Marketing trends

Fintech has a gender diversity issue.

Women represent less than 11% of board members and 19% of company executives in the fintech industry, market researcher Findexable found in 2021.

Less than 6% of fintech CEOs globally are women, Findexable found, and even fewer are chief innovation or chief technology officers.

One position they do have higher representation in, however, is chief marketing officer — and women CMOs are building some of the fastest-growing brands in fintech today.

Sheri Chin, for example, is the CMO at Galileo, the payment processing company that powers banks Chime and Varo, which increased client accounts by 40% year-over-year in 2022’s third quarter — from 88.8 million to 124.3 million.

And Anne Hay is vice president and head of marketing at billing platform PayNearMe, which, from January 2021 to June 2022, increased transaction volume by more than 50% and grew the number of merchants on its platform by 20%.

“These companies are rapidly expanding financial services by filling unmet needs in the market and creating brands that deeply resonate with their customers,” said Jennifer Tramontana, founder of fintech-focused marketing firm The Fletcher Group, which recently conducted a survey of female fintech CMOs and CMO-adjacent executives.

In October, TFG’s 2022 Female Fintech CMO Report laid out the insights its subjects provided and what they mean for the future of fintech. One such insight is that, overall, fintech CMOs aren’t worried about a softening capital environment because it flushes the market of companies without a solid pathway to profitability.

“It helps drive more discipline with better due diligence and a more critical eye toward spending and partnerships,” according to the report. “There is a freedom that comes with getting back to the basics of product/market fit and away from ‘growth at all costs’ and the race for valuations.”

Additionally, per the report, CMOs aren’t planning to cut marketing spend in 2023, and they’re investing more in public relations and owned content — especially long-form content, like white papers and eBooks, which better tell a story on how their companies fulfill a need.

“To be effective in fintech, marketing teams are going to have to be able to communicate their vision. To the extent that prospective clients understand how you’re going to help, that’s where CMOs in fintechs need to be,” Hay said.

The global nature of the fintech market makes it challenging to personalize messaging. Michelle Faul, vice president of global marketing at B2B payment processor TreviPay, said that makes it even more important.

TreviPay is headquartered in Kansas City, a place Faul says has a healthy tech startup presence. The company counts customers nationwide and in 32 countries.

“Making sure you’re leading with empathy and ensuring to personalize your message based on the geography [is important],” Faul said. “Even with the way they talk about the challenges, making sure you understand their challenges in their words — it’s one of the pillars of our marketing to make sure they feel heard, and we’re positioning it in a way that they understand.”

That perspective is paying off: TreviPay processes $6 billion in transaction volume in 19 currencies, and the company has experienced recent growth.

Even in a challenging macroeconomy, fintech marketers are eager storytellers. While they’re passionate about the technology, they’re perhaps even more so about who and what will be benefiting from it.

“The one thing I’m very excited about is really telling the technology story,” said Priya Rajan, DataVisor’s vice president of marketing. “In terms of providing education and bringing credibility, I think telling the story of these experts in a way that’s simple and valuable [matters].”

“In my current role ... I try to uncover the story of how DataVisor really transforms the way we manage risk today in a way that’s real-time but also cost-effective. Fraud management should not exceed the cost of fraud itself,” Rajan added. “You need [return on investment]. ... Aligning these business objectives and being able to connect the dots is something I’m super excited about and super proud of.”

Representation of women in fintech leadership is steadily improving, mostly at newer firms, the International Monetary Fund found. The business case is there: Citing a McKinsey study, the IMF reported that gender diversity on the boards of nonfinancial and financial firms is correlated with positive financial performance. Citing a Credit Suisse study on gender diversity and corporate performance, the IMF said higher share prices are, too.

Harvard Business Review, too, found that female-led finance and investment firms were more likely to “reinvest, create jobs and have higher levels of innovation than their male counterparts.”

“The way that women approach and think about [things] … I think it’s really important to have that equal representation at all levels,” Hay said. “Organizations will benefit from different ways of thinking about things.”

Varo Bank, the first neobank to be granted a national bank charter by the Office of the Comptroller of the Currency, has slowed its burn rate following several cost cuts it implemented over the past year, according to the bank’s latest call report.

The bank reported a net loss of $84 million for 2022’s first quarter, a trajectory that had put the bank at risk of running out of funds by the end of the year. In an effort to move closer to profitability, Varo cut jobs, reduced its marketing spend and launched a new business unit last year.

