Launching: SmarterBank, a Virtual Bank Aimed at Student Loan Holders

image Startups are advised to find pain-points, then build businesses to profitably solve them. Despite the current wave of very bad publicity around banks, especially the big ones, everyday banking isn’t a huge pain-point for the 80% of households currently served by existing players.

Sure, I’d like to have more security options, fewer unintelligible messages, and a Cash Tank. But most of these are feature/function improvements, not “must-have” issues that need to be solved.

What are the acute pain points in banking and personal finance?

  • Debt management, especially credit card and student loans
  • Home financing
  • Small business financing
  • Insurance
  • Retirement planning/saving

Three of these five have to do with the debt side of the consumer’s balance sheet. Yet, much of the talk about online/mobile banking innovations centers around spending management, payments, checking and savings accounts, and account access technology.

So I get pretty excited about innovations on the debt front. And last week, there was an interesting launch on the student-loan-management front, SmarterBank from Finovate alum, SimpleTuition. Its tagline says it all:

Smarterbank is "the bank that helps you pay down your student loans"

It’s a truly free, full-featured checking account, with debit card, paper checks and all the usual (but no branches, of course). And it’s powered by The Bancorp Bank, which has its hands in many of the new direct banking initiates we are seeing, including (bank) Simple.

But the special sauce is a built-in rewards program tied directly into student loan payback.


How it works

It’s actually two separate accounts, rewards and checking. You don’t need to buy the checking account to participate in the rewards program. But you must be in the rewards program before you can get a SmarterBank checking account.

  • SmarterBucks: rewards piece (see first two screenshots below)
  • SmarterBank: the checking account

Users accumulate cash to accelerate student-loan payback in three ways:

  • Deals/offers (note 2)
  • Banking rewards (from linked SmarterBank checking account)
  • Direct contributions from family and friends

SmarterBucks dashboard (8 April 2012)
Note: (1) Link to SmarterBank in upper right
(2)The deals piece is marked “coming soon”

SmarterBuck dashboard with link to SmarterBank from SimpleTuition

SmarterBucks reward activity
SmarterBucks rewards activity screen from SimpleTuition


Sign-up process

1. Sign up for SmarterBucks, which as a non-financial account requires only name and email address

2. Add a student loan that SmarterBucks rewards are credited to

3. (Optional) Add a SmarterBank account so that non-PIN debit purchases earn SmarterBucks rewards

4. (Optional) Invite family to contribute money directly to the SmarterBucks account

SmarterBank application hosted by The Bancorp Bank (link)

Smarterbank application powered by The Bancorp Bank



Marrying rewards, checking/debit, P2P family contributions, and student loan repayment is brilliant. It not only provides a tangible benefit for the 37 million Americans with student loan debt (see note 1), but also is a great customer-acquisition tool for a very important segment, recent college grads. Financial institutions looking for more twenty-something customers should consider building similar capabilities or partnering with SimpleTuition.


1. Figures are from the company. It also said that 10 million students owe more than $50,000, and 2 million owe more than $100,000.
2. Friends and family will also be able to link their own SmarterBucks account to the student’s.
3. We covered family/student banking nine months ago in our Online Banking Report (here).

Friday Musings: Should Buy Barnes & Noble and Partner with a Direct Bank

image One of the best things to happen in 20 years of living in northeast Seattle was the opening of Barnes & Noble in our local shopping center, replacing the tired old department store, Lamonts

For this family of readers, the massive, two-store B&N has continued to be a cherished destination for more than a decade. When the boys were young, it was Tuesday night story time (with free fresh-baked chocolate-chip cookies). Later, it was a place to spend their birthday money on new books, music and DVDs. And I’ve personally bought at least a couple hundred items there over the years. 

But I’m also an fanatic and buy most everything I can there nowadays. My wife and I (though not the boys yet) are ebook addicts, reading on our iThings via the Kindle app (note 1).  So, I’m more than a little concerned about our neighborhood Barnes & Noble. Printed books and other media, along with CDs/DVDs, are on their way out, so is there any hope of keeping the neighborhood B&N in business?  

