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our guests are JC do who is the chairman and CEO of customers Bank or customers Bank Bank mobile and Bank mobile technologies and also la lien Sidhu who is the co-founder president and chief strategy officer of bank mobile J and lovleen thank you so much for coming today to speak with knowledge at Wharton so happy to be here thank you thanks for inviting us so you launched Bank Mobile which you call a completely digital Bank almost three years ago in January 2015 I wonder if you could talk a little bit in the beginning about how did you assess the state of digital banking in the US and what's the opportunity that you saw for the launch of Bank mobile yeah banking that's a very good question the banking is all about attracting customers making the customers feel very good about their relationship with the bank so they become customers for life so traditionally banks have used either they built Bank branches or they acquired Bank branches to acquire customers and then we obviously noticed that customers are coming to the bank branches less and less and less and you gotta find a way to attract the customers so so we actually put created a task force and said to the task force imagine if you couldn't open a single bank branch how can you acquire customers how can you be engaged with the customer so that they say wow this is a great experience and how can you make them customers for life and lovleen ended up heading that task force and from that idea where we said if we won't disrupt ourselves then somebody else will and we don't like to do that so that's where it all started and maybe Levine can tell you how that idea brew then into where we become America's biggest and fastest growing digital bank today yeah and just expand upon what you said with a few stats it's kind of astounding but people on average are walking into a bank branch one to two times a year but they're interacting with their bank on their mobile device 20 to 30 times a month and then talking about from a business model front for a bank bank branches are only acquiring 52 net checking accounts a year per branch okay that is not an exponentially growing customer acquisition vehicle so we were thinking how can we create a sustainable low-cost high-volume customer acquisition strategy and that's how we were able to really develop Bank mobile and we can talk to you a lot more about the strategy as we go on absolutely well why don't we take a step back and look at the banking move the mobile banking market in the US as a whole how do you think it compares to other parts of the world because as far as I can see a lot of the action actually seems to be happening in places like Africa and the US Africa and and Asia how does the u.s. compare to those markets yeah I think that it's been a lot slower in the US and I think it's partly because of the regulatory environment so it's been very difficult for FinTech players or non banks to enter into the banking space I definitely think that there's there's a reason why that is the case to really protect the consumer but it also creates a lot of barriers to entry for innovators in the space so if you look at Africa and you look at MSA and and these that are trying to create opportunities for the masses to really become banks you look at India now with the $1 card and in these numbers and being able to bank them and then you look at China that is creating digital banks that's creating payment systems through WeChat and Ali pay you're absolutely right but there's also less you know lower barriers to entry in terms of an opportunity for these players to innovate and I think I think what's happened is US banking system is built upon having giving access to the vast country's population in a local way and so there's a belief among the regulators like Loveleen said that if you permit digital banking it'll principally be available in populated centers that the remote areas of United States which is really the middle part of the country will not have access I think that's a total fallacy and I think United States my prediction is within five years we'll be a leader in digital banking globally how will that leadership be established it'll be established because the Innovation Center of the world is us they are there's a lot of innovation taking place in the FinTech area but it's the bank charters and it's a partnership is being debated and the regulator's are preventing banks to have a good solid engagement where the FinTech companies for the benefit of the consumers because they believe for whatever reason that FinTech is not good may not be good for the consumer I think there is no question that you need good regulation there's no question you need good consumer protection but why should one has to walk into a bank branch to open an account why this and it's already disrupted whereby for credit cards you never have to go to a bank but if you want to open a checking account god forbid you need to go to the bank how crazy that is so Bank mobile today has really you know changed that whole process whereby Bank mobile today is opening up almost as many checking accounts as Bank of America is opening with approximately 4,000 plus branches across the nation and I think there'll be more Bank Mobile's coming up and that's why it'll become a very common way of doing banking in United States and the regulators are just slow to adapt if you look today that they've already started working on the FinTech charters that's not allowing these fintax to get FDIC insured deposits but it is a start where they don't have to go state-by-state and register and can start you know serving customers nationally you mentioned earlier about you know customer acquisition strategy and I think one of the advantages that fintechs seem to have over traditional banks is their ability to come engage with Millennials and I was wondering if you have any ideas on how how banks can engage more actively with Millennials in terms of customer acquisition mm-hmm I think it's it's a good question but I think it's actually