How Upgrade became a “marketing engine” for deposit-hungry banks

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Neobank and credit card startup Upgrade launched a new high-yield savings account last month that offers consumers with a minimum balance of $1,000 a 3.5% annualized return (APY).

The rate of return is among the highest in the industry and one that the neobank can offer its customers by leveraging its network of more than 200 community banks and credit unions, said Renaud Laplanche, CEO of Upgrade.

Banks have been awash with deposits during the pandemic, boosted largely by government stimulus programs, but that’s no longer the case, said Laplanche, who founded LendingClub in 2006 before launching Upgrade in 2017.

Deposits have become more valuable to smaller institutions in the current high-yield environment, and they are willing to pay more for them, he said.

Upgrade’s flagship product is a credit card that allows users to convert their balances into installment loans.

The non-bank fintech sells the loans to its partner banks. The company is taking a similar approach to its new high-yield savings account, routing funds to partner banks that are deposit-hungry, Laplanche said.

“It’s been harder to get deposits now than it has been for the past two or three years,” he said. “We have essentially become a marketing machine for [small institutions]because we have a bigger brand, a national brand and access to online resources for collecting deposits.”

Upgrade’s new savings account comes as larger institutions still offer “nearly nothing” on deposits, said Ted Rossman, senior industry analyst at Bankrate.com.

“They have all the deposits they need,” he said, noting that the national average return on savings is 0.16%. “But smaller financial institutions are aggressively competing for deposits. They don’t have branches on every corner, or their name in the stadium, or nationwide TV ads. They compete for rates, and in this period of rising rates, competition is intense.”

Laplanche called his model a win-win for consumers and community banks.

“Rather than aggregating assets and liabilities on our own balance sheet like we would at a bank, we now reconcile assets and liabilities, loans and deposits at a distributed network level. Some of our partners may need more deposits or more loans at any given time, and so we can allocate them that way,” he said. “We’re giving these smaller banks and credit unions the deposits they need, and our customers have benefited from that.”

Upgrade’s high-yield savings account was an industry high at the time of its announcement — but only for a short time, noted Rossman, who said there’s tremendous competition in the high-yield savings space right now.

“Upgrade’s 3.50% was the highest return for just a few hours, and then Salem Five and Dollar Savings Direct caught up on the same day,” he said. “Shortly thereafter, BrioDirect and Bask passed them all.”

BrioDirect’s high yield account is currently at 3.75%, while Bask Bank is now at 3.60%.

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