Seed (YC W15) Wants to Reinvent Business Banking
techcrunch.com
techcrunch.com
As for us, we are not planning on serving consumers. We are focused on serving startups and small business customers by providing traditional business banking services in addition to our API.
1. What are your thoughts on dealing with fraud? While ACH is often reversible, wire transfers tend not to be. Established banks often have convoluted wire procedures (that often involve showing up in person at a branch) precisely because a fraudulent transfer -- even if the fraud was the user's fault because of phished credentials -- often results in the bank eating the losses. How will your company handle losses where somebody's API credentials got hacked, their balance transferred to Romania, and the victim notices and reports the fraud 59 days later?
2. One of the biggest limiting factors in bitcoin's growth right now is that exchanges struggle to get and keep relationships with traditional banks. No-doubt fraud prevention has a lot to do with this, but any bank that steps up to the plate could charge its partner exchanges huge fees and still be swimming in business. Have you thought about being that bank?
One thing I want to be clear about is that we will not support consumer bank accounts, either directly or through our customers. So it will not be possible to build your own branded consumer bank on SEED.
We expect our API will be used by companies that see value in automating their payments and receivables process, have a desire to integrate banking into their internal backend systems, have a desire to easily do analysis on their banking data, and so on. In the long run, we expect that most of our customers will use our mobile and web clients rather than using the API directly.
To answer your other questions:
1. Properly managing fraud is critical to our business. As you mentioned, the potential risks are scary both for us and our customers. Some of what we do will remain private, but over time we'll share more of our approach to ensuring the safety and security of our customer funds. While we intend to protect ourselves against loss as well as or better than traditional banks, we believe there are many ways to do so without the inconveniences that most banks impose on their customers. Our first hire is an expert in cryptography, mathematics, and infosec, so that should give you some idea of where our priorities are.
2. We have thought a lot about how to best serve the bitcoin community. In fact, that used to be our pitch -- a bank for the bitcoin economy. As we spent many months talking to bitcoin merchants and the community at large, what we found is that the problems they face are the same problems many businesses face -- existing banks are serving business customers poorly. Until bitcoin stabilizes as a store of value or derivative strategies are baked into the exchanges, we don't believe that bitcoin transaction volume will grow meaningfully, so we're not focused on serving bitcoin merchants right now. Since our platform is flexible, we'll be able to integrate bitcoin support if and when it becomes a need for our customer base, so we'll see what happens. Personally, I own bitcoin and would love to see it or other cryptocurrencies thrive, and I'm a believer in the blockchain as an enabling technology.
As to banking the exchanges, we're really limited by our regulators. We believe that properly operated exchanges that have MSB licenses and are running compliant KYC/AML programs deserve access to banking, and we believe that we can provide banking services to exchanges in a safe and lawful manner. However, the risk tolerance of our regulators does not always match our own. This is something we'll have to work towards. In the meantime, it's heartening to see that some exchanges appear to have found stable onshore banking relationships, such as Coinbase + SVB.
There are a lot of situations where there is no hard and fast law that prohibits banking a particular customer, but the opinion of a regulator goes a long way in encouraging or discouraging any particular bank from doing so. Marijuana banking is an example of the murky waters banks must wade through. Is it legal or not? Depends on who you ask.
I'm not privy to any details, but I assume that SVB's regulators feel that the bank does not present a risk to the system by banking an exchange. SVB is the 50th biggest bank in the country or so, so they're in a different situation than a startup or community bank.
I suspect this isn't a very satisfying answer. All I can say is that in the long run we are motivated to offer banking services to every lawful business that we can ably serve.
As an aside, someone needs to 'disrupt' the home mortgage loan process from top to bottom. Super opaque and really annoying to go through (even the information gathering phase) when compared to almost everything else I've experienced as an adult.
+1 to someone fixing home mortgages. Super painful.
I'm curious how you pitched yourself to YC. Did you say you were going to be a sort of venue for people looking to build custom financial services on top of your API?
To do so, we built an API first. Rather than waiting to release our mobile and web clients to serve traditional banking customers, we decided to release our API first, so that any companies that can take advantage of it can get after it. We've talked to a lot of companies that want to automate ACH payments, wires, check sending, and so on, rather than relying on manual and offline processes. Most businesses will be best served by our apps, once they're available.
As for use cases, our conversations with business owners have led us to believe that nearly everyone is frustrated with the existing banks. Applications are difficult to use, offline forms are required, service is poor, and so on.
Seems like I could build my own personal banking/accounting site securely with this.
Do you intend to offer loans and/or overdrafts, either yourselves, or in partnership with other companies?
What I can say right now is that our pricing will be transparent, consistent, and as low as possible. We will not seek to profit off of international payments fees, and any fees we pass through will be shared transparently.
For comparison, we have heard of international transactions processed by banks that are charged upwards of 7% of the value of the transaction. Our pricing will be <1% in most cases.
I will take a peek at your API in the morning :)
I don't see an API method for depositing checks- is that something you plan to offer?
Also, no method for getting transaction history?
1. Remote Check Deposit is a protected technology owned by Mitek and/or USAA, and we're limited in how we can use it.
2. Checks are a huge fraud vector, so we're going to be careful about how we support them.
3. Checks are literally the worst payment mechanism ever invented and we would love to see them die in a fire. So we're going to discourage their use as much as possible while providing better, easier to use payment mechanisms.
That having been said, you will be able to deposit checks into SEED, just not via API for now.
Regarding item 1: Just curious- Do you mean Mitek and/or USAA have a patent on the process? Or do they own the only technology approved for some back-end process by the Federal Reserve?
The relevant legislation that enabled Remote Deposit Capture (RDC) is the Check21 act, which you can learn about here: http://www.federalreserve.gov/paymentsystems/regcc-faq-check...
In theory, anyone can build a system to deposit checks via check images, but software/process patents are a (mostly bad) thing. :(
Zach can speak for Plaid, but to my understanding they're focused on providing API's that improve banking experiences for existing banks and bank customers.
[1] The world's first business banking API
[2] The API for banking data
[1] https://seed.co/images/graphics/seed_logo_blue.png
[2] http://farm6.static.flickr.com/5572/15111751177_d74935b2b4.j...
Our stuff is designed to be portable between banks where possible. There are only about half a dozen bank core systems in wide use in the US today, so in theory if we integrated with all of them we'd be able to partner with most any bank. To date we have integrated with two different cores.