Fintechs have gestured for years that they will disrupt traditional banks with their shiny apps. When asked uncomfortable questions about banking charters, finsurgents have brushed off those questions with the offhand remark that a charter is commodity.
Apart from some of those trash-talking fintechs, nobody got disrupted. Not surprising because a charter is a moat, not a commodity.
Enter COLUMN, the first fintech that acknowledges this reality. (Apart from a few neobanks like Varo who got this and spent big bucks to get a banking license.)
Billing itself as a “developer infrastructure bank”, Column is the only nationally chartered bank built to enable developers and builders to create new financial products with the backing of a banking license.
Founded by PLAID’s ex-co founder William Hockey and his wife Annie Hockey, the new San Francisco-based fintech acquired Northern California National Bank, a bank based out of Chico, California. It’s now in the process of ripping out NCNB’s legacy tech and replacing it with a modern core and other applications. It will then sponsor fintechs, who can offer financial products on top of an FDIC-insured bank. (Since it has a banking license, Column is technically a bank but, because of its pedigree, I’ll call it a fintech in this post.)
Put another way, Column is a provider of BaaS (Banking As A Service). Just that it comes to BaaS from the fintech side rather than the more traditional side of banks. For reference, leading bank BaaS providers include:
- Bancorp Bank and Stride Bank, who power the checking accounts underlying Chime, the largest neobank in USA (Chime does not have a banking charter)
- Starling Bank and ClearBank in UK.
- RBL Bank and State Bank of Mauritius, who power the BNPL cards of slice and UNI in India.
"Credit Cards issued by fintech firms such as Slice & Uni are not necessarily credit cards, but prepaid cards with a
credit line" ~ https://t.co/kTwfrSBjON via @etprime_com.Maybe it's only me but "prepaid card with line of credit" sounds like an oxymoron.
— Ketharaman Swaminathan (@s_ketharaman) May 11, 2022
On a side note, COLUMN goes beyond Google Plex. The now defunct product from Alphabet Inc. provided a shiny new app and fancy branding to random banks but did nothing to upgrade their legacy application landscape. More details in RIP Google Plex – But Big Tech Can Still Disrupt Big Banks.
By acquiring a functioning bank with a charter, Column acknowledges the role of a banking license in powering open banking and open finance apps.
By ripping out the existing IT at the acquired bank NCNB, Column also appreciates the constraints of legacy technologies in bank-fintech partnerships. The Wall Street Journal article titled Plaid Co-Founder Takes Aim at Rickety Banking Tech gives a good flavor of the challenges posed by legacy tech in banks:
…every big fintech company has to rely on bank partners for regulated tasks such as holding customers’ deposits and issuing debit cards. Giants including JPMorgan Chase & Co. and Bank of America Corp. aren’t normally interested in that business (of providing banking services to fintechs). So even the flashiest app makers usually depend on community banks in faraway places to do their financial grunt work. Startups don’t love the current arrangement. Community banks tend to outsource their own technology to old-school software vendors, whose digital offerings are limited and whose fees are often high. Mr. Hockey heard gripes from Plaid customers over the years about the retrograde tech they encountered at the tiny depository institutions that were willing to work with them.
By replacing the legacy tech at NCNB with a modern fintech stack, Column overcomes these constraints.
If it executes well on its mission, Column will take Open Banking and Open Finance to another level.
Of course, there’s more to open banking / open finance than just a banking charter and cutting-edge technology.
Chief among the other success drivers of Column’s foray into empowering fintechs are state licensing, capital adequacy, and so on. These regulations will shape the number and nature of fintechs to whom Column can provide banking services, as well as the volumes they can process via Column. Also, as WSJ warns, Column can face the regulator’s wrath for the shenanigans of the fintechs it sponsors.
Column’s business model carries risks. Banks have been fined for the bad behavior at companies they sponsor. In November, the Office of the Comptroller of the Currency said the agency was stepping up its focus on banks that provide services to large fintech companies.
However, as a rare example of a fintech that truly gets the essence of bank-fintech partnership, I’m quite sure that Column will be able to overcome these hurdles as it goes along – either by leveraging regulatory gap or otherwise.
Not since Square (now Block) am I so excited about a fintech as COLUMN.