New banks

‘We want to figure out what they’re doing differently’: Why KeyBank acquired millennial lender Laurel Road

  • Last April, KeyBank acquired Laurel Road, a digital student loan refinancing platform.
  • Now, both brands are ready to leverage each other's strengths.
close

Email a Friend

‘We want to figure out what they’re doing differently’: Why KeyBank acquired millennial lender Laurel Road

KeyBank’s acquisition of Laurel Road closed in April. The nearly 200 year old bank has big plans for its new brand. More than just onboarding a new digital lending property, Key is making a strong push for millennials and Laurel Road is at the center of that strategy.

Beginning in the fourth quarter of 2018, the two firms started discussions about a potential partnership and how it might be structured. As 2019 rolled around, the negotiations became more serious and a letter of intent was generated. The acquisition was closed April 3rd.

Key liked what Laurel had accomplished since it was launched in 2013. With over $4 billion of student loan refinancing under its belt, Laurel Road is digital first and focused on its customers. “It was chemistry,” said Jamie Warder, Key’s head of digital banking.”Key has always looked for what makes sense for us strategically. We have done M&A, including a big deal 4 years ago. We’re looking for interesting opportunities that may not be the traditional-bank-merging-with-a-traditional-smaller-institution. Laurel Road fit that model. They’re very client centric. They started everything with their customer in mind and built back from that.”

Key also liked the affinity model that Laurel Road used to grow its own student loan refinancing book. Key has strong inroads in healthcare and Laurel Road does, as well, working with many healthcare professionals on their student debt. The digital lender has a partnership with the American Medical Association and offers discounts to its members.

Key was also attracted to the digital first strategy Laurel Road employed to go to market. From its inception, the upstart chose to compete as a regulated entity and this bank structure is complemented with a digital front end and people to talk to if customers have questions. “We think there is something special about a financial technology firm that forces itself to play within the confines of a bank,” said Warder. “There are borders and we liked the fact of how they operated.”

Because Laurel Road lead with student loan refinance, its clients are generally in their early 30s and do well from an income standpoint. Many borrowers have graduate degrees in the medical industry. With this demographic in its sights, Laurel Road will continue to introduce new products and services to its customers.

“Being digital first and growing a national digital bank is a priority both for Key and for us,” said Alyssa Schaefer, Laurel Road’s chief marketing officer. “We started last year by introducing a new deposit product based on lifestyle and lifestage. We were headed in that direction before the acquisition and this will be an evolution. We’re marching to the beat of this drum now.”

Going forward, the two financial institutions will operate relatively independently. But more than just leveraging one another’s brands and demographics, Laurel Road will serve as a digital proving ground for Key and that means disrupting as little as possible. Like Goldman Sachs’ Marcus and Chase’s Finn, Laurel Road will act as Key’s primary digital banking identity.

It’s full-steam ahead in terms of recruiting new digital talent. “Instead of moving the teams over to functional roles, we’re keeping Laurel Road as one team, operating as one team, operating as one brand,” said Key’s Warder. “We think there’s a lot to learn for Key from Laurel. We want to figure out what they’re doing differently and bring it over to Key.”

This focus on serving its demographic has lead Laurel Road to prioritize customer feedback, deploying hundreds of small features every month based on what it’s hearing from customers, said Schaefer. A lot of resources are committed to customer listening and research. “We have extreme appreciation for our customers and are very specific about who our customer is and the demographic we serve,” she said. ”There is a lot to be learned on both sides.”

While independence will be important for both brands, there will be some opportunities to create synergies. For the things that are unique to the capabilities of each brand, the companies will develop and manage their own resources. But if there’s something to leverage from one another, resources will pass across the synapse.

“What we’re really trying to pull off is two restaurants with one kitchen,” said Warder. “We’ll leave it to Laurel Road to design the restaurant for Laurel Road. We want their designers and product managers doing that. But for the stuff deep in the kitchen, we can leverage Key for that— like for accounting systems and our balance sheet. Wherever we can find ways in the name of efficiency, we are going to share.”

0 comments on “‘We want to figure out what they’re doing differently’: Why KeyBank acquired millennial lender Laurel Road”

Outlier OpinionsMakers

Member Exclusive, New banks

Banking Briefing: Will WFH become a thing of the past?

  • Banks are pushing to get employees back in the office – but what will that do for their efforts to attract tech talent?
  • Meanwhile, gender inequality is alive and well in the banking industry. Here’s what one bank is doing to try and solve that.
Rivka Abramson | September 12, 2022
New banks

Are neobanks still considered disruptors?

  • Neobanks include thousands of companies seeking to disrupt banks across different customer segments and products.
  • As the digital transformation unfolds throughout the financial services industry, there will be a role for all types of service providers, including brick-and-mortar institutions.
Lindi Miti | September 02, 2022
New banks

Timberland Bank offers a savings program that pays customers to learn about finances

  • Integrations don’t have to be a painful, dragged out process if the right people are involved.
  • Paying people for learning about their finances can improve financial wellness and customer engagement.
Rabab Ahsan | September 01, 2022
Member Exclusive, New banks

Banking Briefing: All about branches

  • In a world of Web2s, Web3s, and Web-what-have-yous, a bank’s physical presence can almost feel passé.
  • But despite their decline in numbers, branches still very much play a role in banks’ success – from improving accessibility to getting in front of more consumers’ eyes.
Rivka Abramson | August 30, 2022
Member Exclusive, New banks

Banking Briefing: Offering personalized banking in an inflationary environment

  • As the financial situation takes on darker hues for consumers, personalization takes on a whole new dimension.
  • Here's what one neobank is doing to offer personalized services when times are tough.
Rivka Abramson | August 15, 2022
More Articles