Bank Leumi to launch online bank Pepper in US

Israeli-listed Bank Leumi is in talks with potential partners about launching its acclaimed online-only bank Pepper in the US, in what would mark the latest challenge to the high fees that America’s main street lenders have enjoyed for decades.

Launched in mid-2017 to “disrupt from the inside”, Pepper has won praise for its technology and is opening more accounts per day than its parent bank does across its 250 bricks and mortar branches in Israel.

“We said we wanted to go overseas and we searched wide,” Rakefet Russak-Aminoach, Bank Leumi’s chief executive, told the Financial Times in New York, adding that the desire to expand was influenced by inquiries from foreign banks and potential partners.

After looking at markets including the UK and India, the US was chosen as the first international venture because of its size and because “(US banks) are very advanced in some areas but in some aspects they’re so behind in basic banking”, Ms Russak-Aminoach said.

She is far from the first person to spot an opportunity in a market where big banks expensive branch networks are supported by layers of charges for everything from wire transfers to ATM cash withdrawals.

Goldman Sachs jumped into the US online banking market two years ago with the launch of Marcus, Barclays is aiming to have a full online US bank by next year, and some regional banks including Capital One have created online spin offs.

Pure online banks such as Ally are also trying to undercut traditional banks, while fintechs like share trading platform Robinhood are planning to offer banking services.

Ms Russak-Aminoach said Pepper planned to be a scale player and would partner with a company that already has a large national US client base.

“We . . . are currently pursuing several options for collaborations in the US with significant and interesting players,” she said, declining to reveal their identities.

She said it was too early to speculate on how much funding the US entity would have, or the financial specifics, but Bank Leumi would only hold a minority stake in the entity. Bank Leumi’s shareholders’ capital is around $10bn and it has assets of NIS 450bn ($120bn).

Ms Russak-Aminoach argued that Pepper’s technology will set it aside from the competition. “While most digital banks today are simply a new interface built on top of old legacy systems, Bank Leumi decided to deliberately create a self-disruption by building a fully-mobile, digital bank from the ground up,” she said.

A key feature is artificial intelligence which “allows us to get to know our customers, customise relevant content and offer them a personalised banking experience that differs from person to person — one that is completely different from the traditional banking language we have come to know.”


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