Whitney McDonald 0:03
This episode of The buzz is brought to you by bank automation summit us 2024. This annual event is tailored to resonate with financial services professionals focused on business optimization through technology and automation. Learn how to overcome implementation challenges by hearing firsthand from C level executives from institutions, including Bank of America, Wells Fargo city and more. There is no better place to get a read on the competition than at Bank automation summit us 2024 Register now at Bank automation summit.com. My name is Whitney McDonald and I’m the editor of bank automation News. Today is March 14 2024. Joining me is Chief Executive of Grasshopper bank, Mike Butler. He is here to discuss how grasshopper grows and gains deposits through customer retention strategies and overall customer experience efforts. Mike previously served as the president and CEO of radius bank and president of Consumer Finance at key cord before joining grasshopper in 2021. Thanks for being here, Mike.Mike Butler 1:00
Sure, happy to and thanks for having me. Love talking with you guys. So yeah, I am the CEO today of Grasshopper Bank, which is a was it’s an oval bank in like 2019, I joined about two and a half years ago. We are a digital bank that’s designed to serve the business and innovation economy. We are predominantly focused on providing financial services digitally to a group of people that we think are demanding that type of solution from their bank. Prior to Grasshopper, I ran a company called radius Bank, which was focused on the consumer of digital space that we sold to Lending Club in 2020. And before that, I was at kind of a big banker at KeyCorp for 25 or 30 years or so. So happy to be where I am.
Whitney McDonald 1:51
Great. Well, thank you again, for joining us on the bus, we have a great conversation ahead of us. Before we get into it, let’s set the scene here we’re going to be talking about where banks stand on competing for deposits, a topic that we’ve been hearing about a lot as of late, so maybe just tell us where we stand today. What are what are banks looking at when it comes to getting that deposit growth?
Mike Butler 2:16
Yeah, so a little bit of, you know, again, you’re you’re gonna periodically ask me for opinions on the industry. And so I always like to say I’m one person, and I’ve got a view, but others may see things differently. But I’ve been, we’ve been really focused on deposits over the last 10 or 15 years, as we’ve seen a shift in people’s preferences from how they want to do business. But, you know, at the end of the day, deposit gathering is the core competency of a really strong bank, we need to gather that funding, by leveraging our charter in our insurance, and be able to use that funding to be able to provide other products and services into the consumer or business. So it’s really important for us. And, again, to keep things really simple, I think over the over this period of time in which rates were flat. And consumers and businesses cared a little bit less about where their money was it kind of stagnant Lee was in the banking sector sector, and banks were able to grow, I think at a faster pace, because there was less competition for deposits. And funding sources outside of deposits were very low cost. So I had a deposit base, but I wanted to borrow money in the marketplace to grow my assets, I could do that fairly cheaply and make a nice margin. And things were fairly good in the industry. So the way it worked is low rates caused, I think the industry to become a little bit complacent with how we were gathering deposits, and lost track of the importance of it. And when rates started to rise, it started to become very clear that if you didn’t have a good source of what we call core deposits, then your margin was going to erode fairly quickly. And so that combined with the evolution of the client base, wanting to do business differently, I think has left the industry a little bit behind on what they’re going to do to solve the problem of gathering deposits. I think we saw during the pandemic, a fairly big shift in clients wanting to work digitally with banks. And, you know, again, I don’t want to spend too much time on industry views but but I do believe that the banking sector is just the last of the last man standing when it comes to the E commerce world. And I think using simple examples of you know, Amazon started selling books and now they sell the world. They’ll sell you anything. And we use them because that’s what we want from a car customer experience, we want the product, we want to be able to get it very quickly. And we want it at our front door, as we say, you know, fairly quickly, we really care how it gets there. But we but we liked that experience. And I think people are starting to say, Well, wait a second, why is my experience with my financial services company, not anywhere near what this is? And again, you know, I like to joke that after the pandemic, I know, the first thing I did was go to a nice restaurant, and you know, have a meal. I don’t think a lot of people ran into a branch and said, Boy, I missed you guys. So So I think, today, the combination of customer behaviors and demands, and the interest rate environment have made deposits, a really big issue for a lot of banks.
Whitney McDonald 5:41
Now, you mentioned a couple of things that we can break down there one being the competition, where we stand, of course today with rates, everything that’s changed since the pandemic on the client demand side, you want those digital capabilities, more grasshopper specific, what is your strategy for gaining those deposits, meeting clients where they want to be met? What are you hearing from those clients? And how do you then approach that that digital strategy?
