Every fintech and nontraditional banking provider claims they are nothing like their competitors. They brand and package their products and services as something wholly different, touting themselves as a never-before-seen player in banking.
Cross River Bank has seen it all, watching as each banking fad is remarketed as a new trend. Founder and CEO Gilles Gade says it’s a challenge keeping up with the new terms labeling what the bank has been doing for years.
“Our biggest struggle is to make people understand what we do. Buzzwords are a big thing in our industry,” Gade tells The Financial Brand. “When we get into an explanation of what we do, it’s difficult for many to comprehend that there’s a dissociation between the bank charter and the services that we may provide as a technology company,” Gade says.
Quietly Moving Up Through the Ranks:
While not yet a household name, Cross River Bank is building a large collection of fintech partnerships.
That hasn’t held back Cross River Bank, which has spent the last decade growing quietly but briskly in the background of the banking industry. The Wall Street Journal referred to it as a “little-known bank,” but CRB is inching its way up the ranks of the banking/fintech world — a journey that has been purposefully measured, Senior Vice President of Global Public Affairs Phil Goldfeder says.
“We never jump into anything,” he says. “We’re agile and nimble and can mobilize quickly. But for us it’s about understanding and seeing how do you do this the right way, with the consumer in mind and in full sight of regulators.”
Cross River Bank — Gade’s brainchild — isn’t a digital-only bank, although many of its products directly compete with fintechs. With $9.1 billion in total assets, Cross River is based in New Jersey — right “across the river” from Manhattan. The bank has two branches.
Cross River began as, and still is, a small business banking specialist, but its leaders also diversified early: offering banking-as-a-service (which it refers to as embedded financial solutions) to fintechs.
Growth of a BaaS Pioneer
Unlike the swath of other BaaS vendors only recently hitting the market, Cross River Bank claims it was one of the first — if not the first — of this genre.
Gade worked for two investment banks (Barclays and Bear Stearns) and founded tech company before launching Cross River Bank in 2008. He initially focused on serving the small business market. Soon, however, he began partnering up with nonbank providers, practically inventing the BaaS market. The first partnership was in 2010 with GreenSky.
Cross River is now the bank behind Affirm’s new savings account, Upgrade’s new rewards checking account and Dwolla’s real time payments offerings. It also facilitates money movements for Stripe and Plaid. The backend banking products the bank offers to fintechs include payments, bank accounts, marketplace lending and debit cards.
What also sets Cross River apart from its BaaS competitors and other banks, its leaders say, is the bank’s venture capital arm — Cross River Digital Ventures. The unit began operating in June 2021 to invest in new technology startups. Its launch formalized over a decade of experience working and partnering with fintechs.
Building Out a Tech Workforce
Cross River was built out of the gate on a technology-forward platform, which facilitated working with fintech innovators piloting within the financial industry.
There’s a two-pronged approach to choosing which fintechs the venture capital company will choose to invest in, Goldfeder says. They seek, one, “companies that are looking for an infusion or looking for additional capital and, two, companies in our space that we work with, or we could potentially work with.” He calls it a double-edged sword.
So far, Cross River has invested in 15 fintech companies, all with their own unique fix for the banking industry. Here are ten of them:
- Alviere: an embedded finance platform
- Ardley: a mortgage platform for servicers, sellers and customers
- Checkbook: an all-in-one push payments platform
- Finix: payments infrastructure-as-a-service
- Glean: intelligent accounts payable solution
- Innovative Assessments: psychometric credit scoring
- Jetty: financial services for renters
- Lev: online commercial real estate transaction platform
- Seed: financial health startup
- Sunstone Credit: solar finance for SMBs
The company is also apportioning resources for its new digital team in Israel. Goldfeder says the team now has 150 employees there who help design and build the backend systems for Cross River Bank’s tools in the United States.
In the Spotlight Over PPP Loans
Gade plunged into banking with Cross River in 2008 as the rest of the banking industry was mid-crumble. The CEO says the fledgling bank at the time participated in Treasury’s TALF program. Twelve years later it jumped into another emergency government loan program — the Paycheck Protection Program — at the height of Covid-19’s first wave.
The small bank was a standout in the PPP universe. Cross River was one of the top three financial institutions to distribute PPP loans in 2020 — bested only by Bank of America and JPMorgan Chase. Instead of a congratulatory letter, however, the bank received a strongly worded letter in 2021 from Rep. James Clyburn, the South Carolina Democrat who chairs the Select Subcommittee on the Coronavirus Crisis.
“I am deeply troubled by recent reports alleging that financial technology (FinTech) lenders and their bank partners failed to adequately screen PPP loan applications for fraud,” Clyburn wrote in the letter.
The House of Representatives set up the Select Subcommittee to investigate an estimated $84 billion fraudulent PPP loan applications. A report from the subcommittee found roughly 15% of all PPP loans dispersed over the course of 2020 came from fintechs, and that 75% of the fraudulent applications came from fintech lenders.
Cross River received the letter as a result of roughly 70 problematic PPP loans it had handled on behalf of several fintechs. Also singled out by the subcommittee in the initial investigation were Kabbage, BlueVine and Celtic Bank. The subcommittee declined to comment about the ongoing investigation.
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The bank says it is fully cooperating with the investigation.
“We followed the strict guidance of our government partners, we reported fraud to the proper agencies and authorities, and responded to all inquiries,” Goldfeder states.
Financial institutions across the U.S. had to act quickly to distribute the PPP loans. There was only a three-week timespan between when the Covid national emergency was declared and the dispersing of the first PPP loans. Goldfeder says the processes the Small Business Administration developed to doublecheck loan applications in the second round of PPP loans were processes Cross River had already implemented in the first round.
“Cross River’s system was adapted to ensure compliance with a constantly evolving set of SBA rules, as well as to build out appropriate fraud controls, far above what was required.”
— Phil Goldfeder, Cross River Bank
Future Plans for Cross River Bank
Cross River’s growth trajectory may have been purposeful, but has been anything but slow. It’s current plan has builds out a runway for the company in the next decade. Although it’s difficult to gauge what products BaaS partners will want or what fintechs will rise to surface, says Goldfeder, there are several product trends Cross River is already developing a strategy for.
Crypto is one.
As Gade sees it, crypto is another gear in the larger payments cog. It is an investment to approach carefully, but it is a crucial one.
“The reason why we are interested in crypto is because, for us, we need to stay agnostic to the payment rails and to the mechanism of dispersing loans,” Gade says. You have the payment methods attached to the Fed or internationally, but crypto is going to be one of those methods. It is already.”
Cross River Bank’s biggest stake in crypto is its backing of cryptocurrency exchange platform Coinbase, which utilizes Cross River’s backend API bank core for money movement.
The bank also intends to build out its existing fintech offerings, like in its partnership with Affirm, which started out in BNPL, but is now looking to expand its product offerings to include savings accounts and potentially crypto rewards.
“It’s not just about partnership for partnership’s sake — it’s about partnership with tech companies who are creating a solution to a consumer demand in a regulated environment,” Goldfeder says.