While the bank still posted a net loss of $236.5 million for 2022, it’s an improvement over 2021’s $265.5 million loss, meaning the firm’s cost-cutting measures appear to be working.

The bank’s net loss was $32.5 million for the quarter ending Dec. 31, down 23% from $42.5 million in Q3 and down 63% from a year earlier, when it reported a loss of $88.1 million.

The bank reported $148.7 million in equity capital at the end of 2022, compared with $345.5 million at the end of 2021.

Varo cut its workforce significantly last year. The bank listed 576 full-time employees at the end of 2022, compared with 833 a year earlier. 

Still, salaries and employee benefits were higher in 2022 — $120.4 million, compared with $94.3 million in 2021 — but that’s likely related to benefits the bank gave to severed employees. 

Part of the bank’s attempt to pare back expenses has been initiating cuts to its marketing budget. This comes amid a shift in focus from maximizing user numbers to growing the number of customers that use Varo as their main bank.

"We’re tapering back the heavy growth spending and some of the expensive customer acquisition," Varo’s CEO, Colin Walsh, told Axios last year. "We’re not going to spend hundreds of millions of dollars on marketing to create an iconic brand."

The bank’s marketing strategy in 2021 included a 30-second spot in the Super Bowl, Varo’s first TV ad.

Total marketing expenses dropped significantly, to $84.5 million at the end of 2022, from $123.3 million a year earlier.

The company’s new tech unit, Varo Tech, has been tasked with executing the bank’s new growth strategy, the bank said in a statement accompanying the call report.

“This includes driving higher numbers of primary bank relationships and improving our unit economics,” Varo said.

Varo Tech brings together engineering, product, design and data teams, a move that’s helping the company realize efficiencies, Walsh told Banking Dive last year. 

“You don’t have to attend as many meetings, you don’t have to spend time bringing people together, you don’t have to do a lot of rework,” he said. “It allows us to do a lot more with fewer resources.”

New offerings

As the bank initiates cuts in an attempt to reach profitability, it has also added and enhanced some offerings, moves the bank believes will also grow primary banking relationships.

The bank added peer-to-peer payments network Zelle to its platform in November, and increased its Varo Advance limits from $100 to $250. Varo said it is also continuing to evaluate new payment initiatives for 2023.

Those enhancements, Varo said, are examples of its “bank charter in action,” a designation it says gives it a competitive edge over other neobanks.

“As the first techbank (consumer fintech with a banking charter), we are uniquely positioned to navigate these changing market conditions and deliver our mission to expand financial inclusion and opportunity,” the bank said in the call report. “The banking charter gives us autonomy and total control of our costs and infrastructure. Our competitors are dependent on external banking partners and can’t pivot in the same way.”

When Jenius Bank launches its consumer-focused banking platform nationwide this year, the digital firm will be throwing its hat into a crowded ring.

But Jenius Bank CEO John Rosenfeld said the new venture has ambitious plans to launch not just core banking products, but services that differentiate the platform from neobanks and incumbents alike.

“We want to create a more compelling and better value proposition for the consumer. We want to be the first bank really focused on helping customers live a richer life and better manage their financial life,” said Rosenfeld, who joined Jenius after heading Citizens Bank’s digital bank, Citizens Access.

Jenius Bank is a new division of Los Angeles-based Manufacturers Bank, and represents the commercial-focused firm’s expansion into digital consumer banking.

Jenius will offer personal loans, savings and checking accounts — core banking products that will roll out within the next 12 to 18 months, Rosenfeld said.

But the bank’s differentiator will lie in the financial insights it plans to eventually provide its consumers, Rosenfeld said. 

Jenius customers will be able to track cash flow, as well as link data from credit cards, other banks, loans and potentially investment accounts. The goal, Rosenfeld said, is to create a platform where users can view all of their financial data in one place. 

“Though some banks do offer aggregation today, they do it fairly similarly, which is they make it a service you can add on or you can enroll in. Once you enroll, you can add an account and so forth. They don't make it part of every single customer's experience,” he said.

Rosenfeld said he hopes to offer financial data aggregation to Jenius users from Day One. 

The digital bank’s target demographic is 25 to 44 years old with six-figure incomes — “customers that have complex financial needs,” Rosenfeld said. 

Jenius has hired close to 250 employees in the past year and a half, said Rosenfeld, who added the bank’s staff is nearly 100% remote. 

The company has an office in Charlotte, North Carolina, and plans to open another in Phoenix in the coming months. The bank also operates out of Manufacturers’ offices in Los Angeles and New York, he said.

