorgan Chase is not looking at HSAs in a vacuum, she said. The health-care industry is ripe for improvement in information delivery and electronification of certain claims processes, which are things banks can deliver and are areas where Chase is “making investments,” she said.
Meanwhile, HSA Bank is not just watching the big banks. Insurance companies are in its rear-view mirror as well, Mr. Hoewisch said.
“We’ve definitely seen a trend where large insurance carriers seem to be wanting to own their own banking operations,” he said, citing United Healthcare’s 4-year-old Exante Financial Services and the December announcement by Blue Cross Blue Shield Association that it plans to charter a similar institution.
“The question is whether they can pull that off successfully,” Mr. Hoewisch said. “If they can, they may dominate the industry.”
Community banks and credit unions must be reckoned with as well. They were on the sidelines while Webster and others built their businesses, but they now claim 16% of the market, according to estimates by Information Strategies. The company says that because of HSA demand among their small-business customer base, these smaller institutions could own 30% of the market by 2010.
“They are finally waking up,” said Donald Mazzella, Information Strategies’ editorial director.
