US challenger banks: who’s who and what’s their tech
With the US Office of the Comptroller of the Currency (OCC) now accepting applications for national bank charters from non-depository fintech firms, expect a flurry of challengers!
FinTech Futures has put together a list of the current challenger banks and banking services in the US and the tech they are using.
We’ll be revisiting and updating this list on a regular basis. If you have any additions to the list, please get in touch with our editorial team.
Alpha Business Bank
A start-up bank aiming to serve SMEs.
According to the bank’s founder, Jacob Schuler, “US mega-banks do not understand small businesses, and small business owners go into business to do what they love, but usually fail due to financial trouble.”
The bank will differentiate from other US fintech start-ups in the SME space by gaining its own charter and FDIC insurance to provide full stack services to its members.
Alpha Business Bank is based in Spokane, Washington.
American Bank & Trust
A start-up bank based in Monroe, North Carolina, awaiting a banking licence.
It was founded by a group of local business owners and led by David Cutherberston, CEO of home building company True Homes.
Randy Helton, who in the late 1990s founded another local bank with a similar name, American Community Bank, is assisting with the venture. (American Community Bank does not exist today – it is part of First National Bank.)
American Bank & Trust hopes to raise $20 million in capital via an IPO.
A digital bank created by an established US-based financial services player Customers Bancorp. BankMobile opened for business in early 2015.
It caters mainly for students and offers a low-fee checking account with no monthly fees and no overdraft/non-sufficient funds (NSF) fees. It also provides personal loans.
According to its co-founder, president and chief strategy officer, Luvleen Sidhu, BankMobile is “the largest digital bank in the US”.
She describes it as “a hybrid model – a fintech company with a bank charter – that is revolutionising and disrupting banking”.
For its technology, the bank (as well as its parent) uses the IBS core banking system from FIS.
In 2017, a small bank in Florida, Flagship Community Bank, came close to acquiring BankMobile for $175 million (Flagship Community Bank has $112.5 million in assets). However, the deal did not go ahead as Flagship Community Bank failed to raise the required capital.
BankMobile also did its own M&A – in late 2015, it acquired Higher One, a student loan disbursement company and partner of Customers Bancorp since 2013.
Beacon Community Bank
The bank opened for business in early 2018 and is based in Charleston, South Carolina.
“It’s a rare thing to hear someone say, ‘I love my bank,’ but that is exactly what we at Beacon strive to do,” the bank says on its website. It caters for consumers and SMEs.
The bank is led by president and CEO Brooks Melton, who comes from another local bank, CommunityOne Bank (merged into Capital Bank). CFO is Clay Heslop and COO is Craig Johnson – both formerly of Southcoast Community Bank (now part of Pinnacle Financial Partners).
For its tech, Beacon has opted for the Silverlake core banking system from Jack Henry & Associates. The solution is supplied on a hosted basis via JHA OutLink Processing Services (JHA OPS) and its entire IT infrastructure is supported by Gladiator Hosted Network Solutions.
Founded in 2014, Chime has raised over $100 million funding to date, values the business at around $500 million and has over one million accounts. It employs around 100 people.
Chime comes with a mobile banking app and a Visa debit card, and there are no fees. It has an agreement with The Bancorp Bank for the provision of banking services.
The challenger says: “Unlike traditional banks that charge consumers fees left, right and centre, Chime makes its money from Visa.” It explains that whenever a user makes a purchase using their Chime card, Visa collects the interchange fee from the merchant for processing the payment. A portion of this interchange fee is then paid out to Chime.
Chime’s co-founder and CEO, Chris Britt, says he wanted to create a product for mainstream consumers, who already have accounts with big banks, “but just aren’t particularly satisfied with those guys for variety of reasons – probably first, and foremost, the way they structure the products are quite punitive”.
Community Bank of the Carolinas
CBC is based in Winston-Salem, North Carolina, and is awaiting a banking licence. It will focus on the local community and the surrounding area, “emphasising personal service to individuals and small- to medium-sized businesses”.
The bank expects to receive all regulatory approvals by Q3 this year and open for business in Q4.
CBC is led by Simpson “Skip” O. Brown Jr. (chairman and CEO) and James “Jim” C. Monroe Jr. (vice-chairman and CFO). “There is a market for customers who prefer a personalised banking experience that is not being served by larger banks,” the founders say.