“We're relatively unique. I don't think there are any banks in the country that have 95% of their workforce remote and plan to stay that way,” he said.

Parental support

The $4.9 billion-asset Manufacturers Bank serves middle-market businesses, and was purchased by Tokyo-based Mitsui Bank in 1981.

The firm came under the umbrella of Japan-based Sumitomo Mitsui Banking Corp. following the 2001 merger of The Sumitomo Bank and Sakura Bank, a descendent of Mitsui.

The Japanese banking giant has invested $150 million in the U.S. digital banking venture, according to Nikkei Asia. 

“We have the luxury of having an incredibly strong parent,” Rosenfeld said. “They believed in the vision. A lot of fintechs or startups don't have the luxury of that level of investment and a stable parent. Most of them want a quick win and they want to see somebody grow a million customers to prove the concept has value, regardless of whether or not it's making money.”

Jenius, by contrast, has a measured approach to growth, Rosenfeld said.

When it comes to launching personal loans, for instance, Jenius will start slowly, he said.

“We have a very long-term view, and we are going to be very calibrated in that growth,” Rosenfeld said. “We're going to grow loans that we believe are truly profitable to us, and we're only going to raise deposits to fund those loans.”

Jenius will partner with loan aggregators, such as Credit Karma, which will connect the bank with borrowers who meet a certain credit profile.

“We hope to be a very competitive offering for those customers. For the customer that comes to Credit Karma and doesn't meet that criteria, they're not even going to see us,” Rosenfeld said.

As firms brace for a possible recession, some of the nation’s largest banks have boosted credit-loss reserves over the last quarter. But Jenius won’t need to do the same, Rosenfeld said.

“We intend to start with a much smaller, more calibrated and probably a little slower trajectory of growth,” he said.

A competitive edge

Launching a digital-only banking platform with the backing of a chartered institution will give Jenius an advantage over other neobanks and fintechs targeting the consumer market, Rosenfeld said.

“A lot of startup digital banks struggle to figure out how they're going to get a charter,” he said. “For the most part, charters are not easy to come by, so the fact that we have one provided us an enormous head start.”

But Rosenfeld doesn’t believe the platform will compete head-to-head with customers of popular digital players like Chime or Varo Bank. 

Instead, he sees an opportunity to tap customers who are migrating out of traditional banks.

“I think what we're seeing is a massive shift from traditional banks to the new digital bank value proposition,” he said. “I'm building on a core that's only a few years old, whereas most of the banks in America are running on 30- to 40-year-old cores, which can't possibly do some of the things that I'm going to be able to do.”

Confusion around similar bank names led to a selloff at a Philadelphia community bank in March, prompting the CEO of Republic First Bank to set the record straight.

“As you may be aware, two financial institutions were closed by federal regulators over the weekend,” Thomas Geisel said in a letter to customers, referencing the collapse of Silicon Valley Bank and Signature Bank days prior. “Amid everything going on, Republic Bank would like to make very clear: we are Republic Bank, Inc. (FRBK-Red/Blue Logo); we are NOT First Republic Bank (FRC-Green Logo).”

First Republic Bank, based in San Francisco, faced an uncertain future following the collapse of SVB, which like SVB was highly startup-focused. First Republic’s woes led 11 of the country’s largest banks to infuse it with a $30 billion lifeline on March 16 to prevent contagion.

The following day, though, shares of Philadelphia’s Republic First fell as much as 28%, in what may be explained as a case of mistaken identity. The decrease marked Republic First’s worst single-day performance since 1994, Fortune noted.

Geisel didn’t just emphasize the name difference. Startup-focused banks and community banks like his, he said, are entirely different animals.

“Start-up focused banks realized massive growth over an extended period in a low-rate environment. They built-up a concentration in start-ups and early-stage technology companies. These types of companies usually don't have tangible assets to leverage and don't make money; they survive by continuously raising capital from venture firms off escalating valuations, and everything changes when their valuations drop. Including, utilizing cash on hand and deposits to survive,” he said. “This can create a liquidity crisis.”

“Republic Bank is very different; we DO NOT lend to start-ups and are not involved in Crypto. We lend primarily to established businesses,” he said. “We lend against collateral and cash flow, we lend to profitable companies that can service the debt, and we typically have personal guarantees. Our portfolio is not overly concentrated in any one specific class or industry.”

This isn’t the first time these banks have been at odds with each other due to their similar names.

