In theory, G&L Bank had a lot going for it: a financially literate, loyal and affluent affinity market encompassing 20 million US adults. Its demise shows that in the world of online banking, even being highly ‘niche and focused’ is not always enough to survive in a world dominated by clicks-and-mortar – at least until electronic deposits and transfers become easier.
G&L Bank has said it is going to close, citing the tough climate for standalone online banks.
G&L Bank, the only financial institution in the United States targeted specifically at the gay and lesbian community, has announced it will close.
This represents a further blow to the Internet-only banking market following a torrid 18 months. G&L had a very tightly defined market, commonly regarded as loyal, affluent and financially literate. It has also managed to build up deposits to over $100 million since its launch in September 1999. This, however, was not enough to ensure its survival.
The battering that standalone banks have taken on both sides of the Atlantic over the last 18 months has created a consensus that to survive in a world dominated by the big banks, standalone providers must have a very well defined audience, and keep things small and simple.
Yet that may not be enough. G&L had all these going for it, but was scuppered by the high costs of customer acquisition and the difficulty of gaining sufficient customers through an online-only service targeted at a niche market.
A couple of statistics are telling: its customers had an average income of approximately $90,000, but within its first eighteen months it only managed to acquire little over 10,000 of them. Small is only beautiful to a degree. The tough economic times also did not help G&L, which had originally planned to open satellite branches in areas with a dense population of gay people.
So is the standalone model simply no longer viable? There are still a few standalone survivors in the market in both the US and the UK. However, until it becomes much easier to deposit and transfer money electronically, standalones will face a huge struggle in braving the clicks-and-mortar onslaught.