Lessons on building a Challenger Bank with Zach Bruhnke

We recently welcomed Zach Bruhnke the CEO/Janitor at HMBradley to be a speaker at our Moov weekly Happy Hour. Zach is a longtime member of the Moov community and Fintech veteran. He spoke on a broad range of topics in the challenger bank space and his ideas were so good we decided to write them up to share with the community.

We don’t record our Happy Hour calls, so if you’d like to be in on the next one join the Moov community to be the first to hear about them.

If you’re not already familiar, HMBradley the best bank in the world if you’re a saver. Their claim to fame is that they reward you with better savings rates depending on the percentage of your income that you save, regardless of the dollar amount. As you’ll see in this post however, there is a lot more to HMBradley than meets the eye. Being able to offer rates up to 3% APY on your savings is no easy feat, and in building a bank that can do this Zach learned a lot about the Challenger banking space he shared with the Moov community.

GTM slower than you would with traditional startup

When building HMBradley Zach and his team spent a lot of time developing a deep relationship with their sponsor bank and tightening up their fraud protection systems. This was made easier by Zach’s deep experience in the space, but was still a crucial part of their go-to-market (GTM) strategy. The deeper relationship they have with their sponsor bank allows them to have more flexibility in the products they offer than your traditional challenger bank.

In addition to having more levers to pull on the product side than their competitors they’re also more ready for fraud of all sizes. Many challenger banks don’t realize that bank fraud is not something you can “worry about later”. In the world of traditional startups running into production issues as you scale will at worst cause customer headaches and damage your brand. In banking if you can’t handle fraud issues at scale you’re out Millions of dollars and your sponsor bank may revoke your agreement, making you DOA.

It’s for these reasons and more that taking your time to get the product right before going to market is a key component of building a successful long term business. This doesn’t mean that you can’t build hype around your product, or shouldn’t test your messaging. The lesson to take is that banks aren’t things that should be built flippantly. If you’re going to take charge of your customers money you need to take it seriously.

Hooks are not a differentiator

It’s all too common to see a challenger bank that launches with a slightly different offering than its competitors. According to Zach, challenger banks are built on fuzzy about about who their target market is and how they’re going to serve them. Just saying “Millenials” or “GenZ” isn’t a targeted enough approach. If you believe in the Zero to One approach to building a startup you need to focus on a hyper targeted demographic and completely dominate the market. From there you can start to grow into adjacent markets.

Smartly, HMBradley is focusing on savers. Zach and his team have keyed in on the fact that most people in the United States getrichslow.ly (yes they own that domain). Living below their means, saving more than they make and eventually, through the magic of compound interest their money grows and makes them wealthy. By targeting people who save regardless of their income HMBradley has chosen a valuable customer base that will only become more valuable over time. As the company grows and they are able to offer more products, they will have loyal customers who they can market those products to and who have great savings habits meaning their loans are likely to perform even better than the market average.

Sure, offering a savings rate that increases based on how much you save could be seen as a hook. But it’s a hook that is geared towards a specific behavior, a behavior they want to see in their customers. HMBradely offering a product that is appealing to the specific audience they want to attract is part of a larger business thesis not a hook for pulling customers into a commodity product. What really makes Zach’s company different is their desire to completely change the relationship between institution and customer.

Challenger Banks have an opportunity to be an pro-privacy force in the market

“The real opportunity for challenger banks is user experience”, Zach said towards the end of his talk. Of the current banking experience he continued, “I always like to say it’s as though you’re at dinner with your wife of ten years when she turns to you and says ‘So what do you do for a living dear’”. For anyone who has gotten a mortgage or really applied for any financial product ever, you can relate. Even at the same institution you’re often forced to give all the same information repeatedly, even if they technically know everything about you.

“The real opportunity for challenger banks is user experience” - Zach Bruhnke, CEO HMBradley

Our CEO Wade Arnold makes a solid point in defense of the banks on this. The systems most banks run on weren’t meant to be connected to the internet. They were designed for individual branches. Since then, decades of acquisitions and products have been built on top of them to make them connect to the web and each other. The enormity of the pressure on these systems to stay up and function is such that things like user profiles that persist across business lines are a “nice to have” and not essential features. The relatively recent entrance of challenger banks is the only pressure banks have felt to innovate on the customer experience front.

Though many banks haven’t been able to adjust to modern technology they have avoided one major issue that plagues many technology companies, trust. Customers trust banks to keep their money and data safe. When cast into this light it’s easy to see a glaring opportunity for challenger banks to step into. Offer customers the ability to hold their two most valuable assets, money and data. HMBradley is just scratching the surface of this opportunity. By actually monitoring their customers’ spending and saving habits and rewarding them accordingly, they are building trust and ease of use that will carry them far. A few features of this relationship are already bearing fruit. They recently launched a credit product for their customers that is more than pre-approved, it’s fully allocated and customers can instantly draw on it once offered.

Beyond financial products though, think about OAuth. Would you rather login to an app with your social media account, or your HMBradley account? A social media companies’ sole purpose is to quantify you for advertisers. HMBradley’s mission is to help you save your money and keep it secure. I know who I’d choose. This concept that a bank can be more like an identity passport is exciting and something that most people in Fintech (outside of the Fast team) aren’t thinking about.

The opportunity is just beginning

There is no shortage of new challenger banks appearing every day. You can be forgiven for believing that all the good opportunities are taken. What Zach and the team at HMBradley are proving is that if you think differently, the field is still very green.

Part of what we’re doing at Moov is creating more opportunities for both Fintechs and banks to come up with ways to create new and interesting customer experiences and products. If banks don’t have to spin up whole new departments to service fintechs there will be more competition on what products are offered. If Fintechs don’t have to spend an arm and a leg to use a solid developer first BaaS product, they can focus more on the user experience and less on raising money.

The best part about our Happy Hour with Zach was that he’s not a paying customer of Moov. The HMBradley team have however contributed to Moov open source libraries and are planning on using some of them in the future. Zach is a financial technologist who has spent so much time wrestling with core banking systems that he wants to improve the experience for himself and others. We’re proud to have people like him in our community helping to build a more open platform on which the future of finance will be built.