Republic First was originally called First Republic following a merger between Republic Bank and First Executive in 1996. But because San Francisco-based First Republic had been established more than a decade earlier, the Philadelphia-based bank transposed its name. Its FRBK ticker, however, remained unchanged.

There are countless redundancies in bank nomenclature. For example, there’s a Citizens Bank of Lafayette in Tennessee, a Citizens Bank of Edmond in Oklahoma, and a Citizens Bank of Las Cruces in New Mexico, and none are part of the much larger Citizens Financial Group.

Corporate confusion goes beyond the bank sector. In crypto’s bull market in 2021, furniture retailer Ethan Allen’s ticker ETH was often confused with Ethereum, or ETH-USD. Ethan Allen changed its ticket to ETD that August. 

Republic First largely recovered since the confusion, with its share price climbing 26% at the start of April.

San Antonio-based Frost Bank prides itself in its ability to offer its customers services they want, Blair McGrain, the bank’s chief marketing officer, attests.

That’s why the $52.9 billion-asset institution is bringing back a product it hasn’t offered since 2000: residential mortgages.

“They've been asking for this forever,” McGrain said. “People think it needs to be a part of our portfolio.”

Frost’s residential mortgage lending peaked at the end of 1998, when the firm had about $415 million in home loans outstanding, according to the San Antonio Express-News. That year, mortgages made up 11.4% of its loan portfolio, the outlet reported.

But the bank stopped originating home loans two years later, after leadership felt the offering no longer fit its profile, McGrain said.

“It didn't feel ‘Frosty,’ from what I understand,” said McGrain, who joined Frost in July. “The incentive structure around selling mortgages, the systems we used — it just didn't fit our profile and we didn't feel it was right for our customers.” 

But as the bank executes an aggressive expansion plan in several major Texas cities, bringing mortgages back to its portfolio adds to the bank’s value proposition, McGrain said.

Frost, which has 163 branches across Texas, has opened 25 branches as part of a six-year 33-branch expansion in Houston. The bank is in the midst of a similar 28-location expansion in Dallas.

“There probably couldn't be a better time. I know interest rates are a little high right now, but they're gonna come down,” he said. “Frost is not your little sleepy community bank anymore. We're getting really big, we're expanding like crazy throughout Texas. And [mortgage] is something we need and want to offer.”

Challenging environment

As Frost prepares for its return to the home-lending space, it is doing so amid a challenging climate for the sector.

High interest rates have hampered demand for home loans and refinancing, leading some of the nation’s largest firms, including JPMorgan Chase and Wells Fargo, to initiate hundreds of job cuts in their mortgage units.

Wells Fargo, once a leader in the mortgage-lending space, is trimming its mortgage business, a shift that involves focusing on existing customers and nonwhite communities, the bank said in a release. 

As part of the bank’s new “strategic direction,” Wells Fargo said it will also exit its correspondent lending business, a unit of the bank that buys loans from third-party lenders. 

Frost’s decision to re-enter the space predates the current economic climate, McGrain said.

“We started getting the wheels in motion probably two years ago,” he said.

Despite current market headwinds, the bank is bullish on its return to home lending, and has a long-term vision for its mortgage operation, said Linda Albornoz, Frost Bank’s chief information officer.

“We're not going to be reselling these mortgages. We're servicing them ourselves,” Albornoz said. “This is about deepening customer relationships long term. These are 20-, 30-year relationships.”

The product is in the middle of a soft launch, and is open to Frost employees, McGrain said. The bank plans to offer residential mortgages more broadly to current and new Frost customers this year, he added. 

McGrain emphasized the bank is doing mortgages “the right way this time.”

The bank also developed its own proprietary loan origination system, McGrain said.

“We're doing this ourselves, designing it ourselves,” he said. “We've also changed the incentive structure, so people working on mortgages are going to be salaried.”

Amid the swath of layoffs that have hit the home-lending sector in recent months, Frost has been able to secure experienced talent for its mortgage division, Albornoz said. 

The bank said it has hired 90 to 100 new employees as it gears up to launch its home-lending unit.

San Francisco-based Bank of the West created a sand billboard on a Northern California beach with the aim to send a powerful message about the threat climate change poses to coastal ecosystems.

The image, by artist Andres Amador — and created through a partnership with the nonprofit Sustainable Surf in a campaign to protect kelp forests — would be washed away the same day it was created.

Designed to leave no carbon footprint, the artwork aims to throw a spotlight on the role banks can play toward a more sustainable future.

