BankMobile profitable earlier than predicted

Digital segment of Wyomissing-based Customers Bancorp surpasses 2 million customers nationwide

When Customers Bancorp released its third-quarter earnings last month, there was information located partway through the press release that likely raised some eyebrows in the financial world.

The Wyomissing, Berks County-based financial company’s digital segment, BankMobile, reported quarterly earnings per diluted share of 2 cents, an increase of 20 cents from a loss per diluted share of 18 cents in the same quarter of 2018. BankMobile’s core earnings were 5 cents per share, an increase of 16 cents from a year ago.

BankMobile was profitable a full quarter earlier than predicted.

“We are also excited that BankMobile reached profitability in the third quarter and its white label banking strategy has generated nearly $70 million of very low-cost deposits to Customers, a number that is expected to grow over time,” Customers CEO Jay Sidhu said.

The white label strategy was BankMobile’s alliance with cellular giant T-Mobile that was finalized in the spring after more than two years of talks.

BankMobile also has surpassed 2 million customers nationwide with 1 million active deposit customers. At the end of September, deposits averaged $529 million and segment earnings increased to $700,000. A year ago, it had a net loss of $5.8 million.

And the average customer is 28 years old.

That’s the sort of news that excites Luvleen Sidhu, co-founder, president and chief strategy officer for BankMobile, which is based in New York.

A daughter of Jay Sidhu and a graduate of Gov. Mifflin High School in Berks County, she received degrees from the Wharton School of the University of Pennsylvania and Harvard University.

Before co-founding BankMobile with her father in 2015, Luvleen was director of corporate development at Customers Bank.

“We are profitable by the fourth quarter and that was a little early,” Luvleen Sidhu said in a telephone interview from her Manhattan office. “We are competing on a strategy and a model in which banking is a service and we attract customers at a high volume and at a low cost. We provide a platform to do that. Customers find value and appreciate it.”

What is it?

Essentially, BankMobile is a bank that was built to use on your computer or mobile de

vice. There are no teller windows, loan officer desks or drive-throughs. Money is deposited or transferred without the customer touching a single bill or filling out a single slip.

A big part of enticing customers to BankMobile is a lack of fees for things such as overdrafts.

There are different levels for customers:

BankMobile Vibe — geared for college students — allows financial aid refunds or other refunds to go directly into an account and allows for other digital deposit options. The bank also rewards students for “smart money moves in and out of the classroom” with its Passport program. BankMobile has a presence on more than 800 campuses nationwide and the schools market BankMobile to their students.

BankMobile VibeUp pays back 1% annual percentage yield on balances up to $15,000, along with no monthly service fees.

BankMobile also offers credit cards, personal loans and student loan refinancing.

The T-Mobile platform features a low-fee bank account and a 4% APY on checking accounts of up to $3,000. That is about 65 times higher than the national average APY of 0.6%, according to ValuePenquin. Additionally, customers with checking accounts in excess of $3,000 will get 1% on every checking account dollar.

“We’re serving millennials and middle-income struggling in the system,” Luvleen Sidhu said. “Those hit with fees feel they are helped by us.”

Keeping up with trends

BankMobile is part of a growing trend across the banking industry worldwide.

Deloitte, which provides audit, consulting, tax and advisory services to several big corporations, found that 29% of millennials, defined as those born between 1980 and 1999, trust technology firms to provide financial services.

The report, written by Patrik Spiller and Dieter Klein in Deloitte’s Swiss financial service strategy practice, says: “Most importantly, when selecting fintechs ( financial technologies) as a service provider, millennials place more value on higher returns on savings, better pricing, enhanced functionality and easier access to banking services, which will directly determine the clients’ selection criteria for banking services of these new clients and should therefore be reflected more explicitly in future banking business models.”

Spiller and Klein say that financial institutions need to “play the long game right.”

“The demographic shifts are leading to a greater demand for sentient and highly engaged banking services, advice that is more transparent and frictionless and automated service processing,” they wrote.

Taking on the big boys

Luvleen Sidhu said BankMobile “has a strong platform,” and has earned recognition for its innovations.

In April, it was named the Most Innovative Bank of the Year and Sidhu was recognized as Fintech Woman of the Year at the 2019 Lendit Fintech annual awards dinner in San Francisco.

On the student front, figures from the Consumer Financial Protection Bureau show that BankMobile had more than 807,000 student accounts, compared to 304,000 for Wells Fargo and 95,000 for PNC Bank.

Furthermore, BankMobile had an average student-account fee of $12.12.

By comparison, PNC Bank’s average fee was $15.84, U.S. Bank’s was $26.47 and Wells Fargo’s was $46.99.

The challenge is keeping up with the giants and their seemingly deep pockets for digital.

“We’re competing with them on that proposition and making sure we’re equal if not better on a banking platform, especially with no branches,” Luvleen Sidhu said. “We feel we have a strong platform. Students and T-Mobile are very attractive. Traditional banks struggle with high acquisition costs and marketing.

“We’re different, as we see banking as a service,” she added.

Sidhu said the top banks have 50% of the outlets and have money to invest in technology, while smaller banks are struggling to attract customers. However, prime-time TV commercials starring cute dogs come with a price.

“Big banks are improving their brand recognition,” she said. “But average checking is costing (consumers) $130 a year. People are getting stuck with overdrafts and it keeps increasing.”

It’s a business model that the parent company is pleased to offer, especially as it moved into profitability. In its third-quarter earnings call in October, Jay Sidhu said Customers is “remaining very focused on profitable expansion of BankMobile.”

Customers did try to sell BankMobile in 2017, but the sale to Florida-based Flagship Community Bank was terminated because of regulatory complications. Customers said in its thirdquarter report that “it expects to retain BankMobile for a 2-3 year period, but will regularly evaluate the best options for BankMobile.”

“It’s going well,” Luvleen Sidhu said. “Right now we continue to be part of Customers, and Customers Bank as of right now continues to evaluate strategic options going forward.”

Indeed, that’s the direction Luvleen Sidhu wants to keep moving BankMobile.

“We look to continue to build banking as a service model,” she said. “We’re adding financial services to the suite of offerings to have more engagements and attract other customers.

“Our goal is to continue to grow rapidly.”

SUBMITTED PHOTO Luvleen Sidhu co-founded BankMobile in 2015.