Musing 1: B&N Rescued by
Here’s my dream: Amazon buys Barnes & Noble, perhaps partnering with a major financial services brand (note 2), and turns it into a fully online/mobile channel-integrated super store. Amazon’s major online departments could be recreated within the massive B&N footprint: the book store, of course, electronics, music, movies/TV, toys, home and garden, shoes, and so on.

High-volume goods would be stocked and available for purchase. Consumers could also pick up goods ordered via online/mobile enabling same-day delivery for many items. But the main focus of the store would be self-service online shopping. Shoppers in the shoe department, for example, could see and hold various styles, but would place an order through a mobile app or online kiosk, to get their specific size delivered to the store or their home. The concept would be to showcase a wide variety of items without incurring the costs of holding massive inventory within the store.

Musing 2: Amazon Financial Centers Installed within the Super Stores
Though I’m not a huge fan of branches, they still have their place. Amazon could turn a corner of the store into a financial services center. The center would feature deposit-taking ATMs to handle those pesky checks and would have a financial specialist or two on hand to help customers with mortgages and other high-touch financial needs (no transaction activity, however).

Financial center staffers could also be incented to help drive users to co-branded Amazon loyalty programs with online and in-store sales diverted from credit cards to ACH/debit, saving the company tens of millions in annual interchange. Financing big-ticket items could also create a massive new revenue stream for the retailer.   

While the financial operations could be private-branded under the Amazon name (e.g., Sears), it would probably make more sense to partner with a major direct financial services company such as ING Direct, Citibank, or Schwab, or an international giant such as Standard Chartered, Barclays, or OCBC which would gain a major footprint in the United States with 700+ strategically located mini-branches (notes 3, 4).

It’s not going to happen, Amazon is a Wall St. darling as a pure-play ecommerce company, but for the sake of the neighborhood, I wish it would.


Notes on the the business case (see huge caveat, note 5): 
In this simplistic proposal, I’m ignoring a zillion issues which are beyond the scope of this blog. For example, would existing B&N leases even support Amazon’s product mix? But to an outsider, it looks enticing for the following reasons.

  • B&N is currently valued at less than $900 million and change after a recent run-up after it announced that it was for sale (note 6). In comparison, Amazon’s is worth $62 billion today. As a matter of fact, its market cap has grown $7 bil since I started this post a couple weeks ago, enough to buy seven Barnes & Nobles. Clearly, Amazon could afford it, though whether shareholders would support it is another matter.
  • Merging with B&N would take out one of Amazon’s major competitors, theoretically allowing the company to boost prices. With $25 billion in revenues, a quarter-percent (25-basis point) price increase at Amazon would add $60 million to the bottom line.
  • In-store pickups could help reduce Amazon’s massive shipping expense. 
  • And while B&N isn’t currently generating a profit, it was operating cash-flow positive during the past 12 months (+$120 million).
  • Amazon could partner with other direct commerce companies to spread the risk. The financial services mini-stores alone could bring in $100 million annually assuming a $10,000 per month rent/rev share per location (note 3). And other retailers might also be interested in mini-stores within the big Amazon box: Microsoft, Dell, Sony, HP,, and so on.   

Other notes:
1. While I consume almost all fiction digitally, I still like to buy printed business books to keep on the reference shelf. I find it easier to remember they exist that way. Even my semi-Luddite brother has jumped on the Kindle bandwagon at the new $139 price point.  
2. I mostly added this to justify posting it here. Ironically, this strategy is almost the polar opposite of our Online Banking Report: Creating the of Financial Services originally published in 1998 then updated in 2000 (more recent summary here). 
3. I’m not including another 600+ B&N locations on college campuses, because many of those would not be a good fit for financial services and/or the schools would not allow a competing financial provider on campus.
4. Adding financial stores to Barnes & Noble retail locations could be problematic if the leases prohibit banking operations due to exclusive deals with other banks in the shopping center.
5. Caveat: Although I do have an MBA, my balance-sheet reading skills are quite rusty. And I don’t have an ounce of retailing experience (outside banking), so please realize this is primarily conjecture on my part. 
6. There’s also another billion in long-term debt and other obligations.

