BOFI, Do they really have a cost advantage?

There’s been a lot of doubt expressed recently by shorts as to whether Bofi really has an advantage over the other banks or whether their advantage is just on “risky” loans. Do you want to know what BOFI’s real advantage is? Why they are so much more profitable than the branched banks? Here’s why?

I’m currently staying in NYC, in Manhattan. Walking up 3rd Avenue in NY today, at 56th St I noted a huge Chase office on the SE corner of 56th (it took up half the block), and an Atlantic Bank diagonally across on the NW corner of the same intersection.

At the next corner (57th St), there was a big HSBC Bank branch on the SW corner and a TD Bank office on the NE corner.

Then, at the next corner, 58th Street there was a Capital One branch on the SW corner, a big Wells Fargo branch across 58th, on the NW corner, and a big CitiBank branch right next to the Wells Fargo branch (those two took up more than half the block). That was three banks in a row.

Then there was one intervening store, and continuing to the other end of the block, on the same side (at 59th) there was a Bank of America branch, and another Capital One branch diagonally across the intersection.

And this is just one stretch in NY, just from 56th to 59th Streets, on just one Avenue, in a a basically normal, mostly residential (apartment houses), and some office buildings, neighborhood. And nine bank branches, and more than half of them huge!!! Can any of them be operating profitably? I doubt it. As an aside, there must be 35 or 40 just Citbank locations alone in lower Manhattan (below Central Park).

Can you imagine what the banks are paying to lease these huge prime corner spaces? In Midtown Manhattan? Which mostly stand half-empty now? And pay for electricity, air conditioning, cleaning services, phones, staffing salaries, computers, etc. These dinosaurs must have taken their 20-year (or longer) leases to lock in the space, before they had an inkling that most banking business would go to the Internet. They must have 17, 14, 12, 10, 8 years left on most of their leases. And even then they’ll be afraid to close most of the branches because they are attached to the old way of thinking. I think BOFI has a long runway of cost advantage ahead of them.



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I think BOFI has a long runway of cost advantage ahead of them.

Good points Saul, BOFI and other branchless banks have a huge advantage over the Chase, WFC’s of the world. I also think the discussion about Glassdoor ratings and employee treatment at BOFI makes somewhat sense. They have such a lean model that they don’t have to pay top dollar for workers or amenities which may cause lower ratings.

What advantages does BOFI have over another branchless banks like Everbank (NYSE:EVER which has been flat and not really growing)? I believe they have great management up top that knows how to grow deposits (see smart HR block acquisition) and make tactfully aggressive loans (see NY Times article).

With a market cap of $1.9B, like you said Saul they have a large runway ahead of them.

We’ll need to keep an eye on their growth and other key metrics during each earnings report to see if they are keeping their advantages, but so far so good.



Sounds like somebody’s getting hosed.


Hi Saul, this makes a lot of sense.
It is called a price moat. Basically by opting out of having branches BOFI can offer their customer better service and make more profits than brick & mortar traditional banking.
This reminds me of DELL at the late 90’s and early 2000’s. They were the first ones to offer orders of computers online where you could choose the components your self.
They streamlined the process and made it very cost effective.
At around mid 2000’s competitor started catching up and DELL lost their moat.
What are the chances that some other bank starts doing the same thing making BOFI the next DELL?
What is the long term barrier to entrance for them?
Thanks a lot and Shana Tova and Chatima Tova!

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What advantages does BOFI have over another branchless banks like Everbank

Data. And, more specifically, a data driven culture.

I believe they have great management up top that knows how to grow deposits (see smart HR block acquisition)

This too was largely about data. Here’s what Greg Garrabants said about it: “You’ll see us make strategic moves – like the H&R block acquisition. A lot of people think that was about deposits and pre-paid accounts. In fact, it was a distribution and data play.”…

This is what will likely keep BOFI ahead of the pack: anybody can start a branchless bank if they want, but creating a data-driven culture – and building up the data, learning to ask the right questions, and then iteratively fine-tuning the models needed to do it successfully – is not easy or quick.

One simple example of that data-driven culture is BOFI’s decision to deemphasize CD’s and focus more on checking accounts because checking customers are sticky whereas CD customers are always chasing the highest yield. That may sound obvious, but it’s the opposite of what most banks try to do.



Hi Shukisasson,

Actually there ARE other branchless banks but Bofi seems to do it a little better, and also, there is probably enough business that they can all be winners.

