For all the talk about eliminating the pain points in banking, an awful lot of pain seems to remain, despite a long list of technologies set to usher in a new age of smart, convenient banking. Many banks and credit unions remain bound up in traditional approaches and legacy systems, captives to their own histories and investments in old tech.
What would a painless banking experience look like? New York City’s Grasshopper Bank, N.A., the first new national bank charter approved by the Comptroller of the Currency in over a decade, could be a model that other banking institutions could emulate. It has the luxury of beginning with a clean slate, it’s true, but it also has leadership with deep banking experience and a strong sense of what needs fixing, particularly for entrepreneurs, too small to attract heavy-hitting corporate banking specialists.
Finding a Home in Heart of NYC Tech Community
Grasshopper is a branchless bank based on the seventh floor of an office building in Manhattan’s Flatiron District, considered the birthplace of the city’s “Silicon Alley.” The bank’s main floor contains no new accounts desks, no platform — in fact, none of the usual trappings of a bank. Instead, it resembles the offices of one of its tech startup clients, with multiple rows of big-screen computers where engineers, developers and others work.
“Our client is the digital entrepreneur,” says Judith Erwin, President, CEO and Co-Founder. She and Minerva Tantoco, Chief Technology Officer and Co-Founder, and formerly CTO for New York City, envisioned a different type of community bank, serving an eclectic tech community. As Erwin describes it, this includes everyone from “a woman and her cat” laboring away in an apartment on a laptop to develop the next great user experience to small innovation firms raising their first level of investor funding (“Series A”) from venture capitalists.
The location for the bank’s office was no accident. Over 100 fellow tenants in the office tower represent strong potential customers for the bank — startups and technology incubators.
“We’re going to have — well, not exactly a kegger — but an open house soon to invite our neighbors to come, and we’ll open accounts,” says Erwin. A large room off the bank’s tech bullpen is earmarked for hosting technology “meetups” where entrepreneurs can network and collaborate.
Erwin began her banking career as a teller right out of college during a poor job market. She remembers rubber-banding stacks of checks to go to the Federal Reserve and calling people to warn them that their account was going to bounce. Subsequently she spent over 35 years in the highly specialized world of venture capital banking at a succession of institutions, most recently at Square 1 Bank, acquired by Pacific Western Bank in 2015. She was a co-founder at Square 1, too, and came out of the experience with many ideas of how a fresh approach to technology could better serve entrepreneurs.
Grasshopper aims to eliminate friction in all processes. “We want to change the face of banking,” says Erwin.
- How a Small Iowa Institution Became The Bank Powering Big Fintech Apps
- How a $1.3 Billion Institution Launched Its Own Digital Bank
- Regional Bank Meets the Future With Hybrid Digital Brand
- Fintech Expert Chris Skinner Reveals Keys to Becoming a True Digital Bank
Rethinking Bank Technology from the Get-Go
Typically, when entrepreneurs begin to need business banking services they go to the bank where they have their personal accounts— often a megabank.. The problem with that, Erwin says, is that these institutions are simply too large to serve them properly. They are either too small to get credit or get shunted to generic small-business lending centers.
Past that, they enter a twilight zone — seeking loans of $1-$5 million, too large for small-business centers and not large enough to be served by Corporate Banking. And as they obtain rounds of investor funding (Series A, Series B, etc.) they find typical bankers don’t understand that world.
Grasshopper set out to craft a high-tech, low-cost approach to meet the needs of both beginners and the mid-size players. Erwin explains that the bank is building its systems using software developed by its own specialists and by fintechs and other tech partners drawing on a proprietary data lake, all sitting on top of a cloud-based operating system supplied by Temenos Group.
In devising the bank’s tech path, “I never wanted to find us, in a year, stuck with a legacy system,” says Erwin. “With the core processors in the U.S., it’s like buying wall-to-wall carpeting. If you want to change anything you have to rip up the whole thing. Instead we wanted ‘carpet squares,’ where we could snap things out and in.”
A key element in the choice of core vendor was access to data, according to Erwin. “We wanted to own our own data,” she explains, because it is so central to everything the bank wants to do and to services it wants to provide to entrepreneurs. “With the current oligopoly of core providers in the U.S., you have to buy your own data back at 22 cents a line.”
Another priority is the ability to handle multiple currencies. In the internet age, entrepreneurs may draw on contractors from around the world — “engineers in the Ukraine or developers in Ireland” — and they need to be paid. Eventually Erwin wants to develop Grasshopper technology sufficiently to white label it to other banks. “In the absence of something like this,” says Erwin, “I’m really concerned about community banks becoming completely irrelevant.”
“What we’re trying to do is take all the ‘junk’ — rote work — off our bankers’ desks so 100% of their time is spent with clients,” says Erwin. She plans no additional offices. She wants her “Grasshoppers” out in the field. The most she’ll do is pay for time in shared-working spaces.
