What Is a Niche Bank?

A Niche Bank Explained

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A niche bank is a financial institution that offers products and services catered to a specific group of people, such as the LGBTQ community, creators, environmentally conscious individuals, and women.

Niche banks focus on personalization, offering unique tools and features built to meet the needs of underserved populations. So, if you feel like your current institution doesn’t truly “get” your lifestyle, then a niche bank may be worth looking into. Here’s a closer look at how they work.

Definition and Examples of a Niche Bank

Niche banks are smaller, more specialized banking institutions that focus on a specific area or market. They often offer more personalized services and products than larger commercial banks.

  • Alternate name: Vertical bank

One example of a niche bank is Studio Bank in Nashville, Tennessee. It’s designed for creators—think artists, photographers, musicians, builders, and writers. When you visit a local branch, you’ll find local coffee and snacks, and locally sourced gifts. Plus, they’ve designed their products specifically with startups, tech companies, and entrepreneurs in mind.

How Does a Niche Bank Work?

Niche banks work by targeting a specific segment of the population or market with their services. This gives them a clear view of the challenges, desires, and unmet needs of that population, so they can then offer highly specialized services that fill in the gap left by traditional banks

For example, some niche banks meet the needs of their customers by offering:

  • Early paydays and financial wellness tools for families who are having financial struggles
  • Invoicing and tax management tools for entrepreneurs
  • Tribal lending for Native Americans
  • “Chosen name” debit cards for nonbinary and transgender customers

If there’s a specific part of your life that makes you unique—whether you’re an entrepreneur, a person of color, a military veteran, or a retiree—which bank would you rather use?

  • Option A: A big-name bank that’s tech-forward, but offers a lot of products and services that don’t suit your lifestyle.
  • Option B: A niche bank that’s driven by the same technology as the larger one, but has features and tools tailored to your specific challenges and financial goals. 

Some people would choose Option B—and that’s precisely why niche banks are becoming so popular.

Niche Bank Examples

Here are nine niche bank and niche banking platform examples—all of which cater to a specific group of people: 

  • Chickasaw Community Bank is a niche bank for Native Americans. They’re 100% tribally owned and a prominent provider of Native American home loans.
  • Studio Bank is a niche bank for Nashville-based creators.
  • Daylight is a niche banking platform for the LGBTQ community and its allies.
  • Laurel Road is a niche banking platform for health care and business professionals burdened with student loan debt.
  • Majority is a niche banking platform for migrants.
  • Greenwood is a niche banking platform for Black and Latinx individuals.
  • Lili is a niche banking platform for freelancers.
  • Ellevest is a niche banking platform for women. 
  • Ando Money is a niche banking platform for those who want to fight climate change.

While Chickasaw Community Bank and Studio Bank are chartered banks, the rest of the institutions on the list are neobanks, which means they partner with a bank to offer banking services.

If you’re thinking about opening an account with a niche bank, make sure the bank or its banking partner are  FDIC- or NCUA-insured. That way, you get your hard-earned money back if the bank fails or closes. You can check an institution’s status on the FDIC’s website (if it’s a bank), or the NCUA’s website (if it’s a credit union).

Why Niche Banks Are on the Rise

Back in the day, most people banked at an institution in their town. They’d open an account in person and stop by when they needed to cash a check. 

Then a shift happened where people started moving to online banks with more technology and lower fees. According to 2021 research from BAI, a financial services nonprofit, 43% of consumers reported doing all of their banking digitally and 84% planned to maintain the same level of digital usage after the pandemic ends.

Another shift took place in addition to a move to online banks. Sleek apps and low fees are no longer enough to make a bank stand out. People want an institution that truly understands the financial challenges they face as an individual. And that’s where niche banks come in.

Niche banks are generally technology-driven and modern. But they’re also highly specialized in helping a specific segment of the population achieve their goals—whether you’re a woman, a creator, an LGBTQ, a migrant, a person of color, or an environmentalist. 

Pros and Cons of a Niche Bank

Pros
  • Niche banks fully understand the needs and desires of their target audience

  • Most have cool tools and features

  • Technology is making it easier to find a niche bank that caters to your needs


Cons
  • May have limited products and services

Pros Explained

  • Niche banks fully understand the needs and desires of their target audience: Niche banks identify the challenges and unmet financial needs of their customers. Then, they create products and services aimed at filling this gap left by larger institutions. 
  • Most have cool tools and features: The biggest benefit of niche banks is they offer uncommon tools and features to help you better manage your finances. For freelancers, that may mean built-in tools for invoicing and saving taxes. For those who migrate to the U.S., that may mean a bank that offers customer support in your language.
  • Technology is making it easier to find a niche bank that caters to your needs: Twenty years ago, most people were limited to the banks and credit unions in their geographic area. But today, technology has removed these barriers and made it possible for institutions to target people based on lifestyle and unique needs rather than location. 

Cons Explained 

  • May have limited products and services: Some niche banks have a curated list of product offerings that may not cover everything you need. For example, Lili is a niche bank for freelancers, but it only offers one bank account. If you need a business loan or business credit card, you’ll have to get those somewhere else.

Key Takeaways

  • Niche banks focus on providing a more tailored and personalized banking experience to a select group of customers, aiming to meet their financial needs and connect with them on an emotional level.
  • Some examples of niche banks include Lili (a bank for freelancers), Daylight (a bank for LGBTQ and their allies), and Ando Money (a bank for climate-change fighters).
  • Niche banks are particularly appealing to those who feel like large, faceless institutions don’t represent their interests.

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