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Why this small bank created a separate, digital-first brand

View the original article on American Banker.

When Midwest BankCentre, a community bank in St. Louis, launched the digital-first Rising Bank in February, it joined the ranks of other financial companies —generally large players such as JPMorgan Chase, Wells Fargo and MUFG Union Bank — that have created separate, digital-only brands. Unlike them, the $1.9 billion-asset Midwest hopes to keep a community bank feel at the internet-only unit.

See Rising Bank's Dale Oberkfell join a panel discussing "The Game-Changing Digital Bank Strategy," at Digital Banking 2019

Rising Bank’s president, Dale Oberkfell, who was formerly chief financial officer and president of Midwest and executive vice president and CFO of Reliance Bank before that, shared the thinking behind the new digital bank, the technology choices his team has made, and Rising Bank’s road map. And he gave full props to the fintechs that have helped him build this new digital arm.

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Looking ahead

"This journey started three years ago, when I started to look at, how are we going to be relevant five, 10, 20 years down the road," says Dale Oberkfell, president of Rising Bank, whose parent company, Midwest BankCentre, is 100 years old.

How did Rising Bank come about? Was it your idea?

DALE OBERKFELL: This journey started three years ago, when I started to look at how are we going to be relevant five, 10, 20 years down the road. In addition to that, it’s getting harder for us to figure out how to acquire and serve younger population groups. Part of that is because of the overwhelming difference in [technology] spend by the big banks versus community banks. They have clearly had the advantage in the recent past. I do believe that a lot of this new fintech activity and the speed of it is going to help community banks make up part of that ground. That’s one of the major reasons for us to move down this path.

There are two other reasons that are important. We’re a 100-year-old bank, and we’ve done things the same way for quite a long time in some areas. I describe it like trying to turn the Titanic, in terms of improving efficiencies and operational technologies and things like that. One of my attractions for doing Rising Bank, which is just a branch of our existing bank (we have one bank charter, 19 brick-and-mortar branches, and one digital-only branch, Rising Bank) was to attract core deposit relationships. So in the digital space, we want to stand up this digital brand that acts, looks and feels different [from the bank itself] so we can learn how to play in that space efficiently. Then as we learn more about it, we can move those technologies into our existing bank structure.

Is it the big banks’ mobile apps that you feel are hard to compete with, or more than that?

It goes beyond that. They have the ability to pay for tools that we have to partner with someone to acquire. As a community bank, we typically align ourselves with one of the three large core providers: Jack Henry, Fiserv or FIS. [Midwest BankCentre’s core vendor is Jack Henry.] We rely on them to help us leverage their suite of software packages. So we don’t have the ability to go out and spend a million dollars developing a new website, mobile app or online-account-opening platform, as some of the bigger banks do regularly. We leverage that Jack Henry experience with the addition of some of the other partners that helped us do this Rising Bank effort.

Who are some of those other partners?

We use Mantl for online account opening. We use Alloy for helping us with the know-your-customer identification issues. For marketing purposes, we work with Xaxis, a digital marketing firm in New York. For our website we use Synechron. We’ve engaged a group called XpertSavers to help us organize our thoughts about this and deliver this package that provides optimal customer experience; that’s our goal — and minimize our costs over the long term.

What do you look for in fintech partners?

First of all, they have to be able to do the work people expect on the internet today. In other words, If they’re building a website, they have to build it so that it’s attractive and people like to go there and it isn’t overwhelming or cumbersome. We started down the path with a different online-account-opening provider, and we kept finding ourselves sucked back into more or less the same way we do things today, which is in a brick-and-mortar environment and not efficient on the internet. They didn’t have a grasp of what was expected in the internet space for our customer experience. Both Mantl and Alloy told us how they thought we could achieve the best customer experience with a process. We get to make the choice, but it’s important that it’s a collaboration of making the right, informed decisions. We have not operated in the digital space until we opened Rising Bank, so we don’t know all the right questions to ask. So having partner that helps us do that is extremely important.

How did these particular companies come up on your radar?

XpertSavers introduced us to Mantl, Mantl introduced us to Alloy. As we went down this path, we built this group of companies who kind of know each other.

How helpful has Jack Henry, your core vendor, been? Community banks often have older core systems that don’t play that well with technology from young startups. What has your experience been in making these pieces work together?

Jack Henry has done a pretty good job of allowing third-party providers access through an [application programming interface] called Jack Henry Exchange. As a company, they figured out a couple years back that they need to be more accessible to some of those providers who are creating new software solutions. Because if they don’t, they force people to go a different direction. I think we were the third bank for which Mantl had written an integration with Jack Henry. They were very helpful, and Mantl had few problems with that.

I do think it can be a challenge. It’s like anything else: You have to learn how to walk through the minefield to get there.

Which Jack Henry core do you use?

Silverlake. [We have had it] at least 20 years. We use probably 60 different other Jack Henry products. Our online banking and mobile app is a Jack Henry product called Banno. It’s really new and looks really cool.

Banno is a company Wade Arnold founded that Jack Henry bought, right?

Yes, they bought it about five years ago. I really like how they approach it, and they have really improved the online-account-opening platform and the mobile banking.

Let’s get back to this digital bank you’re building. For now, you offer high-yield savings accounts and certificates of deposit. What else will you add on, and what is your road map?

By the second quarter we’ll have an interest-bearing checking account with a debit card. Within the next 18 months, we plan to have consumer loans. We’re looking for a suitable consumer loan platform. In addition to that, we plan on offering small-business checking accounts, savings accounts and small-business lending. Mantl is already working on an online small-business account opening platform. We have told them we’d like to help them design that. Then we need to find a platform to do small-business loans. They’re out there. We just haven’t looked really hard to identify the best one at this point. We are in that process now.

There’s Kabbage, OnDeck, Numerated and quite a few others that offer this kind of software to banks.

I’ve looked at some online business and consumer loan platforms that are mainly just for unsecured loans. We would like those platforms to do car loans, boat loans, and more. The underwriting for an unsecured loan is fairly well thought out. We’re trying to create this click-through customer experience that allows a quick choice and a quick navigation to where you want to go.

How many users do you have so far? How are you getting the word out about this?

We have 150 accounts opened after two weeks. We have a digital marketing plan we’ve engaged with Xaxis. We’re pushing ads out for people who surf the internet for deposit accounts. We’ve talked to a couple of the rate boards. We’re actively pushing as much exposure as we can into that digital space. We’ll provide approximately 100 million ads during 2019 for people who are searching for online savings and CDs.

One what platforms?

It’s probably mainly going through Google.

That seems like a lot of ads.

It sounds like a lot. But when you think about an internet bank, you have to think of it as a funnel. You have to push people into the top of the funnel in order to get them to start thinking about you and your brand, and your goal is to get them to open an application, and once they open an application to complete the application, then actually fund the account. If you think about that funnel, you have to push a lot of people in the top of that funnel. At any given time there are tens of millions of people surfing the internet for online deposit accounts. It’s pretty amazing.

Will that strategy push you into always having to have the highest rates, since people are coming to you looking for the highest rate?

No, I don’t think so. Over time, once your brand becomes recognized as paying a reasonable rate, I think you can back that off. I think also that depending on how you engage different segments of the population, some segments may be less rate-conscious than others. I would say it’s not our goal to always pay the top rate, but we will pay a reasonable rate.

What will differentiate us is the communication and our accessibility and how we approach the business. It’s likely we’ll have more than one brand, and we may focus that on a totally different segment of the population than we’re going after today.