Glad to have you on the board,


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I live in a large condo building in San Francisco. On the first floor of my building is a Chase branch. There is another chase branch just across the neighborhood. There is never any customers in there. I’m not a Case customer but I do use their ATMs because my bank reimburses me for the ATM fees. Seems like a waste of money for them to have put this empty unused branch here in my building.

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What’s Keeping Bank Branches Open? One Word - Fear’s-keeping-bank-b…

An interesting article relevant to this conversation.

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As a bank customer having a nearby branch is important to me, it is what keeps the banks from being 100% commodities. I despise automatic teller machines, they take longer for something like deposits.Eliminate the branch and I will select my bank by the numbers. Old line banks with large medical and pension costs might have trouble competing.

So branches to a bank are like holding an angry tiger by the tail.You are in trouble if you hold on you ,are in trouble if you let go.


I no longer go to a branch more than once every two or three years. I do transfers between accounts online, wires out by telephone, withdrawals by check or ATM machines, deposits by mail or wire in. And I’m so low tech I barely know the difference between my TV remote and my cell phone…or maybe they’re the same?




As a bank customer having a nearby branch is important to me, it is what keeps the banks from being 100% commodities. I despise automatic teller machines, they take longer for something like deposits.

At the front of my Kroger is a bank counter, and a few little offices where you can go for a private consultation. Not only have I never seen anyone in those offices, I rarely ever see anyone at the counter. Why does that bank rent the space from Kroger? I have no idea. Last year a new competitor opened up about 1/4 mile away. At the front of the Publix store? A bank counter. At the Walmart up the road? Credit Union.

Underbanked? I don’t think so. There are branch offices, occasionally quite large, to three or four different banks within a couple hundred yards of each. There must be a reason.

I know it’s different there, but in Japan mobile money isn’t taking off:…

Japan may be last, but the US isn’t exactly burning up the wires, either. I’m sure it will change as demographic groups move up the scale (older is where the money is, but ‘online’ is where the youngers are.) Still, you could wait a long time for a 20 year old to become a 50 year old with money.

Personally, I use both, but I would never gauge an industry trend on “me”, I’m too weird. But try as I can, I still don’t get why banks rent all that expensive real estate - downtown Manhattan or the front of Kroger - and yet they do. They must know something!


Still, you could wait a long time for a 20 year old to become a 50 year old with money.

True. It would be interesting to see what the actual demographics are right now. Anecdotally, I’ve noticed quite a few in their 20s and 30s using online banking as their primary method of service. It may not take as long a time for a 30 year old to become a 40 year old with money…


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Saul if you have an iPhone your phone and your remote really can be the same. If I let my devices out of sight my husband has the tendency to ahem “improve” them… one day I looked and saw an unknown app and said “what it this?” it was a remote, I know for sure that it can control Apple TV and my mac if I want to watch movies on my Mac. I never do… but my husband likes to be prepared for all the tech possibilities…

I suggested next time he put the apps on his phone…

I love my tech help, at least most of the time. :slight_smile:


As the ways people bank are changing, so is their understanding of finances. And with a different understanding, they’ll respond to different incentives. Thus, this is an industry ripe for disruption. The players able to recognize and provide a different, better way will reap the rewards. A couple recent experiences that have led to this observation:

  1. Not too far back, I helped a financial services company start a wealth management business. Our customers (both older and younger) didn’t feel comfortable bringing over large balances to someone they’d only met over the phone. They wanted/needed a handshake and a look in the eye. But once they’d met face-to-face, virtually ALL business was conducted over the phone or online (by both older and younger customers). Our solution was small (cheap) suites in centrally located office buildings. There will always be a segment of customers (maybe even a large one) that FEELS like they need a physical presence…just in case. The banks chasing that segment (because it’s the one they’ve always chased) believe they need to LOOK prestigious and established (i.e., safe), so their retail banking margins will always suffer. But I agree the segment that’s comfortable with no branch presence is large enough (and growing) to make more than one online bank quite profitable.

  2. In a forgery case I watched earlier this year, the millennial prosecutor (late 20s, maybe 30) failed to introduce into evidence the allegedly forged checks. A rookie move, to be sure, and the judge asked her why she couldn’t produce the checks. Her exasperated reply: “We can’t get the checks, because they’ve already been cashed!” The judge immediately threw out the forgery charges. That young litigator may have never WRITTEN a check in her life. She’s certainly never received in the mail a month’s worth of processed checks. She may not even know it, but she’s ready for a new way of banking.

They call me,