“We hope ‘Before It Disappears’ raises awareness about the connection between banking and the environment,” Ben Stuart, Bank of the West’s chief marketing officer and the bank’s head of growth and transformation, said in a press release. "Putting your money into institutions that align with your values is one of the most impactful actions you can take as a consumer or business.

Less than one-quarter of Americans know what their bank finances, Stuart said, citing one of the bank’s recent surveys. 

Kelp forests play a critical role in protecting the planet by helping to sequester carbon and reduce the impact of climate change. In some parts of California, more than 90% of kelp forest have disappeared within a decade. Bank of the West and Sustainable Surf’s partnership has funded the restoration of more than 3,000 square feet of wild kelp forests along the Palos Verdes peninsula, the bank said.

This is not Bank of the West’s first attention-grabbing climate campaign. The bank launched a climate-conscious checking account in partnership with the nonprofit 1% for the Planet in 2020. As part of that effort, the bank pledged to donate 1% of net revenues generated from the account toward environmental nonprofits.

The San Francisco-based lender is also a subsidiary of French finance giant BNP Paribas, which ranked among the world’s top 12 banks in financing fossil fuel-related projects between 2016 and 2021, according to the Rainforest Action Network. (Bank of the West’s parent firm is changing, though. The Federal Reserve has approved Bank of Montreal’s proposed $16.3 billion acquisition of the bank).

"Where we bank can either support or detract from our goal,” said Michael Stewart, co-founder and director of Sustainable Surf. “Not only [does Bank of the West] restrict the financing of activities that are harmful to the planet, they are actively funding initiatives, like our SeaTrees project, that make a measurable positive impact in the world."

Among other initiatives, Bank of the West includes a tracking tool on its mobile app that gives customers an idea of the carbon impact of their debit card purchases.

Vineet Mehra joined Chime as the challenger bank’s chief marketing officer at the end of May. 

Mehra, who previously was the chief growth and customer experience officer at Good Egg, will be tasked with leading the neobank’s marketing strategy, taking over a role once held by Melissa Alvarado. 

Alvarado will continue to serve as a member of Chime’s executive team, the company said in a press release.

“This is not a turnaround. This is not a reset of everything. It's about connecting the ingredients,” Mehra said of his role at Chime. “My focus is taking something from great to even greater.”

As a growing number of neobanks continue to vie for a share of the consumer banking space, Chime boasts an aggressive marketing budget. The company, launched in 2012 by CEO Chris Britt and Chief Technology Officer Ryan King, spent $32 million on TV advertisements during the first eight months of 2019 — $48 million on an annualized basis, according to Forbes. 

Prior to joining Good Egg, Mehra was global chief customer officer at Walgreens Boots Alliance, as well as global chief marketing officer at Ancestry. Mehra also served as global president of Johnson & Johnson’s baby care division and global president of the company’s marketing function.   

Mehra spoke with Banking Dive about maintaining Chime’s growth trajectory, the fintech’s multiyear jersey sponsorship deal with the NBA’s Dallas Mavericks, and his plans to turn the neobank into “the best marketing machine in the industry.”

This interview has been edited for clarity and brevity.

BANKING DIVE: What made you take on this new role?

VINEET MEHRA: I’ve always been fascinated by this combination of mission and category disruption. As a first-generation immigrant, someone who really had to learn financial literacy and well-being on my own, Chime’s mission around helping everyday people achieve peace of mind was something that I immediately resonated with. I remember times in my life where I wish I had this kind of a tool and platform to take care of my own financials.

Chime is a very successful company. I go into these kinds of roles where there already has been success, and, frankly, the first thing I'm looking at is, what's in the recipe? What are the ingredients in this recipe that are really powerful?

I think the special sauce here at this company that has blown me away is the member obsession. And that starts with the great products that Chime has built over the last few years to really meet the needs of members. 

It's really unbelievable how much the community engages with this brand, and if you go to any incumbent or competitor in our space, you just won't see that community engagement.

How can Chime differentiate itself from the growing number of digital banks that are entering the market?

MEHRA: Chime is a business with strong unit economics, which is already very well-developed at scale. And it's based entirely on a transaction revenue model that is free to members. So the business has cracked a fee-based model that doesn't hit members, but it's a transactions-based revenue model.

You only really earn those strong unit economics with the trust that we have in our members, and that trust is shown because members give us their primary account capacity, specifically direct deposit and paycheck. That puts us at the top of the wallet and gives us a high degree of recurring transaction activity.