Innovators: Incredible Bank Breaks the Direct-Bank Mold

image The ink’s barely dry on the news that ING Group will divest its U.S. bank, ING Direct, within the next 48 months (note 1), when someone else has already launched a direct bank with a distinctive orange theme (note 2):

The new brand: Incredible Bank from River Valley Bank, an 18-branch, $900 million (assets) bank headquartered in Wausau, Wisconsin.


The strategy: Like the original orange bank’s Electric Orange account, Incredible Bank offers a high-yield checking account, currently paying 2%, that’s 100% electronic. No paper checks (note 3), no paper statements. And unlike the hundreds of rewards-checking products, this one comes with no strings attached. The full rate is paid on all balances up to $250,000, then it drops to 1%.

Other account features:

  • Debit card
  • Free online bill pay
  • Unlimited ATM reimbursement
  • Overdrafts are $34 each with max 10 per day
  • Incoming wires are $5 each, outgoing are $20
  • Mobile banking (which is highlighted on the home page, see below and note 4)
  • ACH in/out (coming soon)

I’ve always wondered why, other than ING Direct and Kiwi Bank, only the U.K. direct banks seemed capable of a light-hearted brand positioning online (see update below). While we’ve seen many good social media and microsite efforts using humor, few financial institutions have dared use this approach on their core websites. Leave it to those spirited cheeseheads in Wisconsin to break the mold finally (note 5).

Initially, it’s the 2% rate that will bring cash to Incredible Bank. But longer term, for any direct bank to add value to the parent’s franchise, it must create loyal customers who won’t bolt to the next newcomer offering a 15-basis-point rate advantage. This is a good start for River Valley, but they’ll need a lot more than this bare-bones website to create long-lasting relationships.     

Hat tip: Bank Deals blog.

Update 9 Nov: The Financial Brand’s Jeffry Pilcher reminded me of two good U.S. examples, GMAC’s Ally Bank and (how could I forget?) Redneck Bank.

Incredible Bank homepage (9 Nov 2009)


1. In his Retail Delivery presentation, always one of the highlights of the show for me, Second Curve principal Tom Brown said ING Direct would be an attractive acquisition for any number of deposit-seeking large financial institutions; however, he did not name any.
2. Full disclosure: I have a strange weakness for the color orange, perhaps the result of many trips to Florida as a child. So, take anything I say in this post with a huge grain of salt. 
3. Normally, I think paper checks should still be made available, even if they are discouraged with fees. However, in cases where the direct brand will cannibalize deposits at the parent, it can make strategic sense to cripple the direct brand’s checking account in this way. That way, fewer River Valley customers will simply move their entire checking account over.
4. The bank has created a mobile site with shorter URL:
5. While Incredible Bank is quite different, the main River Valley Bank brand remains typically conservative, at least in its online presence. They don’t even dare mention the Incredible brand anywhere on its website.
6. See our Online Banking Report: Growing Deposits in the Digital Age for a dozen more strategies.

New Online Direct Bank: OnBank from M&T

image It's been six months since the last direct bank launch, Provident Direct (coverage here). The latest entry is OnBank from M&T Bank, a $66 billion bank based in Buffalo, NY. 

OnBank passes our strict 25-word homepage standard, joining ING Direct, EmigrantDirect on the short list of financial institutions with Google-like clarity on their home page. It takes just a few seconds to know that this is a place to get a high rate of interest on your money, but you should look elsewhere for a commercial loan.

The user has just two main choices of what to do next (screenshots below):

  1. Apply…encased in a trendy lime green button
  2. More details…which leads to an equally succinct page that answers the important questions (see last screenshot below):
    – fee free
    – minimum balance of $1
    – FDIC insured
    – quick online opening process

The only thing missing is a comparison to other banks. Given that it's one of the highest savings rates available right now, OnBank should be aggressively showing how it compares to key online rivals, including ING Direct's 3%.

