In the digital age, few startup banks have gained meaningful market share in what matters, revenue and profits. In the United States, only two large bank-like companies (see note 1) have emerged from 20 years of digital disruption: PayPal and Square. There are also a handful of new online lenders that have amassed significant scale (SoFi, Lending Club, Prosper, Kabbage, Avant, On Deck).
There are still zero consumer banks started in the past 20 years that have broken the top-100 list. The possible exception was ING Direct. Butas part of a large bank, it’s a stretch to call it a startup (see note 2). BofI Holdings, the public company that owns Bank of Internet, is the largest pure digital bank with $8B in assets and ranking 151 in this list posted by MX.
Why so few successes? It’s difficult for a startup bank to gain scale. First, the market is absolutely saturated. Every bankable consumer in the USA can choose from: (1) big trusted brands with a large branch networks and sophisticated digital services; (2) small community banks with deep ties to their communities (and serviceable digital banking); (3) or equally small non-profit credit unions providing bargain priced loans and deposits (and often with above average digital banking).
Second, to be successful, startups must solve a problem much better than the incumbents. For most consumers banking digitally simply is not a problem. The exceptions were in remote payments, which PayPal solved, and micro-businesses merchant accounts, which Square solved. That’s why it will likely continue to be tough for new deposit-focused banks to become big players, at least in the United States.
But there are many niches for banking startups to mine and one of the most promising is small business banking. A startup bank that solves bookkeeping and financial management problems for small businesses can be the next Square.
Here are some of the bigger efforts around the world (note 3):
CountingUp – in private beta (waitlist numbers 930 1 Feb 2017)
Author: Jim Bruene (@netbanker) is Founder & Advisor at Finovate as well as Principal of BUX Certified, a financial services user-experience accreditation program.
You can argue they are not banks, but they provide key consumer banking services, payments and credit, so I’m going to call them banks for the purposes of this post. I’m also excluding the crypto market, since it’s too soon to call the major players “bank like” though I think they are well on that path.
I would probably add ING Direct to this list. Although they were technically not a startup, they built a significant deposit business from scratch, eventually selling for $9B to Capital One during the Great Recession.
To make this list, the startup bank must be solely focused on small businesses and must offer, or plan to offer, a debit card to access funds held on deposit at the startup.
Bento now offers debit and virtual cards for companies and their employees. Its banking solutions are now supported by The Bancorp Bank and CFSB as well as processors Marketa and 12C, the company said, “making it the most robust solution of its kind”.
It has also forged co-branded partnerships with The Brink’s Company and Fleetcor to offer its solution to their small business customers.
Furthermore, Bento has opened its APIs “to simplify how companies work with their clients and customers”.
“We are building a modern banking platform for small businesses that brings everything under one umbrella,” said Farhan Ahmad, CEO of Bento (pictured). “Our approach is unique in this industry because we see value in the platform, rather than a single stand-alone product. By offering multiple products on the same platform and allowing our customers to use our APIs to develop better, more useful, and customisable experiences, we can fully address all of their pain points.
“Soon any business owner will be able to curate and access the financial products, services, and integrations they need through Bento.”
According to Bento, applicants for its services get approved online in real-time.
Founded in 2014 and headquartered in San Francisco, Bento for Business demonstrated its platform at FinovateSpring 2015. Last month, the company appointed Jeff Pomeroy as Vice President of Product, and earlier this year, Bento added Lou Friedmann as Chief Revenue Officer. The company has raised more than $9 million in funding, and includes Comcast Ventures and Anthemis Group among its investors.
Bento for Business has released its new mobile app. The solution makes it easier for employees to review their business’s debit-card balances, tag and annotate expenses for simpler reporting and reconciliation, as well as attach receipts to individual transactions using the smartphone’s camera. Optimized for use with smartphone rather than tablets, the Bento mobile app is available for free on both iOS and Android.
“Employees rejoice! Bento’s mobile app is here,” Bento for Business wrote in tweeting the news this afternoon. “Check balances on-the-go. Smart #expense #management is here.”
Bento for Business specializes in providing solutions to help small business owners better manage expenses. With its Bento Prepaid MasterCard, the company offers employers a way to empower their employees to make necessary, work-related purchases while ensuring employers have maximum spending visibility and control. Bento also provides businesses with an analytic dashboard that provides a wholistic view of spending, as well as per-card information as to transaction type, location, employee, etc. “We want to work with banks, with service providers,” Bento for Business CEO Farhan Ahmad said during his Finovate demonstration in the spring of 2015, “to curate and build beautiful, simple—and most of all, useful—products that are built just for small businesses.”
The company, which has seen 170% quarter-over-quarter growth since launching 13 months ago, says the funds will be used to add management talent, develop new features, and pave the way for expansion into new verticals. Dave Zilberman, managing director at Comcast Ventures, will join Bento’s board of directors as part of the deal.
Pictured (left to right): Bento for Business co-founders Farhan Ahmad, CEO, and Sean Anderson, CPO, demonstrated their technology at FinovateSpring 2015.
Bento for Business provides small businesses with solutions to help them manage expenses better. The company’s first offering was the Bento MasterCard, a prepaid card that employers can give to their employees to make qualified purchases. Business owners can easily set usage rules for the card based on spending amount and spending category, as well as set spending time limits. Owners also can turn the cards on or off with a single click. Bento provides a dashboard that enables the commercial card owner to see which cards are being used and how, as well as track expenses by location, employee, and type.
“Banks want to service small businesses, but it’s been profitable not to,” Ahman explained during a conversation at FinovateSpring last year. “We want to work with banks, with service providers … to curate and build beautiful, simple and most of all useful products that are built just for small businesses,” he said. Read more about the company in our Finovate Debut feature.
Founded in 2014 and headquartered in San Francisco, California, Bento for Business demonstrated its platform at FinovateSpring 2015. The company was profiled by Newsfactor Business Report in its look at prepaid debit cards for businesses back in December, the same month Bankless Times featured the company and its employee-spending controls solution. PYMNTS.con also took a look at Bento last fall.