Chime signed a multiyear sponsorship deal with the Dallas Mavericks in 2020. How would you describe Chime’s sports marketing strategy?

MEHRA: I think what's really special about our Mavericks partnership is the community engagement that we do. We have the jersey patch, which was especially special during the Mavs’ deep run in the playoffs this year. But more than that, the Mavs organization has a deeply values-aligned culture, similar to Chime. The kind of work they do in that Dallas community — and more broadly as part of the NBA Cares program — is pretty special. 

For me, sports marketing is great as long as it goes beyond slapping on a logo to also driving community and member engagement. … When you go to our social accounts, some of those tweets about the Mavericks — who are not just a Dallas team, but they have a huge following across the country — are some of our most engaged posts on social media.

What do you think will be your biggest challenge in this role?

MEHRA: The challenge that I see at Chime is very similar to ones I faced in the past and very similar to one that faces [the marketing] industry. … How do we take Chime from having lots of great pieces, which I'm very humbled and very honored to lead, and connect all of this into a full-stack modern marketing machine? It's a rallying cry that I call performance storytelling. 

How do we turn Chime into a true performance storytelling machine that blends creativity of the brand world and the analytics of the performance marketing and direct response world, and put that all together and turn Chime into the best marketing machine in the industry? That's a really exciting challenge and one I've handled before. I know we can do that here, as well.

Houston-based LevelField Financial has agreed to acquire Chicago-based Burling Bank with the aim of becoming the first full-service chartered bank to offer traditional banking and digital asset services on one platform across the U.S., the company announced in February.

Financial terms of the transaction were not disclosed, but the deal is expected to close this year, LevelField said.

After the transaction closes, the institution will retain the Burling Bank name but do business outside of Chicago using the LevelField brand, and will market itself to customers seeking to monetize their digital assets, Gene Grant, LevelField's CEO, told American Banker.

Burling launched in 1989 as a boutique bank for the trading community and has grown to count $197 million in assets.

Grant will be the combined institution’s CEO after the transaction closes, but Burling’s senior management team is expected to join LevelField's leadership and focus on serving the bank's existing clients while growing the banking business nationwide, LevelField said.

No more than half of the bank’s total assets will be connected to the digital-asset sector, though, Grant told American Banker. 

Grant said LevelField took anything out of its business plan the company thought might give regulators pause. 

"There is nothing novel. There is nothing particularly interesting,” Grant told American Banker. “We've read everything that's been published on digital assets to make sure we fit within the box. We have no interest, today or at any point in time, taking any principal positions. We are [strictly] customer facilitation."

LevelField’s acquisition offer was unsolicited, Burling said in a statement published on its website. LevelField looked at eight banks before proposing a deal with Burling, Grant told American Banker. 

"Texas was our ideal state, but we looked at banks in a number of states," Grant told the publication, adding, in a statement, that LevelField sought “to find the ideal institution with both an existing business and a management team who are aligned with our vision.”

“We exceeded our expectations with Burling Bank," Grant said in a press release.

Burling CEO Michael Busch called LevelField’s offer "a tremendous opportunity for the bank to expand beyond our local footprint and serve customers with shared interests across the nation."

"Together, we will continue to provide superior service and demonstrate that we truly understand the expanding and unique needs of our customers,” Busch said.

The Burling deal comes as the digital-asset space finds itself under increasing scrutiny in the wake of several crypto-firm bankruptcies, such as FTX, Celsius, BlockFi and Voyager Digital. At the same time, several banks that have waded into crypto have since retreated from the sector. BankProv, for one, last week said it would no longer offer loans collateralized by machines that mine cryptocurrencies. Farmington State Bank this month abandoned its plan to develop banking services related to crypto. And Metropolitan Commercial Bank, once a partner to Voyager, said it would also exit the crypto sector.

For LevelField, loan size will depend on the borrower's digital holdings. Digital-asset loans, Grant told American Banker, would not be underwritten entirely on collateral.

"We need to make sure customers can support the loans based on their good credit," Grant said. "We use the collateral as a way to … reduce the risk associated with the loan. That allows us to lower the risk profile so we can charge more attractive rates. At no point will we have an uncollateralized [digital asset] loan."

Neobank and credit card startup Upgrade in October launched a new high-yield savings account, offering a 3.5% annual percentage yield to consumers who maintain a minimum balance of $1,000.