It plans to raise $30 million by selling common stock.
Endeavor Bank opened its doors for business in San Diego, California in January 2018, following an initial capital raise of $26.6 million and the backing of over 450 investors/owners. It is a brand new bank, with no merger legacy.
Steven D Sefton is the bank’s founder. He’s been working on this venture since early 2015.
The bank focuses on “well-established owner managed local businesses”, Sefton says.
“Local companies want to do business with local banks. Large, national banking institutions don’t offer personalised services. Endeavor Bank isn’t a traditional bank and we aren’t traditional bankers,” he states.
It will offer “consultative banking” that will include “business counsel and advice” in addition to the standard banking services, he explains.
Finn is a digital bank account for smartphones created by JP Morgan Chase.
The app was initially launched in October 2017 in St Louis (where Chase has no branches), and then rolled out nationwide in summer 2018.
Designed for millennials (and with its own trendy website), Finn allows customers to open a bank account, make deposits, track spending and set up a saving plan. It offers free access to over 29,000 ATMs, 24×7 customer service, and the option to deposit cheques via phone.
GoBank was launched in 2013 by Green Dot Corporation, which claims it to be “the first bank account designed from scratch to be opened and used on a mobile device”.
The GoBank account includes a checking account with a linked Visa debit card and a second integrated bank account called the “Money Vault” for GoBank members to put money away for savings.
Accounts are demand deposit accounts (DDA) with deposits insured by the FDIC and full “Regulation E” consumer protections.
There are no overdraft fees or penalty fees and no minimum balance requirements.
It offers fee-free withdrawals from more than 40,000 ATMs (more than twice the size of Chase or Bank of America); instant money transfers to friends and family; checking the balance without logging into the account; mobile cheque book; bill pay; multiple deposit options; budgeting tools; and debit card customisation (customers can get the card with the image of their choice).
“Most people today, and especially people under 40, aren’t satisfied with their current banking options. Many traditional bank accounts have long and complex fee schedules with terms and conditions that favour the bank; not the customer,” says Steve Streit, founder and CEO of Green Dot.
Designed from the ground-up to be “the bank account for the smartphone generation”, once you start using it “controlling your money becomes as intimate and addictive as checking Facebook or texting friends”, he adds.
Start-up bank Grasshopper (formerly New York Venture Bank) applied for a banking licence in 2017.
The bank will provide banking products and services to businesses, particularly in New York, where it is based. These will include term loans, lines of credit, and owner-occupied real estate and asset-based lending, as well as deposit products.
It is understood that Judith Erwin, former executive at Square 1 Financial, will be Grasshopper’s CEO.
For its tech, the bank opted for the Temenos’ T24 core banking system.
Iam Money has its HQ in Chicago and an office in San Francisco. It also has two offices outside the US, in Dublin and London.
It has secured $3 million of funding, and plans to have $20 million when it launches.
Iam calls itself the “Apple store” of banking and targets millennials. It plans to roll out free learning and therapy-based financial workshops across the US and UK to “educate and empower consumers around their financial decisions” – the “first of its kind”.
It offers money management, micro-investments and micro-loans.
Iam’s founder and CEO, Lee Travers, says customers “still prefer the safety and security of traditional banking” and so its digital presence is going to be complemented by branches (although it will remain “digital first”). In 2017, it reportedly started to make an acquisition to get its US banking licence.
According to Travers, Iam plans to create more than 21,000 partnerships with retailers to enable cashback, and also potentially build an in-house find management team.
Marathon International Bank
A start-up bank for the Ethiopian American community, based in the Washington DC area. Its founders are Tekalign Gedamu, a retired economist and former MD of the Development Bank of Ethiopia, and Tesfaye Biftu.
“Our vision is to help transform the Ethiopian community into a far more economically engaged, creative and vibrant member of the wider and diverse US community,” the bank says.
Gregory Garrett, formerly president and CEO of Texas-based Platinum Bank, will serve as Marathon International Bank’s CEO, it is understood.
It filed an application to organise a district bank in early 2018 and plans to raise $22-25 million by selling common stock.
An online platform launched by Goldman Sachs – named after Marcus Goldman, one of the firm’s founders – offering no-fee personal loans and high-yield savings to consumers.