maybe a false perception because we hear of a couple fintechs that are doing really well and and they have great PR like Sophie Robin Hood has done an extremely great a great job of acquiring customers and there is a couple it's like a handful but there's thousands of FinTech companies out there and one of their main struggles is customer acquisition they're actually resorting to very old-school forms of marketing like direct marketing where customer acquisition costs are 500 to a thousand dollars or more which is extremely high and not sustainable and that's why we're seeing a lot of consolidation of fintechs where they're either shutting down or they're having to partner with banks to be able to create a sustainable customer acquisition strategies so I think it seems like they're doing a great job in terms of customer acquisition because they're sexy and it's a great user interface and they're finally paying attention to the customer experience but in in reality banks are much better at customer acquisition because of the stickiness of the direct deposit checking account relationship and it's interesting we are a bank for the Malayan Millennials Bank mobile and still about 25 percent of the customers that we have are over age 35 okay so there's a perception that the non Millennials do not want to get engaged using digital means but I think it's the age 35 to 55 maybe is less receptive but above age 55 is almost more receptive because they feel like I don't want to be left behind and definitely the Millennials consider it to be a real pain to deal with someone with a brick and mortar when they can get a better product at a lower price and it's more convenient through digital means I have a question specifically for you because you have spent so many years in the banking industry in fact I think when last time knowledge at Wharton interviewed you you were the CEO of Sovereign Bank which was later taken over by banco santander and so my question to you is as you enter this new world of digital and mobile banking from a personal standpoint are the things that you have had to learn or unlearn about how a banking is going oh no question about it but at the same time the basic business of banking hasn't changed at all which is acquiring customers getting engaged with those customers and considering customers for life as the faster your model for the business and what is it that the customers are looking for they're looking for ways on how we can make more money save more money get more money get some help on how we can manage the money it's basic stuff in the bank branches it's a lot tougher to do that basic stuff because there's no consistency and certain bank branches cost you millions of dollars just like the one across from Wharton over here you know between the old Commerce Bank and the sovereign bank or something they're bank branches the millions per year if you can find a way to attract those customers through digital means and that's where it hasn't changed so yes we were looking to acquire customers to bank branches all the time when I was running sovereign now we say is no bank branches how do we acquire customers so we have developed partnerships and partnerships is the way to go in the digital means you look at any disruptor they are all they're usually not always usually going from B to B to C you look at uber you know you look at Airbnb you know the ones the unicorns they're all doing that why are banks not doing that was a question that I kept asking and we kept asking and we came to an answer and it's working great so so lovely I wonder if you could talk about some of these partnerships that do you just mentioned yeah how do partnerships fit into the way in which Bank Mobile is being growing yeah so for us we call it our leverage growth strategy so how in essence can have one distribution partner to give us access to potentially millions of customers and so today the way that we've really done it is through virtual digital banks that are actually eight hundred campuses across the country so we have contracts with 800 campuses and what we really provide for them is proprietary technology and a lot of regulatory oversight for any payments that they need to send between the school and the students and we actually saved these colleges on average about a quarter of a million dollars every year for our services and in return the students at these schools get to choose this money that they're receiving from the school do they want it ACH to an existing bank account or do they want to open a bank mobile checking account and this has been a great way for us to open about 300 to 400 thousand new checking accounts each year which really makes us the number one are close to the number one checking account acquirer in the nation with zero bank branches essentially so I understand that you have something like 1.7 million customers that you've grown to in the past three years was this primarily your growth strategy yes so right now we're really dominating the student banking market so our 1.8 million customers today have an average age of 27 and primarily they are students so a lot of people don't know but the student education system in the u.s. is 60% two-year Community Schools and vocational schools and and 40% traditional four-year schools and that's why our average age of 27 is a little higher than you'd think you know a 20 year old or a 22 year old but it's great because we're able to serve these customers when they're looking for a bank account it's an inflection point in their life and two there's such a knowledge gap about credit and how to use money and money management and there's an opportunity for us to play in that space as well I'd like to come back to that last point you made but I have another question before that and that is both of you talked about the importance of banks engaging with customers in a way that makes customers you know as you said feel good about themselves if you look at more almost all the large banks today each of them has a sort of banking app and are trying to add more and more digital services