The yield is among the highest in the industry, and one the neobank is able to offer its customers by leveraging its network of more than 200 community banks and credit unions, Upgrade CEO Renaud Laplanche said. 

Banks were awash with deposits during the pandemic, boosted largely by government stimulus programs, but that’s no longer the case, said Laplanche, who founded LendingClub in 2006 before launching Upgrade in 2017.

Deposits have become more valuable to smaller institutions in the current high-interest rate environment, and it’s something they’re willing to pay more for, he said.

Upgrade’s flagship product is a credit card that allows users to turn their balances into installment loans.

The fintech, which is not a bank, sells the loans to its partner banks. It’s taking a similar approach for its new high-yield savings account by sweeping funds into partner banks who are hungry for deposits, Laplanche said.

“It's been harder to get deposits now than it has been over the last two or three years,” he said. “We have essentially become a marketing engine for [small institutions], because we have a bigger brand, a national brand and access to online deposit gathering resources.”

Upgrade’s new savings account comes as larger institutions are still offering “next to nothing” on deposits, said Ted Rossman, a senior industry analyst at Bankrate.com.

“They have all the deposits they need,” he said, noting the national average savings yield is 0.16%. “But smaller financial institutions compete aggressively for deposits. They don’t have branches on every corner or their name on the stadium or national TV ads. They compete on rates, and in this time of rising rates, the competition is intense.”

Laplanche called his model a win-win situation for consumers and community banks.

“Instead of matching assets and liabilities within our own balance sheet like we would if we were a bank, we are now matching assets and liabilities, loans and deposits at the network level in a distributed way. Some of our partners, at any point in time, may need more deposits or more loans, and so we can allocate that way,” he said. “We give these smaller banks and credit unions the deposits they need and our customers have benefited from it.”

Upgrade’s high-yield savings account was an industry high at the time it was announced — but only for a short while, noted Rossman, who said there is a tremendous amount of competition in the high-yield savings space.

“Upgrade’s 3.50% was the highest yield for just a matter of hours and then Salem Five and Dollar Savings Direct matched them that same day,” he said. “Shortly thereafter, BrioDirect and Bask leapfrogged all of them.”

BrioDirect’s high-yield account touts a 3.75% rate, while Bask Bank’s generates 3.60%.

When JPMorgan Chase released its summer reading list for 2022, the bank took a slightly different approach, choosing to make the collection of books available for visitors to peruse in the virtual lounge it set up in Decentraland.

The move represents JPMorgan’s bet on the benefits of establishing an early presence in the metaverse, an immersive world the bank believes represents a $1 trillion market opportunity.

The metaverse, a virtual world which users can explore through the use of virtual reality and augmented reality headsets, is a new interaction and engagement model for society, said Sandeep Vishnu, a partner at consulting firm Capco, and it’s a space the banking industry can’t afford to sit out.

“If the metaverse is a new model for society, for interaction and engagement, then banks have to follow that,” said Vishnu. “Banks have to figure out what role they are going to play in the metaverse, and getting a move and being part of the ecosystem early on might give them some landing rights that wouldn’t be there if they don't move early.”

Like JPMorgan, Quontic Bank is taking a first-mover approach to the metaverse. The New York City-based digital bank, opened a Quontic Bank outpost in Decentraland in May.

To mark the occasion, the bank hosted a virtual launch party for the space, complete with a DJ and limited nonfungible token giveaway.

Quontic’s discussions around building a presence in the metaverse began at the beginning of the year, said Aaron Wollner, the bank’s chief marketing officer.

“We did an exercise in effort and impact and we estimated the efforts to be relatively low, and the impact could potentially be high — not immediately, but potentially,” Wollner said. “That's how we sometimes think about the innovative things that we do. What is the potential upside, even if it's not an immediate impact?”

The digital bank has long aimed to be at the forefront of merging new technology with the banking experience. 

Quontic claims to be the first U.S. bank to offer its customers a Bitcoin rewards program, a feature it launched in 2020. 

The bank also says it is the first bank to introduce a tap-to-pay mobile payment ring to the U.S. market, a product it officially rolled out in April. 

Through the metaverse, Quontic is excited about the three-dimensional aspect of hosting a space for its customers, Wollner said.

“We love our digital, dot com experience, but it's two-dimensional. It's a little flat,” Wollner said. “We try and deal with it through chatbots and various forms of automation that extend that experience, but at the end of the day, it's limited.”

