Interest rates and the unpredictability of the economy have made bankers pay closer attention to their deposit growth strategies.  Throughout 2023, numerous reports stated total deposits across U.S. banks fell on a year-over-year basis.  Community banks were further challenged by a migration of deposits into big banks after regional lenders collapsed.  As such, according to Jack Henry’s Benchmark of Bank CEO Top Priorities for 2023 and 2024, growing deposits topped the list of priorities.

Growth strategies have often included acquisition, launching a digital brand, or expanding the bank’s distribution channels.  Each has advantages and disadvantages.  In the current climate, strategies of acquiring or launching a digital brand have extended timelines and complexities that often lengthen the realization of benefits. 

Expanding distribution channels refers to the ability for a bank to partner with a brand or fintech to offer products through the partner and their captive customer or employee base.  In this case, the bank is not the last-mile, rather the brand is the last-mile to the customer.  

As banks look to expand their distribution channels to capture market opportunities, they are anchored with brittle legacy infrastructure and hardened legacy cores.  The last-mile challenge lies in the fact that while customers want innovative features, banks lack a platform to assemble, package and distribute their products into digital applications, limited by current modern core or BaaS providers.

The opportunity represents a significant expansion of the bank’s target market – allowing the bank to expand beyond current geographic and demographic markets.

To be successful, banks need to be able to launch products and grow accounts above-the-core – but stay within the bank’s controls – with a system that powers the creation, packaging and distribution of products into the bank’s or third-party’s applications. 

In practical terms, the industry refers to this as a Virtual Banking Platform deployed as an overlay to a legacy core with minimal impact to bank operations and infrastructure, providing a virtual banking account system with composable money movement, fraud/AML and debit card services that can enable numerous business models on a single platform including BaaS, embedded finance, and digital brands.

Key benefits for a virtual banking platform.

  • Launching new products in new channels via BaaS or Embedded Finance
  • Lowered operating costs
  • Improved time to market
  • Reduced complexity for TPRM
  • Bank-controlled regulatory compliance 

Key components of the platform:

  • Bank-owned virtual accounts & ledger system
  • Bank-controlled functions (interest, fees, statements, etc)
  • Money Movement capabilities
  • Bank-branded API portal & sandbox to attract brands
  • Centralized Bank servicing console

Banks that control their channel programs and data on a single platform also avoid the increased regulatory scrutiny seen today – because the customers, accounts and ledgers are often held outside the bank by a BaaS provider, card processor or payment hub.  Banks can satisfy regulatory obligations by owning versus outsourcing… and best yet, this can be accomplished without financial open-heart surgery of replacing your core.

Learn how a virtual banking platform can help you grow deposits and non-interest fee income with compliant, resilient BaaS and Embedded Finance offerings.