Mike Butler 6:08
Yeah, so So again, so we’ll, we’ll take it from the top, I guess, right. And so if you said customer behaviors and demands are changing, so if you listen to a survey about how clients wanted their products and service delivered 10 years ago, you’d say, oh, there was 15% of these clients that said, Gee, I like the idea of doing things virtually, or digitally. And so that’s gone to like 60%, in the most recent surveys that people want that done so. So that’s a big part of it. So what we’ve said at grasshopper is we want to be part of that group of people that want their products and services delivered that way. And again, to use comparisons that I think are fun, because it’s our day to day life is, you know, my wife likes to go to a store and shop. And she still likes a store to go to. I haven’t been inside a store to shop in 20 years, right. And so we’re the same age. So it’s not about an age differential. Surely younger people like technology more than some older, but it’s people’s behaviors. And so, so I, I’m trying to find me, and maybe somebody else is trying to find my wife, but I think there’s more of me around than there are of my wife, and are more people who want their products and services delivered. And that’s what we’re after. So a couple things happen. There is so so how do you build social, what’s important to them? And how do you serve their needs? Well, we think the most important thing is the customer experience. So we start with the experience, some would say it’s a product, I need to have a great product. But But our view is if you can’t get to the product efficiently and effectively with a great customer experience, it doesn’t matter how good the product is. So we spend all of our time on the experience. And that experience is is can you open an account with me in three minutes, or four or six minutes, if you’re a dual signer on a business account? And was that experience good. So that’s number one, what we’re trying to do is build a customer experience a track and focus on the client that wants it and is is interested and then building them the customer experience. And again, to go a step farther, we believe in the opportunities to work with in the FinTech environment. So we use partners to build that experience for us versus kind of traditional banks that, you know, you know, sometimes they’re trying to use the core processors to do it. So. So that’s where we kind of differentiate ourselves. And then we get to the product, a product has to be good, and it has to work. But then experience has to be great. So so I’ll pause there. And I hope that was answer your question.
Whitney McDonald 8:53
Yeah, absolutely. And I’m very familiar with grasshoppers partnership strategy, you often are partnering with different fintechs in order to launch those products and be on the digital forefront in meeting what those clients are asking for. One thing that I wanted to touch on here, it’s it’s one thing to get those get those clients getting those deposits, but I wanted to talk a little bit about retention and customer loyalty. And I think that goes to the different products that you do launch and kind of continuing to evolve your your product offerings. Where does technology come into that? How do you make sure that you’re keeping those deposits, especially in a time I know that we’re almost a year post SBB and consumers were really looking to diversify their deposits? How do you make sure that you’re retaining and keeping those consumers that that are putting their deposits with you?
Mike Butler 9:47
Yeah, great question. And really, really important for us so we’re trying to you know, develop real relationships. And so for grasshopper we open somewhere between 800 and 1000 new DDA accounts a month. So over the last two years that I’ve been here, it’s been growing, and we’re hitting this $1,000 1000 new clients a month. So we brought on now 15, or 18,000 clients since we started. And it’s really important that we have a program and in place that that customer experience can be continued throughout their time with us. So two things that we do. One is we invest a lot of time in customer service, and a lot of technology and customer service. So that when people, people can self serve as much as they can, is, you know, a lot. So what you want to do is have a customer service in which you can use your bots and some other, you know, kind of technology to be able to get the client and answer 24/7 on their own, by by finding answers quickly. Other times, you got to answer the phone very quickly, and make sure when there is a call. So we spend a lot of time on that we’ve, you know, we’ve put some technology in there. So and we got to have an NPS score, that’s like 70, right. So not being critical of anybody. But traditional brick and mortar banks tend to have NPS scores in the single digits, right. And we have to be up there in the 70s. To do that. And that’s where we’ll be we were there before we’ll do it again with grasshopper. The second thing we do is we create this kind of like what I would call a market place, infrastructure inside the organization, which today we have eight, heading towards 15 different products and services that we make available to our clients that make their lives easier. So, for example, if we’re dealing with the startup community, and those companies are looking for people to help them fund, raise money, or to get debt, we’ve got special solutions on our website, we have companies that do that for a living, that will pay more attention to clients from grasshopper, and they will right off the street. We offer them discounts, we offer them different products and services. So when they come into our kind of ecosystem, it’s not just the product that we offer, but we offer them other products that people do better than I could with with ease and at a better price.
Whitney McDonald 12:30
Yeah, I like that that word of an ecosystem. It’s not just what you’re getting with grasshopper. It’s not that one solution that reels you in but the other access that you get to, which of course would be a reason to be loyal to the bank.
