VCs Start Pining to Own a Bank

  • Philip Ryan
  • February 11, 2014
  • 5

Copyright: Nenov Brothers ImagesThere’s something brewing in Silicon Valley: a growing crew of venture capitalists are beginning to talk about starting a bank.

Among those VCs with banking interests are Marc Andreessen of Horowitz Andreessen and Mo Koyfman at Spark Capital.

The whole notion percolated on Twitter yesterday. In a Twitter conversation about why venture capitalists might be thinking too small in their investments yesterday, self-described “FinTechnologist” Jack Gavigan asked:

Retail banking is broken, right? Massive opportunity. Why no VC-funded new high street bank?

Entrepreneur Marc Andreessen replied, “I am dying to fund a disruptive bank.” Asked what about banking he wanted to disrupt, Andreesen wrote, “I want the pure software bank w/no physical infrastructure, + a full API for financial apps on top.” He then indicated, somewhat cryptically, he might be interested in starting his own bank — or buying an existing one for its license, as Green Dot did.

Meanwhile, Gavigan went on to discuss whether a banking charter was needed to disrupt banking. Bradley Leimer, VP of digital strategy for Mechanics Bank, put forward the idea that disruption in the absence of a charter was possible, and even preferable to working from within a financial institution. Gavigan disagreed:

As long as you rely on a bank, you’re not disrupting banking, IMHO. Need the full stack.

The only “neobank” that fits this bill is GoBank, with its banking charter and vertical integration, but GoBank is not innovating in the ways Gavigan suggested, such as his comment that, “A bank should be akin to an ISP, to my mind — provides access to the financial networks … and enable new products, new services, API-driven banking and IFTTT-style functionality.” (IFTTT refers to “if this, then that,” a web service that helps create “recipes” to automate digital tasks.) By “access to financial networks,” Gavigan clarified, he meant, “Interbank transfers. Credit card issuance. ATM withdrawals. FDIC insurance.”

Not long after this, the conversation petered out as Gavigan described the bar he was sitting in and cajoled a friend to come join him — such is Twitter.

Venture capitalist Chris Dixon, another partner at Andreessen Horowitz, seconded Andreessen in indicating his interest in funding a new bank:

never been pitched it. We would likely fund the right person / plan doing that.

A VC-backed bank is an intriguing idea, and it seems there is interest in the VC community. Is anyone ready to take this on? Do existing startups such as as Open Bank Project fit the bill? Standard Treasury?

Learn more about what’s next in banking at Bank Innovation 2014 on March 3-4 in Seattle. Request an invitation here.

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Philip Ryan is Associate Editor of Bank Innovation. He worked as a web developer for the Fund for the City of New York for six years, and was an HTML developer at Ocean-7 Development back in the go-go ’90s. He has more than 15 years' experience in online journalism. He can be reached at pryanrmg1@gmail.com.

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5 thoughts on “VCs Start Pining to Own a Bank

  1. hmmm…
    maybe disruption isn’t in the form of creating new bank but serving as a FIsource – a bank “shot” or “shop” if you will.

    Hope the following makes some bit of sense ….plenty of ways to make it work where you take most open, agile current experiential and experienced fi winners (with a need to grow their capital bc of dying infrastructures or interest) of e-solutions, simplify to your specs, then white label. Offer top 3 per area (lend, spend, protect, grow, give) and short-term commit them (3 years commit) . Every “bank shop” upgrade or date (1-3 yrs) you give other fin players/solutions the option of open bidding in. Weakest (in terms of sales, support, service) from the current mix fall out.
    Your center is the “spend” area and the stable core – personal financial movement, the new PFM – and all other areas flow through here. Enterprise connected to the core – sharing by new clients, customers, partners is a must/terms and conditions for the entity. Also need core tcomm, finlit and access options baked in to the package.

  2. Check out Simple Bank or more accurately, Simple!

  3. Gavigan’s belief that you need a bank charter to be disruptive in consumer financial services is akin to believing you need to own your own servers to be an ecommerce company.

  4. The reason, and correctly I think, that Gavigan believes that you need a bank charter to truly create disruption in retail banking is because many of the existing non-bank technologies rely on white label back end banks. This is a necessity to receive FDIC insurance and handle many of the core processes that are associated with retail banking.

    The major problem I see is that these white label banks run on very old and out of date core processing systems. In many cases, they don’t offer real time processing and, instead, batch processing. If you are Simple, a company that takes a very innovative approach, you are severely limited by the capabilities of the FDIC institution that processes the accounts that are opened by your customers. What you are telling customers on your front end may not accurately reflect in their accounts being processed on the back end.

    Start on improving the processing and build out from there. I believe a much better experience and results will take place.

    The

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