Not only is the bank direct and to the point in its copywriting, it also uses simple, effective graphics, including a gimmick sure to gain attention. To reinforce its 24/7 "always on" branding, OnBank takes a page from the iPhone weather forecast interface, showing the current time in reverse lettering in front of a background image that changes to match the time of day. As you can see in the three screenshots below: daylight (4:42 PM), sun setting (8:58 PM), and nighttime (9:02 PM). Presumably they also have a sunrise background. The bank displays the time according to the user's machine, PDT in my case.

We didn't test the Metavante-powered online application all the way through, but it looked relatively straightforward, although graphically not as appealing as the other OnBank pages.

Thanks to Bank Deals for the find.

OnBank homepage during daytime (17 April 2008)

M&T's OnBank homepage

Evening (16 April 2008)


Night (16 April 2008)


"More details page" (17 April 2008)

OnBank more details page

ING Direct to Acquire Sharebuilder

ING Direct will spend $220 million in cash to buy Sharebuilder, a unique Bellevue, WA-based discount brokerage, with upwards of 2 million accounts across 660,000 customers (see previous coverage here). The deal was first reported in the Seattle PI last week (here) and confirmed yesterday (here).

At an acquisition cost of about $100 per account or $300 per customer, it seems workable at face value. However, both Sharebuilder and ING Direct’s core businesses have historically been relatively low margin, so it will take good execution to make the acquisition pay off.

Many (most??) of Sharebuilder’s accounts have come through co-branded programs with 40 banks and 140 credit unions including National City Bank and Boeing Employees Credit Union. It’s biggest brand name partner is Wells Fargo (see co-branded holiday promotional email from 2002 below), which not coincidentally, is also an investor in the company. It will be interesting to see if the company’s financial institution partners will continue to promote Sharebuilder accounts now that it’s a division of ING Direct.  

ING Direct has offered a small assortment of mutual funds to its customers for years (product page here), but they have not been widely promoted. With the Sharebuilder product, ING Direct will have another tactic to fend off the fierce online competition for high-rate deposits.  

Update (8 Nov 2007): comScore released interesting traffic data on the two companies today. In Sep 2007, ING Direct had 2.0 million unique users and Sharebuilder had 1.1 million and there was only a small overlap of approximately 100,000 users. So the combined entity would have an estimated 3.0 million uniques. However, most of the overlap represents customers of both companies. comScore data shows that 8.4% of Sharebuilder logins in Sep. also logged in to ING Direct that month. That means 50,000 to 60,000 Sharebuilder customers are already ING Direct customers, meaning the net account pickup is closer to 600,000.  

Wells Fargo/Sharebuilder email from 2002 (received 16 Dec 2002)

Wells Fargo Sharebuilder email

Wells Fargo co-branded Sharebuilder new account application
(7 Nov 2007):

Provident Bankshares Opens New Direct Bank

According to story in Wednesday's American Banker, Provident Bankshares, a $6 billion Baltimore, MD-based bank, has opened a direct bank to help reduce customer defections to other online banks (see screenshot below). In testing now, the new unit is slated for official launch in 2008. And unlike many other regional programs, Provident intends to market the new bank within its home market. It even plans to advertise to select visitors on its main website, <>.  

While the bank risks cannibalizing its own deposit base, it feels that the direct bank, combined with the reputation of the parent, will help stem deposit outflows. The new bank will operate at <>.

I'm not convinced slapping a "direct" on your name and boosting savings rates ten-fold is all that compelling of a strategy (note 1). Sure, FNBO was able to add $1.5 billion in deposits, but only by offering a way-above-market 6% rate until just a month ago (see previous post here).

Dueling websites create channel conflict. Depending on how they are compensated, branch staff will either move everyone into the online-deposit account, or keep it a secret and hope never to be confronted by an angry customer wanting to know why they are earning 75% less in the branch than if they moved their money online.   

