HMBradley, a neobank that caters to savers, is shutting down its consumer operations as it shifts its focus to selling its technology to traditional banks, CEO and co-founder Zach Bruhnke said Wednesday.

In a message sent to the platform’s customers, Bruhnke said the fintech is beginning a wind-down of its consumer deposit and credit card programs over the next 30 days.

“Since the start, we have been on a mission to bring a better banking experience to life, dedicated to empowering customers with tools and services that enable smart money management,” Bruhnke said. “Throughout 2023, it became evident that our consumer brand growth was falling short of our goals.”

Bruhnke said the company has been approached by several banks that have expressed interest in the technology it has developed. 

“Because of this, we have made the strategic decision to shift to focus on integrating our technology with established banks,” Bruhnke said. “This transition enables us to continue our mission on a larger scale and hopefully positively impact the financial experiences of a broader customer base beyond just HMBradley customers.”

Competitive pressure

The Santa Monica, California-based neobank launched in 2019 with the goal of targeting savers by offering perks tied to user deposits.

Unlike most neobanks that target the paycheck-to-paycheck demographic, HMBradley sought more affluent consumers, enticing depositors who averaged more than $40,000 in their accounts.

The firm experienced rapid growth in 2021, forcing the fintech’s original partner, Hatch Bank, to limit HMBradley’s growth after struggling to keep up with user deposits. 

The neobank was unable to accept new users for 18 months until landing a partnership with New York Community Bank, a $87 billion-asset institution that didn’t place a limit on HMBradley’s deposit gathering.

However, that period where HMBradley was unable to take on new account holders or launch new products ultimately set the neobank back, Bruhnke said.

“We had a huge waitlist, and we got a bit of a start after that, but we lost a lot of trust with our customers,” he told Banking Dive on Thursday. “We couldn't really build anything, we couldn't say anything publicly, because we were still trying to find a partner, and they were Hatch’s deposits, they weren't ours. So it certainly didn't help. … Ultimately, those are decisions we made, and we have to own it.”

The firm’s flagship product, a high-interest savings account, was unique when it first launched, as most traditional banks were not valuing deposits in the same way. 

But as the value of deposits shifted, HMBradley found itself competing with traditional firms that were able to offer higher yields.

“When we were growing quickly, it was a much easier market to grow in because we took the position that ultimately deposits will be valuable again and a lot of banks took the position that deposits are going to be cheap forever. So that was an advantage for us,” he said. “When the market shifted, and everyone decided they are valuable again and banks are willing to pay a lot more for them, it really ate away at our margins.”

Bruhnke said a “path out” might have been investing more on marketing, but the neobank didn’t feel like it would be prudent or in the best interest of shareholders, given the current state of the market. 

“We had to really look ourselves in the mirror and say, ‘OK, what's going to do the best by all of us?’ And ultimately, in this case, that meant saying goodbye to the business that we knew and really focusing on the business that we know can actually be a big win for us,” he said. 

The fintech began working on a B2B offering this year, raising $13 million in funding backed by community bank-focused private equity firm Castle Creek Capital, to further the effort, Bruhnke said. 

The funding round was a down round compared to its Series B, which valued the firm at $180 million, Bruhnke said. The fintech took on new shareholders with specific insight into banking technology, he said.  

The idea to pivot to B2B came about after hearing banks express interest in HMBradley’s core banking technology, Bruhnke said. 

“The thing that we kept hearing from folks over and over again was, ‘You have better tech than we do. What if we licensed this from you?’” he said.

While nothing is official yet, Bruhnke said the neobank is close to securing several deals with banks looking to license its technology. 

As the firm shifts its focus from consumer to B2B, Bruhnke said the company will likely downsize in certain areas, such as customer service and operations. 

“There are roles that we have that you don't need in this environment,” Bruhnke said. “We've obviously never worried about things like building an enterprise sales pipeline. Some skill sets will leave and others will need to come in.”

Bruhnke called the transition bittersweet. 

“It’s nothing I ever wanted to see us do, but ultimately, you have choices in environments like this. You either make the hard calls or you watch yourself die slowly,” he said. “We have a phrase around here that we've used for a long time, which is, ‘If you're not growing, you're dying.’ And we just felt like this was the right call for the business. … It's taking the pain now and hoping for a brighter future as a result of it.”