HMBradley, a neobank for savers, is shifting to invite-only mode as it seeks additional banking partners to accommodate the rapid growth in deposits it has garnered over the past several months. 

The Santa Monica, California-based fintech, which launched in 2019, has accepted more than $400 million in total deposits, and has experienced a 300% increase in deposits since the start of the year, it said.

​​"We passed our end-of-year projections that we gave investors in our Series A by May," said Zach Bruhnke, HMBradley's co-founder and CEO. The neobank closed a $18.3 million Series A round in November. 

The growth in deposits, however, has put a strain on its partner bank, Hatch Bank, the Federal Deposit Insurance Corp. (FDIC)-insured financial institution that holds HMBradley customers' deposits. 

"We still feel like there's more latitude to grow here. We weren't necessarily expecting our partner to come in and limit the growth — they basically just said, 'We can't keep up with it.' That obviously put us in a position to go into invite-only mode," Bruhnke said. "It's not really anyone's fault — other than ours, I guess, for growing at this speed. But we feel like it's not impossible to find the right deal with the right assets to put them on. It just means that you've got to be prudent and ready to scale at a very different speed than most smaller banks are." 

Declining to share specifics, Bruhnke said the neobank's number of accounts range in the "tens of thousands."

"We're not running for vanity metrics. We're not opening 100,000 accounts a month," Bruhnke said. "We think that, ultimately, it's just a different audience."

Unlike the demographic that lives paycheck to paycheck that fintechs like Chime and Current attract, HMBradley's flagship product, a high-interest savings account, is drawing in the savings crowd.

HMBradley account holders who set up direct deposit with the fintech and save at least 20% of their income qualify for the company's highest tier and earn up to a 3% annual percentage yield. 

The company also has a credit card that offers its Tier 1 customers 3% cash back.

"Most challenger banks have been built on this idea that you're going to bring in deposits and then you're going to get people to spend all their money on a debit card every single month — that's how they make money," Bruhnke said. "We target a very different customer — the savings crowd — so our customer doesn't really spend on their debit card, which means we need to really be able to leverage deposits."

Bruhnke said the neobank has found success through word-of-mouth advertising. HMBradley turned off its Facebook ads more than a month ago, but that hasn't slowed the company's growth, he added. 

"It's the best deal in banking right now, and our customers don't mind telling other people, because they feel like they're getting something really valuable for it," Bruhnke said. 

Seeking partners

As the company seeks an additional two to three partner banks, Bruhnke said the pitch to financial institutions is simple: "We can bring you a subsidized cost of deposits from a depositor that you would never be able to acquire on your own."

HMBradley's customers have an average account balance of $40,000 and an average FICO score of 740, Bruhnke said.

"This is not a customer that a typical bank knows how to acquire, or could acquire for nearly the kind of thing that we can acquire for," he said.

HMBradley spends around $30 to acquire this type of customer, compared to the thousands of dollars a large institution like JPMorgan Chase might spend to reach the same demographic, Bruhnke said. 

The "special stickiness" of HMBradley's flagship offering will help foster loyalty among its customers, who will likely choose to engage with the additional products the fintech plans to offer, Bruhnke said. The neobank plans to offer auto loans and mortgages, he added.

"This is really about us building a relationship with the customer," Bruhnke said. "We believe that we have a customer that has a very large lifetime value. … They're going to buy houses and they're going to use credit cards very heavily."

Scaling up from one banking partner to many will help the fintech accommodate the growth it anticipates and provide a range products for its customers, Bruhnke said.  

"We're going to need multiple partners to be able to scale this, and at the speed at which we're scaling, most banks really just can't keep up with the growth," said Bruhnke, adding that most financial institutions who enter banking-as-a-service (BaaS) partnerships with fintechs have less than $10 billion in assets. 

Having multiple partner banks also gives the fintech more flexibility in the lending products it can offer, Bruhnke said. 

"Different banks want to do different types of lending," he said. "If you stuck to one partner, then you're really limited to how willing that partner is to be creative on a loan."

HMBradley hopes to secure additional partners by the end of the year, Bruhnke said. While the company shifts to invite-only mode, it is focusing on upcoming product launches and enhancing its existing services, he said. 

"People are asking, 'When can I refinance my house? When can I get a mortgage?' We're working on those products behind the scenes, and I think there are a lot of things coming up the pipeline in the next six to 12 months that we think will be really impactful for the user base," Bruhnke said.