A screenshot of the website for Owners Bank, a just-launched digital bank from Connecticut-based Liberty Bank that plans to begin seeking Massachusetts small businesses customers this summer. Image courtesy of Owners Bank / Screenshot

Local banks have found their digital banking arms handy tools in the race for deposits now underway following a series of high-profile bank collapses. 

And a new entrant to the Massachusetts banking scene is in the midst of launching a digital bank that aims to go a step further than existing competitors. 

Many digital bank customers are highly rate-sensitive, bankers interviewed for this story said.  

That means it’s relatively easy to attract a well-diversified range of depositors from across the country by running a special on timed deposits or interest rates on checking or savings accounts. 

“[Bank5 Connect] started with the idea that it was a good funding source as needed, that we could turn on and off based on the need for deposits,” said Catherine Dillon, chief operating officer of Fall River-based BankFive. 

It’s a capability that’s come in handy in recent quarters as banks everywhere first had to play deposit defense as interest rates jumped up over the course of 2022 and then worked to slow the outflow of deposits towards “too big to fail” megabanks and investments with higher rates of return. 

“Everybody in the industry is aware of the need to shore up deposits and that has been a very basic goal of ours. We’ve got the deposits in place to make sure we can keep funding the loans,” said Joe Bartolotta, chief marketing officer at Salem Five and head of the bank’s digital bank, Salem Five Direct. “Our home equity line of credit pipeline is up 40 percent, for example, so there is still demand for loans out there.” 

Deposits to Scale, as Needed 

The speed at which digital banks can pull in deposits from around the country shows their power. 

In a statement, Cambridge Savings Bank said its own Ivy Bank has hit $500 million in deposits and “several thousand” customers since it launched in July 2021, or about six times the normal growth rate of a brick-and-mortar bank.  

Salem Five Direct has around $600 million in deposits from 15,000 customers – the size of “a bank in and of itself,” Bartolotta said – mostly from Massachusetts but at least some from every state in the Union. 

And Dillon said Bank5 Connect’s deposit tally sits firmly “in the top third of our branches.” 

But rate also means banks can be vulnerable to competitors, since they access their funds exclusively through a mobile app, it’s very easy for them to move money around in search of yield.  

Salem Five and BankFive both do little marketing for their digital banks, relying on their operations’ longevity – the former’s digital bank has been around since the late 1990s, the latter’s since 2013 – and an infrastructure of consumer finance sites like Bankrate.com to maintain brand awareness and let potential customers know when they drop their rates. 

“We try to remain competitive [on interest rates] and we know that it’s like a faucet. If we need the deposits, we’ll know how and when to turn it on,” Bartolotta said, adding that the bank has been successful in accurately predicting how much money a rate special will bring in.  

Making Customers Stick 

In addition to competing with peers and with megabanks on rates, banks with digital arms have also made customer service a top priority in an effort to increase deposit “stickiness.” 

Cambridge Savings Bank said it bases its value proposition to Ivy Bank customers on “concierge-style” customer service with a dedicated support team. 

Salem Five is working on new products and services aimed at the often well-heeled depositors who use typical digital banks to grow its market penetration. 

And BankFive amps up the personal touches, like posting customer service workers’ photos online alongside traditional executive portraits found on most bank websites. The bank even includes a video banking service on the Bank5 Connect website alongside more typical, call center-powered chat, email and phone options.  

“A lot of our reps develop relationships with customers over the phone or chat,” Dillon said. 

The site is stocked with financial literacy advice to help build customer trust in the Bank5 Connect brand, Dillon said, and the bank puts significant effort into addressing customer complaints and reviews. Dillon said she herself reads every review Bank5 Connect gets, and fields customer calls at times.  

In one instance from before the pandemic, Dillon said, a Las Vegas-based customer looking to diversify where he kept several million dollars didn’t understand – or perhaps believe, at first blush – that BankFive’s membership in the state Deposit Insurance Fund would keep all his money insured. 

The bank got the deposit, Dillon said, in part because “he felt he could speak to someone in senior management.” 

A New Type of Digital Bank 

BankFive Connect will gain lending capabilities at some point in the future beyond credit cards, according to Dillon. But Connecticut-based Liberty Bank, which plans to jump into the Massachusetts banking scene with an East Longmeadow branch this fall, is betting that its 55-day-old digital bank division could represent the next wave of innovation in this space. 

Owners Bank launched April 10 as a typical, deposit-only digital bank, but plans to rapidly roll out term lending, revolving line of credit and credit card products next month, said COO Harry Gunsallus. 

James Sanna

Unlike most digital banks, which are consumer focused, Owners Bank will be squarely aimed at small business owners with five employees or less, said Gunsallus, who’s also Liberty Bank’s senior vice president and digital strategy officer.  

“Small business owners are one of the most unbanked and underbanked segments in America. That’s because what we do is force them into consumer products that do not meet the needs of that business owner,” he said. “Or we force them to jump through big flaming hoops – thinking of you, Bank of America – to be banked as a business.” 

With automated underwriting processes brought in via a fintech partnership, Owners hopes to offer up to 70 percent of loan applicants decisions within minutes “while they sit in their [work] van,” Gunsallus said. And with a bank’s relatively low cost of funds, Owners is confident it can go toe-to-toe with the hard-money lenders that many of the smallest small businesses often have to turn to if they don’t want to take out a personal loan. 

The bank has set $25,000 as its minimum loan size and $500 as the minimum credit limit on its credit cards – low enough to fund the types of vehicle and small equipment purchases that blue- and white-collar solo operators often face. 

And in addition to the kinds of chat functions and other support tools that have become de rigueur for any digital bank, Owners’ app will also include a suite of financial planning tools that Gunsallus described as “Quickbooks lite.” 

“With this brand we can go nation-wide,” Gunsallus said. 

Digital Banks Offer Faucet for Deposits

by James Sanna time to read: 5 min
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