The Intersection of Financial Institutions and Technology Leaders

How Deposit Fintechs Suddenly Became More Attractive Banks

By Paul Davis

A few years ago, the banking industry seemed content to go it alone when it came to attracting and retaining depositors. Most were awash in deposits, fueled by government programs aimed at combatting the pandemic. Low interest rates also meant that a bank could cheaply hold onto those funds.

Fast forward to today, and banker interest has risen in lockstep with higher rates, which have made deposits more costly. 

While deposits have risen over the last two quarters, nearing $19 trillion on March 31, they remain about 5% below where they were two years prior, based on data collected by the Federal Deposit Insurance Corp.

At the same time, deposit-focused fintechs are getting more interest from banks, while fintechs have rolled out new deposit-focused features. 

“Most banks are aware enough today to realize that they can’t solve everything by themselves, so these types of partnerships are very critical,” says Gregg Hammerman, CEO of Larky, a fintech that helps banks proactively engage with account holders through AI-powered push notifications. “Deposits are a high priority for our customers, so we just doubled down on that messaging.” 

Tim Broyles, the chief experience officer at Clear Mountain Bank in Bruceton Mills, West Virginia, says a lot of fintechs are super focused on deposits. 

“It’s been amazing to see the amount of marketing tools that digital banking providers are building into their platforms,” Broyles adds. “We’re seeing more activity in analytics as well. There’s just been a ton of effort in the industry in that area lately.”

Solutions Galore
The $981 million Clear Mountain is working with Micronotes on deposit retention – monitoring large and unusual deposits so the bank can offer customers suggestions for investing those funds.

Bankers overall seem much more open to collaboration than they did in the past, says Kathleen Craig, founder and CEO of Plinqit, a fintech that helps customers develop savings plans. 

Craig recalls her initial talks with Regent Bank in Tulsa, Oklahoma, about Plinqit’s flagship savings product. A 2021 demo that took place before rates began to rise failed to secure a deal. The $1.7 billion Regent also determined that the product wouldn’t generate enough deposits to justify the cost.

By the time Craig and Regent reconnected last year, deposit pressure had significantly intensified and Plinqit had built a high-yield savings product that could move the needle for the bank. Regent was also planning to launch a separately branded digital bank that turned out to be a good fit for Plinqit’s services.

“From an economic standpoint, when we first met there was no need for deposits – banks were flush with them,” Steve Baker, Regent’s chief innovation officer, says. “The next time we met, it was a different story, a different product and a different time – the economics made sense.”

 “Banks must be more creative,” Craig says. “A singular footprint just isn’t enough. They need different levers that they call pull at different times.”

There are plenty of startups hungry to help with that.

The Independent Community Bankers of America purposefully brought in deposit-focused fintechs, including Micronotes, CNote and Spiral, to participate in its 2023 ThinkTECH Accelerator program.

“Attracting more deposits is a big problem that community financial institutions are trying to solve right now,” says Hammerman, who recently signed a contract with a $10 billion Texas bank that is looking to leverage the Larky platform to improve outreach with depositors.

Digital Banking Spur Partnerships
Banks that are building digital banks have a heightened need for fintech partnerships. 

Such is the case at Regent, which created Believe Bank, and InsBank in Nashville, Tennessee, which began building Finworth, a healthcare-focused digital bank, three years ago. Clear Mountain is seeking bids for a digital banking solution; Broyles says the bank has met with six potential providers.

“As deposits remain hard to come by, we want to maintain a diverse set of funding at the bank,” says Jim Rieniets, the $825 million InsBank’s chairman and CEO. “For us, it is another arrow in the quiver. It is about offering more solutions and providing added value to make customers’ jobs easier.”

Getting Over Skepticism
Still, banks in general have a healthy amount of skepticism about working with fintechs.

“They want to see proof points,” Hammerman says. “That goes beyond deposits or working with us. They want to understand the solution and if you can actually produce the desired results. It was harder when we were just getting started, but it is easier now that we have lots of data showing success from a large number of clients.”

Bankers agree.

On the banking side, there was some skepticism early on as to whether fintech was friend or foe, but it has become a more symbiotic relationship in the last few years,” says Brian McEvoy, chief retail banking officer at Webster Five Cents Savings Bank in Webster, Massachusetts. 

“Banks are realizing that there are some good capabilities here,” McEvoy adds. “It makes sense in the build-or-buy debate that working with fintechs is helpful from a go-to-market perspective in terms of speed.”

The $1.3 billion Webster Five is working with the fintech Spiral on solutions that help customers create and track donations to nonprofits, including a round-up feature for debit card transactions and a platform for receiving tax statements. The bank hopes to promote the partnership to add more deposits from individual customers and nonprofits.

“I feel like deposit growth is the outcome of a more targeted strategy,” McEvoy says. “What can we do that is different from the other half dozen community banks down the street?”

Banks may seek out more partnerships as they aim to differentiate themselves in an increasingly digital world.  

We need these types of tools to leverage our digital platforms because that’s how the vast majority of interactions are occurring now,” Broyles says. “It’s been nice to be able to acquire new relationships at the bank.