Mike Butler 12:45
Yeah, I think what we’re trying to do is now we deal with businesses, right, so so we go back. And again, I oversimplify things, but I think it’s the easiest way to do it. If you’re a small business, the biggest pain point for you is time, right? So do you have enough time. And if I can ease that pain point, by making their lives better, by not spending five hours in a branch to open up a checking account, or spending five minutes doing it? Can I do that by saying not spending two hours on a phone call, but being able to self select and self service your questions? And it can it can I make your life better by having a dashboard of your treasury management services right in front of you. And you can wire money easily in and out of your account and product capabilities versus going into a branch to wire money. Then I’m then I’m value add to the client. And when you’re truly value add, you have a relationship. And then there’s stickiness to that relationship, which is really important.
Whitney McDonald 13:47
Now, when it comes to having this value add keeping up with the digital capabilities that clients are asking for having this partnership approach. I wanted to spend a little bit of time on on tech spend. And obviously technology is expensive. But I wanted to talk through a little bit on how do you consider those costs. Where are you spending? How do you consider even on the partnership side? Who’s the right fit for grasshopper, but how do you what’s your strategy behind where to invest? What products to invest in? Does that come from client feedback? What does that what does that approach?
Mike Butler 14:21
Yeah, so So I would say when we build our technology roadmap, it is all about client first demand, what is going so so every quarter we go through a roadmap evaluation of what we’re doing. So and I’ll give you a live examples right now. There’s a next on our roadmap is being able to change your debit card credentials via technology versus via phone call or via another complicated way. It’s one of the biggest it connects to the phone calls that we get into Call Center as to what people are unhappy with, or have to go at set, you know, an extra step to solve. And then we take that back into our technology roadmap and say, well, here’s what the clients are saying, is a problem with our product, how do we fix it and put that as a priority. And then once we decided to priority, and it’s meaningful, worst thing that we can do is work on technology products. That sound good to me that are cool, but don’t really mean anything to the client. That’s why we don’t like shiny new objects, right? A lot of technology. People say, Oh, that’s cool, I gotta have it, right. It’s like, you know, like, my friends who have every tool in America in their garage that they got from the hardware store, because it was new, and but they only use it once a year, well, I can’t afford that, right, I gotta use, I gotta have things that work, and are really important. So our roadmap is connected to our call center, and don’t have as many shiny new objects as you would think. So that’s really important. And then then how do we choose the client or the vendor to do that for us? Well, that’s something that we feel like we’ve spent a lot of time evaluating technology companies, and trying to determine which ones are the best to be able to deliver. And I’d say to you, consistently, I say in the marketplace, that there are a lot of companies that have the same technology, it is about the people that deliver that technology that we select. So we work with people, not technology, and we work with companies that have great leaders, and great people, and that we can count on. And so those are the things that are important to us. And we find that if you can be thoughtful about what you want to deliver, and it’s meaningful to the client, then there’s a connection to revenue that makes paying for that technology a lot more palatable than it would be if I put technology in, and hope clients will use it, or it sounds good. And if I tell people I have it, they’ll come to my bank, now they want to, I gotta get them to use it. So the more people who use my debit card, the more interchange income I earn, the happier my client is, if they can self service with it. So that’s technology, I want it. So so that’s how we that’s the process we go through. I hope that makes sense. So
Whitney McDonald 17:15
with that process, and with that strategy in mind, maybe you could give us a little insight as to what what clients are asking for now, or maybe a little insight into what you’re working on for 2024. What are those demands that you’re trying to meet?
Mike Butler 17:32
Yeah, I think if you went through, you know, again, if you went through our roadmap, working on the digital part of our debit card, we have a virtual card, and then using that virtual card, to allow people to get access to it and make changes is early on our list. I think if you I will tell you, customer service, surely a client call center. And how we use technology in advance, the box that we use in there is really important for us, because clients want to spend less time on the phone or very little time on the phone. And then I think the third part of it, which is always important, important for our small business clients is access to credit. That’s probably on our roadmap in the latter half of the year, how we can solve that problem for him as well. And I think those are, you know, and then I think the marketplace, I would go back to a weekend, accept the fact that we are very good at a couple of things and focus on that, and then bring great partners. So so we’ve got a so here’s a good one that we’re working on right now. And some people aren’t going to be happy I talked about it, but I’m excited about it. And that is giving people access to their money a little bit quicker. Through some better cheque clearing process. You know, there’s a, there’s a complicated process in the industry in which somebody’s deposit to check in, I’ve got to go through a system to actually get paid that money myself, and the client wants that money earlier. So we’re working on a program that will give a client immediate access to the money and reduce some of that process and risk behind the scenes for us. And that’s going to be I think, a great tool inside the small business market where people will be very
Whitney McDonald 19:28
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