so whether it's Bank of America or Samsung there they have apps that you can use for checking your balances for transfers milk payments basic services like that how can a mobile first you know Bank like bank mobile differentiate your offerings from the digital offerings of the legacy banks I wonder if how do you differentiate yourselves in position yourselves yeah that's a that's a again good question what they are focused on is engagement with a customer and what we've shared with you the business of banking first is attracting customers engaging with the customers and making them customers for life so they are still totally focused on attracting customers to bank branches they haven't yet had that so-called Kodak moment Kodak was the one that developed a digital camera and the digital camera put Kodak out of business so they have all these hundreds and thousands of bank branches they are hoping that the customer doesn't stop going to the bank branches so they are very focused on making their branches slicker open different hours glass around it for stand outside invite people what the all have video screens in the bank branches but guess what everybody's walking with a video screen in your pocket why would they want to go talk to you in a video you know in a bank branch that's sort of crazy so they need to disrupt it themselves and the reason they are not disrupting themselves is because of their infrastructure and this they are making money by keeping customers misinformed and I'll be very specific today the interest rates are such that consumers as an example should be getting at least 1% on their savings accounts and you know what Bank of America and Gerry Morand well Wells Fargo's been are proud of we only pay point zero five percent interest they're proud of that fact imagine a bill that says we are so proud that we charge the highest prices but we give them an app to get it but guess what we have found a way to attract customers pay them a competitive price not rip them off that is true engagement all right give them the benefit of how do you make more money and that's why they are either gonna have to change themselves or they'll have a gradual death that is my belief haven't been a banker for the last 40 years and they're realizing this and the shift is taking place but at a snail's pace so if you recently read about JP Morgan launching fin and then I think it was a Wells Fargo a greenhouse so they're trying to create these sort of millennial branded cool names where it will be powered by JP Morgan so they have some of the reputational credibility behind them but they're trying to use this as a customer acquisition strategy the way that we created Bank mobile but but it's taken than what we we launched Bank mobile like three years ago and and now they're finally you know piloting these ideas so they're thinking about it but it's it's a slow pace I think within five years you'll see at least a 50 to a 75% reduction in the number of bank branches and I think these banks will wake up and they have the resources to wake up and they will be fine like the Bank of America and the JPMorgan Chase's of the world but Loveleen is so right that they are moving at a very snail's pace Bank of America closed 20% of their branches last year hmm what will the bank branch at the future look like Bank branch of the future will be where people are working out of there okay to interact with their customers in the main segment and they don't expect a single customer to walk in but the customer will see it just in case they ever need to walk in they can walk in it's not going to be the most expensive street corner all right it could be in the 15th floor I'll give you an example of customers Bank customers Bank has a branch at 101 Park new in New York it's on the 11th floor has 1.8 billion dollars in deposits that by itself is in the top 50 tanks in the country in size and it's on the 11th 4th floor of our building imagine that is so much more efficient than all these little branches all over the place in the streets of Philadelphia it's happening so so let me ask you coming
ack to bank mobile you I believe you're spinning off bank mobile and merging it with flagship Community Bank what are your goals for doing that yes so for us so we basically have a regulatory sort of arbitrage that exists today because 70% of our non-interest income is coming from what you call interchange revenue and that is when someone swipes their debit card or their credit card but here specifically we're just looking at the debit card being a bank under 10 billion in assets which is what customers bank our parent company was when we started our partnership we were able to leverage as much of this interchange revenue as we possibly could but under the dodd-frank it's part of the Durbin amendment banks that are over 10 billion in assets make about four or five times less an interchange revenue so for us to protect our growth and our future opportunity it really makes sense for Bank mobile to be able to again be part of a banking institution that's under 10 billion in assets and so we have a lot of room for growth and you can give a customer's bank perspective yeah we don't like to charge fees we like to have tremendous engagement we think in the technology model ok you got to be able to have a very low cost operation and the only way like Lavigne said that we make money right now is when when the our customers swipe their cards so today we are making about forty five million dollars a year just with customers swiping their cards if if we wouldn't spin-off Bank mobile and and make a little baby Bank again then that forty five million will go down to about thirty million and that fifteen million will have to be recovered by charging fees which is not a part of our model okay so we are basically spinning it off letting the team flourish and we believe there is so much room for growth in this partnership banking that besides students we've announced that we will be having a very large white label partner with a top-notch retail institution in the nation and we