However, if Provident can keep costs down, operating the unit as more of a "virtual direct bank," with little additional expense other than a small website and a few dedicated sales/support reps, and figure out how to manage channel conflict, it could pencil out. And the bank can also use the unit to test new products and pricing without impacting its larger customer base.   


1. Actually, the high-yield rate at Provident Direct is 15 times higher than its 0.3% standard savings rates. But for higher balances, at least $25,000, the parent bank already offers a 4.0% APY money market account, just a half-percent under the high-yield rate. 

FNBO Direct Brings in $1.5 Billion in Deposits

First National Bank of Omaha has attracted $1.5 billion in deposits through its Internet subsidiary, FNBO Direct, launched in February (previous coverage here). 

The numbers were chronicled in a NY Times article earlier this month (here) about the so-called rate chasers, depositors that move money around online seeking the absolute highest rate, even if it means moving the money many times each year.

Total deposits: $1.5 billion

Total accounts: 36,000

Average per account: $42,000

Number of mega-depositors (with $400,000+): several thousand

Deposits of the mega-depositors: approx $1 billion

Deposit of everyone else: $500 million in 33,000 to 34,000 accounts

Average per "normal" account: $14,000 to $15,000 

Now that the 6% APY has dropped to 5.05% (effective Sep. 28), it will be interesting to see how many deposits the bank retains.

New Direct Bank: NewBank from Stockman’s

I'm not sure how new it is, but Bank Deals Blog had its first posting yesterday (here). NewBank from Elk Grove, CA-based Stockmans Bank coincidentally was purchased by PremierWest Bancorp while I was writing this blog post yesterday.

It looks like another deposit play, offering higher rates through the online brand to help it keep rates at the parent relatively low (see comparison below). The direct bank is also offering a $50 bonus for new checking accounts opened with at least $2,500 (see screenshot below).

Here are the rates for a $20,000 balance:  

                             Stockmans      NewBank    Advantage

Interest checking >>> 0.50%         3.50%            7x

Savings >>>>>>>>>>>> 1.35%          4.00%           3x

Money market >>>>>> 2.30%           n/a            1.5x (vs savings)

6-month CD >>>>>>>> 4.30%          5.25%           +22%

First National Bank of Omaha used this approach to bag $1.5 billion in deposits at its Internet subsidiary, FNBO Direct, since its February launch (see previous coverage here). 

Thanks to Bank Deals Blog for the tip (here).

NetBank Falls But Don’t Blame Online Delivery

I was flying to New York Saturday morning when I read the news in The Wall Street Journal that NetBank had gone under, the largest bank failure in 14 years (note 1). While the WSJ headline, NetBank Failure Shows Online Limits, implied that online delivery shared some of the blame, NetBank's downfall was primarily from poorly underwritten loans, both prime and sub-prime, and most of those originations came the old-fashioned way, through face-to-face mortgage broker sales.

Over the years I've been acquainted with a number of NetBank employees and have written extensively about their innovations since their launch in 1996, as the second Internet-only brand. Interestingly, the three major U.S. Internet-only brands launched in 1995, 1996 and 1997 are gone: the first Internet-only bank, Security First Network Bank was sold to Centura (owned by RBC) and Compubank was sold to NetBank. 

But no matter what the reason, a failure of one of the key names in U.S. online banking certainly gives the industry a black eye. My hope is that a forward-thinking bank buys the NetBank brand from the government and relaunches it with much fanfare next year. Sure, there's some negative brand equity this year, but the NetBank name is a classic and shouldn't go to waste (note 2).

ING Direct, which now lays claim to the retail deposits (note 1), has taken over the NetBank hompage for now (see screenshot below):

NetBank homepage with ING Direct message

For more information:

  • FDIC info on the closure here
  • NetBank timeline from the Atlanta Journal Constitution here
  • It takes a failure for a bank to make TechCrunch here
  • American Banker's good summary of the failure, complete with quotes from federal regulators, here


1. The company was taken over by federal regulators, who will sell off the assets and return all deposits up to the $100,000 insurance limit. About $1.5 billion in retail deposits, and 102,000 customer accounts, have been purchased by ING Direct. The estimated $110 million shortfall will be covered by the deposit-insurance reserves funded by premiums levied to all banks. The failure does not have direct cost to taxpayers.

