The Customer Effect
Inside Radius Bank’s virtual banking strategy
- Radius Bank, a Boston-based community bank, successfully grew its customer base through distinct product offerings and partnerships with financial technology companies.
- While the bank branch may be here to stay, the Radius Bank example shows that some customers may feel comfortable with a virtual bank if the products stand out from what incumbents offer.
There's a raging debate in the industry about the death of branches and whether customers can ever accept a fully virtual bank. But for one Boston-based community bank, cutting down to a singular branch and making everything else virtual has been a business success. Radius, originally known as First Trade Union Bank, was established by the Massachusetts Carpenters Union in 1987. It had branches in Boston, New York and Rhode Island. Between 2010 and 2016, the bank reduced its branch complement from six to just one, in Boston. The bank also pivoted from its trade union roots after four private equity firms acquired a majority stake in it last year. Between 2010 and 2016, the bank said its number of retail customers rose from 2,600 to 70,000 nationally. "The push towards digital and virtual banking brought with it the culture or concept of aligning the bank's model with where customers were headed," said Chris Tremont, evp of virtual banking at Radius. The bank said its transition to just one physical branch was easy. "It wasn’t this huge decision because we didn’t have a huge network [of branches] to manage," said Tremont. Radius Bank initially served union members and offered small business products. While the trade union foundation remained a cornerstone of its customer base, Tremont said the bank wanted to expand its reach and get into more consumer products. Radius began offering online consumer accounts in 2008. The bank discovered most consumer activity took place online, a finding that inspired it to consolidate, and eventually close five of its six branches. "The attrition was very small, and a lot of customers were already using virtual services and the call center for support," he said. "It played into what people said -- that they prefer to use technology to manage their day-to day accounts they don’t want to walk into a location." But Radius' increase in retail banking customers was based on more than just a digital-first model, but part of a larger strategy to offer products consumers couldn't easily get from big banks, along with partnerships with financial technology companies to expand the market for Radius' products. "We developed a checking account that was a fee-free account that wasn't going to nickel and dime you for fees, and we started outside ATM rebates so customers wouldn't get charged a fee for using outside ATMs," he said, adding that the bank also marketed its small business lending products nationally as well. The bank said its revenue model is based on interest-bearing deposits on the commercial and consumer side, along with interchange fees. Much of Radius' recent customer expansion has been by way of partnerships with financial technology startups, brand alignments that let the company reach customers who may be wary of doing business with a big bank. For example, the company made a foray into mobile payments in 2013 through a partnership with LevelUp (Radius Pay), ahead of many major players in the space. "This is an area we want to be in -- mobile payments was years away, so we broke away from the traditional mold of the community bank sitting around waiting for its technology provider to make something available." Other notable partnerships include Aspiration, a values-based banking and investment startup and Prosper, an online lending marketplace. The bank gets so much interest from startups that it has a dedicated staff member to evaluate all cooperation requests. "As we go deeper into the strategic partnership space with fintech, it's about how do you find the right fintechs to partner with -- we can only do a few of these," said Tremont. "Is there a good culture fit? Does it meet our objectives? There's a lot of rigor in vetting these opportunities."