believe that within two or three years you know our customer acquisitions will go from three hundred four hundred thousand a year to perhaps a million checking accounts a year 1 million that's what I meant by that'll be more than what Bank of America is doing and that's only possible by spinning it off that wouldn't be possible for us to do if it was part of customers Bank brings me back to a point you made earlier about you know providing banking services to those who may not be part of the bank banking world today how important is Financial Inclusion for you as a goal for be passionate about that you should you know part of the reason we launched Bank mobile it's because there's millions of Americans that are really locked out of the banking system whether it's you know because it's cynicism and and they don't trust the banking system whether it's they can't afford the monthly fees the minimum balance requirements and in reality big banks are charging Americans thirty three billion dollars a year in just overdraft fees that doesn't create a sentiment of trust so we wanted to really provide a banking experience that is affordable and that can really serve these individuals that are underbanked that are unbanked that are low middle income Americans so today we do that by creating a very affordable banking product which we have today we also have a very educational component so we have curriculums that help people understand the psychology of money basic money management to be able to understand that the components of credit because even as a you know a Wharton grad myself there was a learning curve for me to understand what is actually the components of credit and credit is so important for all of us to be able to you know aspire and reach our dreams we're all going to need some form of credit so we have one on one coaching with our financial coach as well and we have a blog that is be empowered and we're rebranding as paradigm money coming out in in January so there's all different formats from visual from auditory you know different ways that people can learn and really connect with us and and really get a solid financial foundation 20% of Americans are spending more than fifteen percent of their income just to have access to financial services twenty percent of Americans and that Bank mobile will end there we think the ones who can least afford it should spend nothing and we should have a we have a duty to help those who are underserved become more financially literate and financially less dependent upon the society where do you hope to go with bank mobile over the next couple of years you know for us we want to become the number one acquire of checking accounts and it's not just about high volume and getting as many customers that we can but it's really about this social mission that we've been talking to you about there is 65 million Americans that are unbanked and underbanked there's such an opportunity to serve these customers and and provide them with the financial foundation they need to really reach their dreams and so it's it's really about creating customers for life adding value to their banking experience all the way from convenience to actual products and services that they really need and I hope that in the process that we serve our customer customers we also have 200 20 employees to be able to impact their lives and in beautiful ways and be able to expand their lives professionally personally our shareholders we hope to really grow Bank Mobile in terms of very profitable endeavor over the next three to five years which should be an awesome opportunity for our investors and the communities that we serve so really excited about the opportunity I think we are doing good and at the same time doing really well you know and those kind of opportunities exist using technology I've been in like you said in the banking business for forty five years this is about the most exciting times I have ever been in the business you see an opportunity to use a new means to really has your exponential growth it's no longer that 10% growth American businesses have been going through either cutting the cost or finding slaw small ways to incremental e's have slight increases in revenues so that the street expects if you get 10% increase in revenues you are a growth company well I think with technology the street is gonna be realizing that 20% sustainable growth is possible and that's only possible if you do something unique in and deliver it in a unique way and you have a disruptive model so the future of banking in my opinion is going to be based upon doing few things really well it'll be niche banking I believe business banking will remain at least in the foreseeable future as a human contact that relationship at the eyeball-to-eyeball level but consumer banking is gonna go through a very disruptive change and that's why like we were talking about the role of the bank branches is going to be totally different I just hope there are more entrepreneurs looking for restaurants because bank branches you will make some very nice restaurants you know easy to get in and out of because I can't imagine banks being able to continue to afford them any and we have found a way to continue to attract those customers that is the key you cannot get engagement unless you attract them and just like if knowledge at Wharton could get over 3 billion 3 million users globally you know we think cost bank Mobile should have between 3 to 5 million checking account customers within a 5 to a 7 year period that is very possible and when I was running sovereign sovereign was the 20th largest bank in the nation and we had 1.2 million checking account customers that's it so you're talking about three times bigger than sovereign in consumer banking within a 10 year period because it's been in business 3 and I'm talking about maybe seven more years that's called exponential growth thank you both very much for speaking with knowledge at Wharton it's been great to have you here for more insight from knowledge at Wharton please visit knowledge Wharton UPenn edu [Music]
