Neobank HMBradley poised for second try

HMBradley, a neobank focused on the mass affluent, suffered a brutal setback that shrank its deposit base from $565 million at its peak in 2021 to $200 million in December 2022. But the company still raised a previously unreported $38 million Series B funding round in 2021, CEO Zach Bruhnke tells Axios.

• Discover Financial and Commerce Ventures led that round valuing the company at $180 million.

Why it matters: HMBradley's using that financing to help fuel a comeback after being sidelined in the last 16 months.

Background: Founded in 2018, HMBradley grew rapidly to house about $565 million in deposits across over 24,000 customers in 2021, says Bruhnke.

• Its rapid expansion however alarmed bank partner, Hatch Bank, which pulled the brakes over concerns it would draw regulatory scrutiny in mid-2021.
• Without another partner lined up, HMBradley was forced to enter invite-only mode, cut products (including a mortgage line), and later laid off just under 10 staff members.
• “We had to fire customers, we aggressively closed accounts for things like fraud.” Bruhnke says. “If a customer has all of our products, we kept catering to that. If they didn't, we aggressively pushed things down to where it didn't make sense for them [to stay with HMBradley]."
• By December 2022, HMBradley had shrunk to about $200 million in deposits across about 10,000 customers.

Driving the news: HMBradley found a new sponsor bank — NYCB— last year and was able to step out of that invite-only era officially this month. Since hitting rock bottom in December, its deposit and customer base figures have “almost doubled" as of this week, says Bruhnke.

• Revenue, which was just under $4 million in 2022, is growing again and may reach $20 million by the end of 2023.
• “When we left our old partner and moved over to NYCB, we simply started from scratch," says Brunhke.
• One strategy for attracting customers: HMBradley offers high savings rates of between 2% to 4.2% — with customers who use multiple products earning back more.
• "We're likely to raise again within the next few months and have strong insider support," says Bruhnke.

Of note: HMBradley is an unusual neobank. Most in the U.S. earn revenue largely from interchange; filling the coffers the more a consumer swipes their card.

• In comparison, majority of HMBradley's revenue comes from its sponsor bank: The startup is paid a certain percentage based on its asset size, giving it incentive to encourage savings.
• Its user base also tends to be wealthier, with an average income of about $155,000 a year.

• That makes its operations worth watching at a time when cries that "interchange is not enough" for a neobank to succeed, are rising.

The big picture: The company is re-launching at a challenging time — and Bruhnke knows it. Small to mid-sized banks are under a microscope after SVB's blowup. The health of the global economy is also unclear.

• "As far as new products go, we've kind of halted. In fact there are two that are just sitting on the shelf," he says. "Launching new products in the middle of a down market is probably not the best thing."
• The company, which continues to add new software features, now operates with a tight, 32-person team.

What we're watching: HMBradley may one day buy its own bank. In 2018, HMBradley got permission from the Board of Governors to buy 9.9% of South Carolina-based Optus Bank, with the option to eventually buy out the business.

• The particular deal never came through, but Bruhnke is still interested in that path.
• "It's something that will very likely do at some point," he says. "In some ways, we probably should have done it from the beginning, because we might have been in a different position vs. using a bank partner."