Marcus has no fees; offers fixed rates throughout the term of the loan; and lets customers choose their monthly payment date and a payment option. Goldman Sachs says automated machines are not preferred as it offers US-based loan specialists (i.e. humans) who “deliver live, personalised support”.
For its technology, Marcus uses Infosys’ Finacle core banking system for lending (deployed in the private cloud) and FIS’s Profile for deposits.
Launched in 2011 by Brett King, Moven describes itself as “the world’s first real-time mobile money tool”. It is a digital bank account with a mobile app.
It partners with CBW Bank and other vendors to provide digital banking services to consumers.
In early 2018, it was reported that Moven was seeking to acquire a bank in the US, to help it scale faster and access more services for its customers.
It also works with banks in the US and globally to provide its financial engagement and digital experiences platform on a white label basis. This is done via Moven Enterprise. The solution is provided on a Software-as-a-Service basis.
In early 2018, Moven Enterprise announced a multi-million dollar investment from Japan’s SBI Group. The investment is part of a joint venture agreement between the two, in which SBI will bring Moven’s technology into Japan under the Moven brand, offering mobile banking tools to domestic and international banks. The agreement also gives SBI one of six seats on Moven’s board of directors.
A challenger bank from Germany, now working on its US presence, including obtaining a banking licence. It opened early access to users in the US in October 2017 and has an office in New York with eight staff.
“A fully licensed bank at your fingertips,” it states on its website. “An account you’ll love to use, including your own N26 account number, sort code and Mastercard.”
In spring 2018, N26 raised €110 million ($134 million) in its Series C funding round. This new capital injection will help it gain a foothold in the US banking market.
N26 currently operates across 17 European countries, with services including instant overdrafts, international transfers, and savings accounts from banks across Europe via its deal with German deposit marketplace Raisin.
N26 was founded in 2013 by Valentine Stalf and Maximilian Tayenthal.
For its core processing technology, the bank uses Mambu’s core banking system, provided on a hosted basis.
PurePoint Financial was launched in early 2017 by MUFG Union Bank. It is a “hybrid digital bank” offering savings accounts and certificates of deposit (CDs).
PurePoint provides services online, over the phone and in brick-and-mortar branches – PurePoint Financial Centres – located in Texas (Houston and Dallas), Florida (Tampa and South Florida), Chicago and New York.
Each PurePoint Financial Centre offers “a modern, streamlined and cashless experience”, according to the company, and has a smaller footprint than a traditional bank branch (2,000 square feet on average).
PurePoint’s flagship location in New York City is more like a museum than a bank branch, featuring 15 pieces of art by a local artist on the walls. According to Maha Madain, head of enterprise marketing at PurePoint, “the art scene is part of New York, so what better way to showcase our commitment to the community than being part of the community”. There is also comfortable seating and complimentary refreshments. This concept is now being rolled out to other branches.
For its technology, PurePoint uses FIS’s Profile core banking platform, hosted in the FIS datacentre.
European banking challenger Revolut opened early access to users in the US in September 2017. It says it aims “to clean up the American banking system”. It provides digital banking services to consumers and businesses.
“We’re going to America to replace your bank – it’s not a payments app with cool features,” states Chad West, Revolut’s head of global brand and communications. “There are a lot of these neobanks doing niche small things, but no one’s offering the scale of what we’re offering – you can hold cryptocurrencies too.”
In spring 2018, Revolut raised $260 million in a Series C funding round, bringing the total amount raised to $340 million since the company launched three years ago, and valuing it at $1.7 billion. It also broke even for the first time last December.
The new capital will be used to expand Revolut worldwide, starting with the US.
Revolut aims to onboard 100 million customers in the next five years. As of mid-2018, it had nearly two million customers (signing up 6,000-8,000 new customers daily) and processed $1.8 billion through its platform. It also boasts over 250,000 daily active users.
Revolut also plans to grow its workforce from 350 to around 800 employees by the end of 2018.
Earlier in 2018, it fully launched its open API – allowing users to integrate Revolut for Business accounts with third party software and in-house systems.
It is also in the process of building its own in-house processor, following a string of outages caused by its current third party provider, Global Processing Services (GPS).
In spring 2018, it brought the card issuing function in-house, ousting its external supplier Wirecard.
Digital banking service Simple was founded in 2009 in Portland, Oregon. It describes itself “a tech company, not a bank”.