JPMorgan launched its Decentraland lounge several months before Quontic opened its space, a move Quontic viewed as a reinforcement of its own efforts to establish a presence in the virtual world, Wollner said.

But Quontic views the larger bank’s approach to the metaverse as an example of what to avoid, Wollner added.

JPMorgan’s Onyx Lounge, named after its platform of Ethereum-based services, features a roaming tiger, spiral staircase and a portrait of CEO Jamie Dimon. 

“We saw that as very self-promotional,” Wollner said, referencing the Dimon portrait and the space’s promotion of its new line of crypto business. “It's very much about JPMorgan, not about their customer. … We doubled down on the notion of, ‘If we're going to be doing this, let's do it for our customers. And let's build it for them.’ And that's the approach we took.”

Wollner said the bank is taking an educational approach with the space, inviting customers to visit, learn about Decentraland, crypto wallets and how tradeable digital assets work.

“With the click of a button on our metaverse landing page. You can jump in, and voila, you’re experiencing the Quontic metaverse,” Wollner said.

But when it comes to operating the space as a full service branch, that’s where Quontic is taking a “wait and see” approach, Wollner said.

The notion of using the metaverse as an extension of a financial institution's banking presence raises several regulatory and security questions that have yet to be addressed, Wollner said.

“We're a heavily regulated financial institution and we take compliance and risk very seriously,” Wollner said. “Before we conduct any banking business in our outpost Decentraland, we're going to make sure that security and compliance regulation and rest are all tended to, and that is very much to be determined.”

It’s just a matter of time before regulators turn their focus to the metaverse, Vishnu said, with regulators likely to focus on the building blocks of financial regulation, such as identity management, know-your-customer transactions, and anti-money laundering in the virtual world. 

“Regulations are going to be a concern for banks, but in my personal opinion, probably not just yet,” Vishnu said.

The use of avatars to navigate the metaverse also comes with its own set of security and identity challenges, Vishnu said.

“One of the biggest considerations that would happen in the metaverse is the whole identity management part of security,” Vishnu said. “Do you know who you're actually dealing with? That linkage back to actual people, to actual identity is going to be important.”

While a virtual world presents a new form of customer interaction that banks need to consider, banks should approach identity verification in the metaverse in the same way they do on their digital and mobile channels, Vishnu said.

“It might be a new form of interaction, but the considerations are going to be similar,” Vishnu said.

Does it make sense for banks?

Along with JPMorgan Chase and Quontic, other financial institutions are planting their own flags on virtual metaverse land. 

London-based HSBC bought a plot of land in The Sandbox, a virtual world used primarily for gaming. 

The bank said the space will be used to engage and connect with sports, esports and gaming enthusiasts. 

“The metaverse is how people will experience Web3, the next generation of the Internet,” Suresh Balaji, HSBC’s chief marketing officer for Asia-Pacific, said in a statement. 

But investing in the metaverse may not be the right move for every financial institution. Banks need to consider their target demographic when considering how involved they want to be in the space, Vishnu said.

For a bank with an older and less tech-savvy customer base, the metaverse may not have much to offer its customers, Vishnu said. 

“If you don't have the customer base to serve in this interaction model, are you going to now pivot and try to draw in a new set of customers? I think this has to be tied very much to the bank's overall strategy and not be a one-off,” Vishnu said.

In addition to the public metaverse, banks should be aware of the internal use cases for a virtual world, said Michael Moerman, a partner at Capco.

“There are public-facing metaverses where everyone can participate. But banks will have the potential to own their internal metaverses, which could be corporate, private-facing, just for their employees.” 

For example, Bank of America launched a virtual reality training program for its employees in 2021. The training, which is offered at nearly 4,300 of the bank’s financial centers nationwide, creates an environment in which employees can work on their client-facing interactions. 

A private metaverse could also potentially be used by banks for customer interactions, such as offering wealth advice in a virtual private space, Moerman said.

French lender BNP Paribas launched its own virtual reality app in 2017 that allows its retail customers to access their account activity and transaction records in a virtual reality environment. 

Aside from building out a virtual space, banks should see the metaverse as an opportunity to extend their existing services, such as enabling transactions and providing advisory services to clients interested in investing in the metaverse, in the new world, Vishnu said.

PNC and Morgan Stanley are already providing advisory services for clients interested in investing in the metaverse in the form of buying virtual land, Vishnu said.

‘Whether it's the selling of NFTs, or smart contracts, there are many different things that are going to start to happen here,” Vishnu said. “We're just in the very beginning of a new world.”