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  • Writer's pictureJohn San Filippo

Out-Neobank the Neobanks with Your Own Digital Sub-Brand

By John San Filippo


Call them challenger banks. Call them neobanks. Call them whatever you want as long as you recognize them as your credit union’s competition. The model for banks and credit unions has long been this: Cast a wide net and reel in as many accountholders as possible. However, neobanks have upended this model by purposely casting a smaller net and providing financial services to highly targeted segments of the population. In the past few years, neobanks have sprung up to serve every imaginable niche, from former criminals to freelancers and from gig workers to immigrants. 

Should credit unions sit idle while neobanks syphon off their members segment by segment? Or should they repurpose their superpower of providing financial services to people with a common bond and beat these neobanks at their own game? On a recent episode of the Finopotamus TechSolutions4CUs podcast, Michael Duncan, CEO of digital banking provider Detroit-based Bankjoy, argued that it’s the latter. He further declared that creating a niche digital sub-brand is easier than most credit unions might believe.


A Pure Digital Banking Play


At first glance, creating a niche digital sub-brand might seem like a heavy technological lift. However, according to Duncan, his company provides a turnkey solution that requires only minimal integration to a credit union’s core data processing platform. 

“We enable credit unions to spin out entirely new brands that target niche markets, which can include minorities, entrepreneurs, various kinds of professions like dentists, university students, faculty, alumni, and also generational target markets like millennials or Generation Z. It's only limited by the imagination in terms of who you can target,” he stated. “Bankjoy is supporting this is by providing a full end-to-end digital banking suite of products to help launch these brands very quickly. We’re not just the mobile and only banking vendor. We provide account opening, loan applications, statements and notices, conversational AI. These products can be branded and positioned to help launch a sub-brand very quickly, integrating into the existing core system that's already in place.”


Duncan noted that Bankjoy has proven its capabilities in this space. “We have a neobank on our platform, Panacea Financial, that's targeting doctors and healthcare professionals. That's all they're focused on,” he explained. “They are among the fastest growing financial institutions that we have in our client base. They've gone from zero in assets to just under a half a billion dollars in assets in three years. This is a great demonstration of what’s possible with a sub-brand.”


Two (or More) Brands, One Charter


Duncan made it clear that a credit union can leverage its existing charter to create as many digital sub-brands as it sees fit. “The idea is to help solve a problem or to achieve a goal such as increasing deposit growth or decreasing the average membership age, for instance,” he said. “It’s spinning up an entirely new brand, new logo, new look and feel, and a complete set of digital banking products to go and target each niche more effectively.


Duncan made it clear that a large community or nationwide charter is still optimal because any sub-brands must operate within the parent credit union’s field of membership. Conversely, he stated that the traditional “all things to all people” approach to managing these large charters inherently creates more competition for the credit union.


“Credit unions are buying other credit unions, they're buying other banks. They’re trying to grow by appealing to a broader base,” he explained. “But this strategy actually introduces more competition for them because now they're going up against other financial institutions, fintechs and megabanks that are also trying to appeal to that base.” He added that by appealing to a specific niche, a credit union can leverage its charter to grow all-important deposits.


The Time Is Now


“There's something happening industry-wide,” said Duncan. “It's happening across credit unions and banks. During the pandemic, we saw this huge influx of deposits, followed by rapid spending. Deposit growth has been lagging ever since.”


He continued, “There's another problem, though, that credit ends are facing, which is greater interest by younger folks the competition. They're going to fintechs. They're going to neobanks. They're going to even the big banks to do their banking.” If things don’t change, he added, only about 20% of Gen Z will join a credit union in the coming years.


“A credit union could potentially offset this problem by targeting, for example, Generation Z, creating a brand specifically targeting that niche,” he offered. “A completely different brand logo [and] different messaging, targeting that particular generation.” He said such a strategy could help lure Gen Z back to credit unions.


A New Way of Thinking


“Credit unions for decades have targeted niche communities,” observed Duncan. “They've targeted military service members, they've targeted teachers, airline employees. There are so many niches within our industry. Creating a niche sub-brand just requires a change in how credit unions think about identifying and serving their niches.”


 Listen to the entire “Digital Sub-Brands” episode of the Finopotamus TechSolutions4CUs podcast by clicking here.


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