As the fintech industry continues to rapidly evolve and change the market for financial products, it can be difficult for established financial institutions to keep up. To stay competitive, these institutions must offer popular products and an easy-to-use customer experience to drive customer engagement and product utilization. However, a new in-house product can be expensive to develop and administer, and if it doesn't meet your customers’ needs, you could end up losing business. Frustratingly, outsourcing to a third-party provider can be cost-prohibitive and eliminate any profitability from the product. 

Health Savings Accounts are an in-demand product that many commercial and retail customers want, but can be difficult for banks and credit unions to offer in-house and expensive to outsource. But partnering with the right third-party administrator can enable financial institutions to offer a profitable, competitive HSA solution that increases deposits, brings in new customers, and generates revenue. 

Why financial institutions should offer an HSA

Health Savings Accounts (HSAs) are one of the hot financial products right now and the industry has produced a host of new administrators. According to Devenir, there were over 37 million HSA accounts in 2023. These accounts held over $123 billion in assets, which is an increase of 500% since 2013.

The reasons HSAs have grown in popularity are many. As the cost of health insurance and healthcare continue to rise, High Deductible Health Plans (HDHPs) and the corresponding HSAs are becoming more and more attractive to consumers who want more control over their medical spend. The features of an HSA make it an effective savings tool for not just immediate expenses, but also future big-ticket medical treatments and even retirement. In addition, HDHPs and HSAs are popular for businesses. They lower the cost of offering health insurance while enabling companies to offer an attractive suite of benefits. In fact, 53% of private sector workers are enrolled in a HDHP, so more it's likely that more than half of your existing  commercial clients are already offering an HSA outside of your institution. 

HSAs can also be structured to allow account holders to invest their contributions. The ability to invest is a popular feature and because of that popularity, financial institutions will lose revenue and customers if they don’t offer this option. 

Why? Well, while consumers tend to be loyal to their “primary” bank, they will also move an average of 37% of their deposits to a second financial institution if the account(s) has/have better features, lower fees, and/or higher interest rates. If a financial institution can offer a competitive HSA product, they can both retain their primary customers’ deposits that might go elsewhere and capture the secondary deposits from other financial institutions that offer a subpar HSA product. 

In addition, small and medium-sized businesses prefer a one-stop-shop for their financial needs. So if financial institutions can offer a competitive HSA product in addition to traditional banking services to SME commercial clients, they can capture more of that business.

Offering an in-house HSA costs money

While it might be attractive to offer your own in-house HSA solution, there are many costs to consider. There are tangible fixed costs like overhead and administration, as well as intangibles like the opportunity cost of offering a subpar product, or attrition experienced when customers seek superior solutions.  

Fees and administrative costs

Administering an in-house HSA requires the financial institution to do the following:

• Spend time and money for staff to maintenance and service the accounts

• Pay core fees on accounts.

• Pay interest on accounts.

• Spend time and money on debit card fulfillment and reissuance.

• Maintain a customer service support team to help account holders and business customers navigate their issues.

• Fulfill tax reporting requirements.

In order to administer the in-house HSA and fulfill these requirements, the financial institution will have to hire new staff, increase the workloads of the current workforce, or contract with outside vendors. All of which will increase the cost of providing this in-house HSA solution.  Even as your HSA volume scales, your cost scales with it. Structured this way, an in-house demand deposit account solution is not profitable, and it is not scalable. 

Opportunity cost of offering a subpar product

There are currently at least 788 HSA products on the market. But only a handful are repeatedly recommended by trusted sources like Morningstar, because their product and customer service stand out above the rest. The HSAs that are repeatedly ranked and recommended offer best-in-class customer support, have well-designed modern dashboards and products, enable mobile account management, provide ongoing and engaging educational materials, and offer account holders investment capabilities.

That’s why a financial institution can’t get away with simply offering a demand deposit account (DDA) HSA solution. These types of accounts don’t have the type of account holder features that make the other solutions popular, including: paperless account opening and management, investments, claim sync, digital receipt uploads, and the ability to look up eligible expenses.

They also lack the features employers are looking for to help make administering the HSA benefit easy on their end. Employers want a dedicated portal, APIs for benefit administration, seamless integrations with their payroll providers, customizable reporting, census management, and automated functionality like employer/employee matching programs to increase engagement, participation, and deposit volume. 

If your in-house HSA doesn’t meet these standards, your current customers won’t use it. Local referral sources won’t recommend it, either. They will instead, use a competitor’s product which means you lose out on the deposits, interchange fees, and fixed fees you could charge. And in the cases where the competitor offers traditional banking solutions, offering a subpar HSA solution could actually cost you the entire banking relationship.

Offering a third-party HSA solution can also be expensive 

If you’ve decided against developing your own in-house HSA solution, then you’ll want to be sure the third-party administrator with which you partner enables you to keep 100% of the deposits and isn’t so expensive that their fees virtually erase the product’s profitability. 

Many third-party administrators don’t let financial institutions keep all of the deposits that account holders place in their HSA accounts. Even those that do often require basis point payments on the assets. If this is the case, you could be missing out on deposits you would have otherwise had on your books, and the significant net interest margin revenue coming from those core assets.

In addition to high fees, the third-party HSA administrator may not be able to offer financial institutions a co-branded platform. Without a co-branded platform, a financial institution doesn’t reap the full marketing benefits of the HSA partnership, and customers may not feel they are getting an experience true to their bank or credit union.

The good news is, that you don’t have to develop your own in-house HSA product or partner with a high-cost HSA administrator just to stay competitive. You can partner with Lively and get a modern, co-branded third-party solution that allows you to hold all of the deposits, earn all of the interchange revenue, all of the fixed fee revenue, and retain all of the customer information for cross-sales and relationship management, all in one simple solution.

Working with the right HSA partner can drive deposits while saving you money

Your financial institution has likely developed expertise in its core financial products by iterating on them over the many years since they were first developed. The same is true for the top HSA providers in the market. We specialize in developing and administering this financial product, and because of that, we know exactly what account holders and employers want, how they want it, and how to deliver it cost-effectively.

Lively leads the industry in offering financial institutions a co-branded HSA solution that helps increase deposits, drive profitability, and gain and retain commercial customers. With a Lively partnership, you hold the deposits, collect fee income and interchange revenue, and we take care of the rest. We handle risk mitigation and compliance support, plan administration including onboarding, customer support, account management, tax reporting, internal partner enablement and staff education.

We price our partnership solution so that financial institutions get the greatest ROI on their HSA. Our fee schedules are clear and transparent: We pride ourselves on no hidden fees. When a financial institution partners with Lively, it can take advantage of Lively’s easy-to-use platform, top-rated customer support, and ongoing account holder education, while co-branding the HSA platform, communications, and debit card.

When you work with a partner like Lively, you get an HSA solution that feels in-house to customers, without spending the time and money to develop your own HSA, hiring new staff to administer it and paying for debit card fulfillment.

If you’re ready to offer a best-in-class HSA solution, we're ready to work with you. With our popular HSA platform, you can offer a branded HSA plan to your customers without incurring the cost to develop one in-house. Reach out today.