2. We said the same thing about NextCard in 2001, but no one followed our suggestion. Now the most well-known website and brand of the most prolific advertiser in the late 1990s has been reduced to a link farm collecting rent from Google Adsense.

Everbank’s Latest Multi-Currency CD: World Energy Index

Some companies are so innovative, you take them for granted. Five that come to mind, in no particular order:

  • Yodlee: account aggregation, credit card-based bill payment, mobile banking
  • Vancity (Canada): microcredit, green banking, blogging, community involvement
  • Wells Fargo: simple expense tracker, blogging, Second Life
  • PayPal: email-based payments, confirmation via twin deposits, integration into eBay (before it was part of eBay)
  • Prosper: Social lending, open API to most of its aggregated data, groups, auction style, Facebook app (game)

These companies are all relatively famous, but one that doesn't get nearly as much press, but has long pushed forward on a number of fronts is Everbank. From its website design (here), product marketing (here), to its foreign-currency certificates of deposit (here), the Jacksonville, FL-based bank continues to shine in an increasingly crowded online space (all previous coverage here). 

My inspiration for this post (see note) was the bank's marketing email today announcing its World Energy Index CD, a multi-currency certificate pegged to the currency of four western countries with better-than-average energy resources: Norway, Canada, UK, and Australia. I have no idea if this CD is a good investment, but I do know that Everbank has proven that even the narrowest niches can be profitable using the reach of the Internet.

Everbank Email

   Date/Time received: July 17, 4:07 PM (Pacific)
   From: Everbank News []
   To: James []
   Title: A new CD with a powerful combination – energy and currencies

Customer type: Current checking account customer

Personalization: First name in salutation

Landing page: none (homepage link only) 

Other offer: Third-party investment newsletter offer (link on right-hand side goes directly to newsletter publisher, Agora Financial Publications, landing page here)

Note: I have had an account for ten years at Everbank. Therefore, I see more of their marketing material and tend to write about them more frequently.

New Direct Bank: Element Financial from Irwin Union Bank

It's been a few months since a direct bank launched. The last one we've been tracking is FNBO Direct that launched in February (coverage here). FNBO has been in the news lately, with a video interview with Business Week (here).

Element Financial rate tableThe latest is Element Financial <>, a unit of Irwin Union Bank. The simple homepage layout includes an icons across the top that gives it a modern look (see below). 

Unlike most direct banks pitching high-yield savings, Element features certificates of deposit. The lead product is a 5.44% APY CD. Rates are displayed on a unique rate table with tabs across the top listing typical deposit sizes, $5,000, $25,000, $50,000, or $100,000 (see inset).  

For more on direct banking, see our previous coverage here or refer to our Online Banking Report, Lessons from the High-Rate Deposit Marketers (here).  

ING Direct Adds 220,000 Accounts in Fourth Quarter

The FDIC database has been updated with Q4 numbers, allowing all the data miners to slap on their hard hats and get to work. Since reporting on the tepid third quarter of ING Direct (U.S.) (here), we've been looking forward to the year-end data.

The biggest surprise is that the bank not only reversed the Q3 account run-off, it managed to add 220,000 new accounts, its best fourth quarter ever. However, things weren't so rosy in terms of deposit balances, which increased just $800 million, the lowest Q4 increase since 2001 when the bank had less than $3 billion in total deposits.

For the full year, ING added $7.2 billion in deposit for an 18% increase, the first time the bank had less than 40% year-over-year growth. And almost the entire increase came in first quarter. The bank essentially had no deposit growth in the final nine months of the year (see table below).  

It will be interesting to see what impact its new high-rate Electric Orange checking account will have on deposit and account growth. The account was growing rapidly during the final stretch of the invitation-only launch period, growing from $1 billion on deposit Dec. 31, to $2.2 billion by mid-February (see coverage here).