In early 2014, it was acquired by BBVA Compass for $117 million. At the time, BBVA said Simple had 100,000 customers (although various external publications and reports gave a considerably lower number of around 33,000 active customers). Simple accounts were migrated to BBVA.
Since then, BBVA wrote off $89.5 million. However, in early 2017 Carlos Torres Vila, CEO of BBVA, told analysts that Simple was “growing very well”, adding 30,000+ customers a month at a low cost of acquisition.
In 2016, it launched the Simple Shared account: people get two cards and one account – for “shared saving” and spending – so “your financial life becomes a collaboration”. Simple says it’s aimed at all “non-business partnerships: roommates, siblings, roadtrippers, romantic couples, and more”.
In May 2018, Josh Reich, co-founder and CEO of Simple, became the last of the original founders and senior execs to leave the firm.
Social Finance (SoFi) is an online personal finance company that provides student loan refinancing, mortgages and personal loans. It was founded in 2011 and is based in San Francisco.
It went through a number of major funding rounds, including raising $1 billion in 2015 (the largest single round of financing in the fintech space at the time).
In early 2017, it raised another $500 million, and spent $100 million (in stock) on Zenbanx, a mobile banking start-up. Zenbanx offered a mobile account in the US and Canada that lets people save, send and spend money in multiple currencies. This deal demonstrated SoFi’s interest in branching into other financial services, with a wealth management tool in beta at the time of the acquisition.
Later that year, SoFi’s co-founder, president and CEO, Mike Cagney, resigned amidst allegations of sexual harassment and skirting risk and compliance controls. The CEO vacancy was filled in early 2018 by Anthony Noto, ex-COO of Twitter.
For its technology, SoFi uses the Profile core banking system from FIS.
Spirit Community Bank
A start-up bank in Statesville, North Carolina, awaiting a banking licence. It plans to raise $30 million via stock sale.
It will be a full-service bank, focusing on the local community, namely consumers and SMEs.
The bank emphasises that its organisers “all live and work in Iredell County and are leaders in the Statesville community, representing decades of business and civic service”. It hopes to “ignite the spirit of community”.
Spirit Community Bank’s president, CEO and chairman, William “Bill” Long Sr., has over four decades of banking experience, and was previously president and CEO of Yadkin Bank (now part of First National Bank). COO Kirsti Eller also comes from Yadkin Bank, where she was EVP and CIO. She has over 30 years of experience in the industry.
New York-based financial services platform Stash was founded in October 2015 by Wall Street veterans, Krieg and Ed Robinson.
In early 2018, Stash raised $37.5 million in Series D funding for product expansion, and shortly afterwards teamed with Green Dot Corporation and its subsidiary bank, Green Dot Bank, to launch mobile-first banking services (underpinned by Green Dot’s Banking-as-a-Service platform).
These include bank accounts with debit cards, no overdraft fees, and a network of free ATMs nationwide. Stash says it also provides personal guidance – from spending to saving, to retirement and investing.
According to Stash, it has over two million customers and five million educational subscribers, with approximately 40,000 new clients joining weekly.
In 2017, Tennessee-based Studio Bank filed an application to become Nashville’s “first newly chartered de novo bank in nearly a decade”.
Studio Bank describes itself as a “boutique bank” with a “hyper-local strategy”, with omnichannel and also physical presence. It will use an array of digital banking solutions, including self-service features like card on/off, mobile deposit, and commercial cash management.
For its technology, it has opted for CSI’s NuPoint core and mobile banking software, provided on a hosted basis.
Aaron Dorn, chairman, president and CEO of Studio Bank, says it has the “opportunity to be the first local bank in nearly a decade to design a client service model from scratch”.
San Francisco-based mobile banking service Varo Money was founded in 2015. It applied for a national bank charter and federal deposit insurance in mid-2017, to form Varo Bank.
Colin Walsh, co-founder and CEO of Varo Money, says the company offers more than just checking, savings and lending products. “We want to help our customers solve financial problems, fix the fundamentals, and guide them toward a better financial future,” he explains.
“As a national bank, Varo will be able to help Americans nationwide.”
Also in summer 2017, Varo Money launched in the Apple App Store through a partnership with The Bancorp Bank. The Varo app enables customers to manage cashflow, track spending and see all their accounts – not just those with Varo – while also handling everyday banking.
For its technology, Varo selected Temenos’ T24 core banking platform, provided on a hosted basis (cloud).