The strategy behind opening a digital-only niche banking brand

Reach more people where they are by delving into the strategy of niche, vertical, or community banking.
Jan 5, 2023
Laura Caseley
Content Writer

What makes the “community” in community banking? Thanks to the global reach of digital interaction that can bring people together from anywhere, the definition of community is expanding beyond the geographic sense. A community can be any group of people who share some defining factor, something that brings that community together. And often, that defining factor comes with its own set of unique financial considerations, many of which are overlooked in the traditional banking world.

What is a niche bank?

Niche banking, also known as vertical banking and affinity banking, is having a moment. They’ve always been an option, but digital is making them even easier to access, and helping them thrive. And they’re showing other banks that expanding doesn’t have to mean a physical footprint. It’s a great way for financial institutions to reach more people, and offer another alternative to megabanks for banking and loan services. And there are so many verticals for financial institutions to explore.

Markets to consider: Professions and hobbies

Niche hobbies and interests

With the advent of the Internet, people all over the world can connect on shared interests and hobbies. And some of those hobbies come with their own financial needs. 

One example of a niche audience is the powersports community, who purchase sports vehicles that often require financing. Narmi customer and Illinois-based Evergreen Bank offers loans on powersports vehicles through its Performance Finance and FreedomRoad Financial brands, all while maintaining more “traditional” banking services via its parent brand. 

Another bank harnessing the hobby and lifestyle crowd is IncredibleBank, which focuses on motor home loans and financial advisory services. They partner with mobile home manufacturers and dealers for a seamless experience and, since their customers are mobile by definition, rely on a strong mobile banking platform to connect with customers, wherever they roam. 

Healthcare and medical

Both neobanks and large banks are courting medical and healthcare workers because these people have unique financial needs: “normal” for a new medical professional, for example, is starting out with $300,000 in debt and little to no income – very different from the average customer. Medical professionals also often work long and varied hours, which means they need to be able to access their banking services at any time of the day or night, so an easy and intuitive web and mobile platform is a must. 

Panacea Financial is a neobank started by doctors to address the unique needs of the medical community, such as managing or refinancing education loans, moving for residencies, and opening a new practice. With a tech-first focus, Panacea provides a financial alternative for medical professionals who are just starting out in their careers. Therefore, Panacea’s focus is lending and commercial deposits, as well as refinancing of education loans, and providing free financial training to students and recent graduates. 

Credit unions have started serving this market, too; in fact, credit unions might be paving the way to courting niche markets. NIHFCU offers membership to healthcare professionals and those employed by biomedical and healthcare organizations – and their families – in the Washington DC metro area. They also provide business and commercial real estate loans to those looking to start their own practices. 

Large banks have used segmentation to serve medical communities, and this is something community institutions can emulate. KeyBank’s student loan-focused division Laurel Road, has subdivisions specifically crafted for doctors and nurses, providing discounts, incentives, and perks crafted using data to reflect their specific needs. 

Home improvement 

Like medical professionals, home improvement and construction professionals also require special equipment, and many own their own businesses, putting them in need of specialized business banking services. In addition, many want to offer financing options to their clients, and need the help of a bank or credit union to do so. EnerBank and Finance of America provide contractors the option to offer those financing services, making large projects more accessible to more people and thus generating more business for themselves. And once again, this is all contingent on a robust mobile platform, as contracting is an on-the-go job that requires access to banking from anywhere.

Markets to consider: Underserved communities

LGBTQ+ community 

Daylight Bank is doing something similar for the LGBTQ+ community, a demographic that also sees more financial instability. Daylight Bank’s CEO and cofounder Rob Curtis told Forbes that of the 30 million LGBTQ+ folks in the U.S., 44% of them struggle to maintain savings. They developed a hyper-personalized approach to banking to attract younger customers. They also took special care to allow customers to use chosen names, rather than legal or deadnames, on their accounts and credit cards; something especially important for trans and nonbinary customers, and a way for them to avoid confusion in their transactions. 

Black and Latino communities 

Other digital communities exist to serve the needs of more marginalized and overlooked groups of people. For example, OneUnited Bank, the largest Black-owned bank in the U.S., has a specific focus on the needs of Black Americans. They have special services to help build savings and investments for generational wealth to bring better financial stability to Black families across the country. While they have brick-and-mortar locations, they use their website to reach customers they otherwise wouldn’t be able to access, and be a resource hub for financial education and literacy. 

Greenwood Bank also offers online financial advisory specifically tailored to Black and Brown audiences with the goal of empowering these communities to take proactive steps towards securing their wealth for themselves and future generations to close the wealth gap. They also offer Black and Latino business owners $10,000 monthly business grants, and allow customers to make donations to NAACP and UNCF.

Migrant communities 

Those who have just moved into the country often have complex financial situations. Majority offers no-fee international money transfers and other services to make sending money across borders more seamless. As many immigrants rely on the gig economy for income, Majority allows them to access direct deposit so they can get their money and begin building wealth quicker. They also provide mobile phone service that allows for free or low-cost international calls, internet service not required, and financial advisory services available in a variety of languages so customers can manage their funds in an optimal way.

Behind the strategy

If you want to tap into niche markets, it’s time to see where your niches are. You probably have more than you realize! This is where leveraging your customer and member data can come in handy to suggest which steps to take next to best reflect the needs of your community and show them you hear them, and you care. You might also look a bit farther afield. Which segments of the population are you not serving, and is there an opportunity to attract and serve those communities? Have you considered business banking opportunities?

Niche banking can also take on the smaller form of a product rather than a whole brand or division. If you notice certain trends in behavior or feedback among your customers or members, you may be able to leverage this information to create a product that truly reflects the niche vertical that is your people. Paying attention to common behaviors and questions is a great way to develop products and strategies organically, and that other financial institutions may overlook. These can help differentiate your institution from the competition by showcasing attention to the real needs of customers instead of a one-size-fits-all solution. 

But be aware: not all needs might be viable in the long run for your institution. The development of products and divisions is an investment, so it’s crucial to understand what’s really a pressing need –  and what might just be a passing fad.

Narmi Inc.
3 East 28th St. Floor 12
New York, NY 10016

The strategy behind opening a digital-only niche banking brand