Diving into FinTech

Illustration by Randall Nelson
Illustration by Randall Nelson

Radius Bank rides a rising new wave of joint FinTech ventures

By Collin Canright

In the face of challenges from nonbank technology firms seeking to cut into their markets, some community banks are opting to join the “digital disruptors” through partnerships. Partnering with young financial technology, or FinTech firms can enable community banks to expand quickly both their technology offerings and their markets, either nationally or within well-defined consumer groups.

Radius Bank, a $725 million-asset community bank based in Boston, is one community bank using specialized FinTech partnerships both to provide technology for its home market and to achieve a national reach in growing its customer relationships. During the last three years, the bank has engaged in partnerships with four different specialized technology-based firms.

Radius Bank, founded as First Trade Union Bank in 1987 and operating retail offices in Boston and Long Island, N.Y., intends to grow by developing “a virtual retail digital platform,” says Chris Tremont, Radius Bank’s executive vice president, virtual banking.

“Virtual banking is our go-to-market consumer acquisition and retention strategy,” he says. “We are using technology to acquire and deepen relationships and to retain consumer clients.”

Partnering with FinTech specialize firms is part of Radius Bank’s strategy.

Marriages of opportunity

Financial technology innovation has never been incompatible with community banks, which have long been served by an array of well-established technology service firms. However, a few community banks like Radius Bank are working with new pure-breed technology firms to leap forward quickly onto the outer edge of the financial innovation curve. By working with niche FinTech firms, community banks are gaining an attention to customer experience sometimes lacking in existing products and technology.

FinTech firms bring “an intense focus on digital user experience,” Tremont says. They also tend to move more quickly than traditional banking technology providers, he adds, enabling community banks to get new products to market faster.

For their part, by working with banks, FinTech firms—which arise foremost on their tech talent, not a financial background—receive the benefits of financial market expertise, direct access to financial consumers with bank relationships, and the bank regulatory and operating experience that these pure-breed technology firms lack.

“You read a lot about financial-tech companies replacing banks,” Tremont says. “They are great on the digital side, with user experience and by driving customer engagement. But they don’t have bank product or operations experience.”

Specific associations

Carefully navigating a variety of regulatory and business issues, Radius Bank’s along with FinTech firms have developed white-labeled offerings as well as co-branded products for the bank. Those associations involve these four targeted ventures:

  • A custom app designed for Radius Bank by LevelUp, a Boston firm that develops technology that enables restaurants to accept mobile payments tied to loyalty programs.
  • Radius Bank-branded debit cards through SmarterBucks in Boston that offer a rewards program and other tools designed to help reduce student-loan debt.
  • Prosper Marketplace in San Francisco, which operates an online consumer credit platform.
  • Aspiration in Los Angeles, the bank’s latest partnership, is an online investment firm focused on millenials and people with middle-class incomes.

In addition to broadening its new touches with consumers, these four FinTech partnerships have brought technologies to Radius Bank that a traditional bank-focused core provider could not deliver, Tremont says. “Unlike the large technology providers banks rely on, [FinTech firms] do not have to roll out products that solve the needs of thousands of financial institutions,” he says. “They can provide a highly customized solution for one bank.”

Getting started

Radius Bank’s first FinTech partnership, with LevelUp in 2013, came under a lot of regulatory scrutiny, Tremont notes. The bank was the first financial institution to adopt LevelUp’s technology, which is designed to enable restaurants to accept mobile payments tied to loyalty programs. The Radius Pay app enables consumers to get additional rewards points for opening a checking account.

Regulators did not have experience with a bank partnership with a technology company that provides mobile payment services at the point of sale, Tremont says, and that raised concerns. With the LevelUp partnership and subsequent arrangements, Radius Bank maintains an ongoing dialog with its regulators, keeping them informed as a partnership and product develops.

In September 2014, the bank started working with SmarterBucks, also in Boston. SmarterBucks focuses on student loan repayment, seeking to help consumers pay their debt down quicker. The startup refers clients to open a Radius checking account, tied to a debit card that earns 1 percent rewards, which go toward paying a student loan of their choice.
For its association with SmarterBucks, Radius Bank obtains a new customer, a relationship that generates interchange fees for both the bank and the technology firm.

Aspiration approached Radius Bank last summer to build an Aspiration-branded high-yield checking account product for the firm’s existing personal investment customers. This gave Aspiration access to a bank charter, plus ACH operating experience. The partnership gave Radius Bank access to another huge pool of potential banking customers, including borrowers.

The bank’s latest partnership, begun in September 2015 with Prosper Marketplace, takes the community bank into a national market for consumer credit. Consumers will be able to apply for a loan of between $2,000 and $35,000 through the Prosper platform on the bank’s website.

Radius Bank’s four technology-based ventures came with a new set of potential risks, and Radius Bank takes a considered approach to its due diligence with its technology relationships, Tremont says. The bank’s technology, risk management and compliance teams are deeply involved in its third-party association reviews, he points out.

“These are startups where capital and burn rate determine how long they will be around,” Tremont says. “We have to get comfortable with the company and its management, in addition to the economics.”

Collin Canright is a freelance financial writer in Illinois.