In 2019, William Hockey, co-founder of the fintech Plaid, announced that he would be stepping down as chief technology officer and president. After helping to convert Plaid In a multi-million dollar business with co-founder Zach Perret, Hockney has moved on to other activities and, as he said in June 2019, to create space for "more great leaders."
Hockey has kept a low profile ever since, holding a seat on the steering committee of Plaid while the company, now valued at $13.4 billion, builds out its global financial network. But he has been anything but idle, building the platform for what he believes is the first bank of its kind: a "financial infrastructure" bank. To rephrase, Hockey founded a bank called Column.
"Column a nationally chartered bank, but we have built every facet of the technology from the ground up,” Hockey said. “We are both the bank and the technology provider.”
A developer-focused bank
Column emerges to, if Hockey's messages are to be believed, turn the fintech industry on its head. For years, fintech companies have had to work through middleware providers (for example, Modern Treasury, Synctera, Sila Money, etc.) and central processors (FiServ, Jack Henry, and FIS) that provide sponsoring banks with products such as bank transfers, checks. loan processing and origination. The reason? Because companies need federal deposit insurance to access the payment system controlled by the US Federal Reserve, a high demand for a non-bank entity. (Robinhood in 2018 ran afoul of regulators for lacking adequate insurance to offer a checking account.)
Nonbanks can apply to be an industrial loan company, or ILC, which allows them to issue loans and accept federally insured deposits. Varo in 2020 it became the first consumer fintech to obtain a national banking license. But the process is often very costly in time and capital which makes a partnership with banks easier to access for most fintechs.
Unfortunately, the systems between fintechs, vendors, and banks can be rigid and expensive. Therefore, it can lead to a bad customer experience.
“The biggest pain point in building fintech and financial services is the supply chain on which it is built. There is an unnecessary separation between the licensed regulated bank and the platform and middleware companies that fintechs rely on,” Hockey said. “This leads to unclear liability and ownership and unnecessary costs.”
By contrast, Column, a nationally chartered bank with a direct connection to the Federal Reserve, has an internal ledger and data model to power various fintech services. Developers can use Column to create applications that withdraw and transfer money to any bank account, for example, or maintain checking and savings accounts insured by the FDIC (Federal Deposit Insurance Corporation).
With Column, a fintech can launch a debit or credit service with any issuing processor. Or they can become an originating partner, offering products for debt financing and loan buybacks.
“I've spent quite a bit of time with a multitude of companies that build financial services, and it's painfully obvious that the biggest bottleneck to their growth and innovation is the underlying banks that they trust,” Hockey, who serves as co-CEO of Column with his wife, Annie, he said. “Financial services must be consumers, developers and designed under the 'online first' premise; however, to do this a new backbone is needed. Three years ago we set out to fix it, starting from first principles and building a bank from the ground up.”
A growing fintech trend
While Column Unique in the breadth of services it offers, the Hockey company positions itself against other established chartered banks that already manage the backends of multi-billion dollar fintechs (eg Stripe and Square). The prepaid debit card vendor Green dot manages the financial part for Uber and Stash. The bank compatible with mobile devices Chemistry works with Bancorp Bank to offer savings and debit cards. AND Cross River Bank, which recently raised $620 million of capital at a valuation in excess of $3 billion, backs products from Coinbase, as well as fintechs such as Affirm, Rocket Loans, Best Egg y checkout.com.
But Hockey highlights what he believes are the differentiators of Columnsuch as its ownership structure. The startup, whose clients include Plaid, the commercial credit card provider Brex and mobile banks Oxygen y Nearby, is wholly owned by its founders and has a team of approximately 60 people, financed with its own capital and profits. (Column charges fees for services such as bank transfers per transaction and monthly).
Fintech funding is at a time of a investment reduction. While about 18,2 million dollars in financing went to fintech companies in the first month and a half of 2022, at the end of February and beginning of March it was appreciated a precipitous decline.
“If something goes wrong, we take 100% of the risk… If we add more stakeholders to that mix, the incentives can get perverse and we can't do the best job,” Hockey said. “This will mean that we may not grow as fast as possible or investors may FOMO (Fear Of Missing Out) and choose to fund a competitor! However, we believe these trade-offs are worth it. We are in this to build an interesting, sustainable company and our capitalization and financing should show that."
Hockey refused to say what the future might hold for Column, but customer acquisition is presumably at the top of the priority list. From today, Column is now available to all developers who want to build on its platform.