- Is This Community Bank’s Bold Digital Play The Model Of The Future?
- T-Mobile Money Rocks Banking Model Using Fintech Engine
- Urgency of Digital-First Strategies Grows in Banking’s Innovation Race
- If You Launched a New Bank Today, What Would It Look Like?
Building Grasshopper’s ‘Minimum Loveable Product’
Automating everything possible also makes banking affordable for a segment that has trouble finding a home. “I’ve driven the cost of banking down,” says Erwin.
“Most banks take 18 months to develop things and when they do, they deliver a fully formed baby,” says Erwin. This can make it hard to unwind a mistake. “We won’t do that.” The bank’s model is to test new features with groups of customers every two to four weeks and get their feedback. “If they say something was really stupid, we can make it go away.”
The thinking behind this, and a term Erwin is fond of, is “minimum loveable product.” This is an evolution of “minimum viable product” thinking, which advocated for skinny development but which some feel became an excuse for issuing products that weren’t quite ready for prime time. Here is a selection of what is underway or in development at Grasshopper, using AI, data analytics, and more:
• Banking As A Service. Grasshopper has developed a subscription service similar in concept to Amazon Prime. Customers will have access to many services at no charge beyond membership, up to given levels in some cases. This would include ACH, remote deposit capture and incoming wires. Erwin explains that a pain point for entrepreneurs is having no idea until a statement arrives what their banking costs for the month have been.
• 7-Minute Online Account Opening. Even today, it can take weeks to fully open a new business account.
Grasshopper has developed a blend of proprietary and outside software that enables entrepreneurs to open a business account in seven minutes without setting foot in a branch.
“It’s a chat-like process,” Erwin explains. “As you begin typing, it’s already screening you.” Put in your name and address and the platform is already checking global anti-money laundering databases, validating your address and checking your ID. If necessary, data is sent to a secure location where staff can perform manual analysis.
“If no further due diligence is required, then you’re done,” says Erwin. This can happen any day, any hour.
“This gets rid of friction,” Erwin adds. “Do you know how many people stay at a bank where they are miserable because they remember how hard it was to open their account? Open an account at Grasshopper and you’ll know that in very short order you’ll be up and running and you don’t ever have to come in.”
• Cash-Burn Calculator. “Most entrepreneurs don’t have financial savvy,” says Erwin. “They can build their product and market their product, but they don’t usually have an advanced degree in finance.”
Grasshopper brought in the same team that designed Venmo to develop a free tool for customers that will continuously watch how the entrepreneur uses cash and credit, and when funds typically come into the account from sales and from investors. Not only will it provide alerts, but customers will be able to perform what-if analyses, such as how long cash will last if they hire, say, an additional engineer.
This is just the beginning of how Erwin wants to use data for customers’ benefit, and a key reason why Grasshopper wanted to run its own data lake. She envisions using anonymized data to show entrepreneurs how their financial patterns compare to customers in the same business.
- New Fintech Bank Reinvents Itself With Bold Brand Position
- Do Banking Execs Have It All Wrong With Innovation Labs?
- Don’t Abandon Branches to Favor Digital Banking Channels
- Great CX in Banking is Rare, Financial Marketers Struggle to Stand Out
How to Market a ‘Grasshopper’
Branding specialists and others may wonder where the bank’s name came from. During the long regulatory road to approval the working name was “New York Venture Bank,” more descriptive but less intriguing.
The bank’s slogan is “Always forward.” Erwin explains that grasshoppers are anatomically unable to move backward or sideways.
There’s also an insider’s back story to the name. It’s a punning homage to Grace Hooper, an eminent computer scientist and U.S. Navy rear admiral. This seemed an apt brand for a tech-based bank founded by two women.
Erwin sees little traditional advertising in Grasshopper’s future. The typical digital native entrepreneur that she expects to be serving distrusts brand advertising but trusts referrals.
“My daughter, who is 32, will not buy a t-shirt unless she’s read 25 reviews,” says Erwin. “This is the Yelp generation.”
Word of mouth is a critical factor, and an important forum is the nonprofit New York Tech Alliance. Erwin says the group has 60,000 members in the market and she will have both calling officers and her own tech staff attending meetings to network.
“I’ve got wicked smart engineers here that most banks don’t have,” says Erwin.
Venture capitalists themselves represent another key referral audience as well as a source of deposits.
Social media will be used mostly to celebrate customer successes, Erwin states Content marketing will play a major role, with the emphasis on material that will help advance customer skills. Erwin wants to share what she’s learned over 35 years of banking entrepreneurs.
“I get what it is to be an entrepreneur,” says Erwin. “So when I’m talking to an entrepreneur, I understand the travails.”