Build Your Own Bank? SVB Lets Customers Do Just That

Skip branches. Forget online banking. What if the future of banking is letting commercial customers, or at least those with the technological wherewithal, program their own experience with the bank?

For Silicon Valley Bank customers, the ability to do just that is set to arrive by the end of the year. The company is working to build out its application programming interfaces so that its high-tech customers can customize how they interact with the bank. That effort is being accelerated with the addition of the team of Standard Treasury, a fintech startup that focused on helping banks open their applications to others. Standard Treasury recently sold its intellectual property to bank holding company SVB Financial Group and the team led by Daniel Kimerling and Zachary Townsend agreed to join the bank.

"We are thinking about this as another channel for our customers to interface with the bank," said Bruce Wallace, chief operations officer of the $37 billion-asset SVB. "Our clients want more control in how they send data to us and a lot of them come from developer backgrounds, so they have the ability to build [the method] themselves and open APIs give us a much more flexible channel for them."

The first ways customers will be able to use the bank's APIs will focus on how they direct the bank to handle payments on their behalf, Wallace said. That includes both payments processed through the Automated Clearing House and card services. Wallace said the company will continue to build out additional ways for customers to connect - it has a road map, but also understands that it will need to be flexible. He declined to say what would likely follow the payment APIs.

"Things are changing so rapidly," Wallace said. "It is evolving, but we know what we want to build out."

SVB, given its high-tech clientele, is perhaps uniquely positioned to let clients program their own experience. Still, the way banks and commercial customers exchange data is perhaps ripe for an overhaul, said Patricia Hines, a senior analyst with Celent.

"Banks send their clients' treasury departments these big flat files of data and a lot of times it involves data that the company doesn't need," Hines said. "I could see some clients saying, 'Let me come in and get what it is that I need on my own terms.' "

The potential problem, Hines said, could be the treasury management systems that the companies use. Are they going to be easily conformed to fit the new way the bank and the company interact? What will the company need to do on that end to make it work?

"A lot of them are using packaged software," Hines said. "Will they begin to push their vendors? It is a little bit of a chicken-and-egg situation."

The intersection of banking and APIs is increasingly a hot topic. As many see it, banks stand to benefit from allowing other companies to tap into their APIs the same way that PayPal, Facebook and Google do. Those types of examples, however, are more relevant to the way banks could work with fintech companies to enhance the customer experience. What SVB is planning to do with the help of the Standard Treasury team is a bit of a next step down the path for banks allowing others to use its APIs.

Following SVB's announcement about its partnership with Standard Treasury, Townsend published a blog post co-authored by Kimerling that detailed how the two founded their company two years ago "because we saw that APIs would become the dominant way that commercial clients connect with their financial institutions."

SVB began interacting with the startup early on, Wallace said.

"We actually did a proof-of-concept with them. There was a formal engagement where we set up a sandbox and allowed some of our clients to come in and look at it," Wallace said. "There was positive feedback… they said, 'this is definitely a channel we would like to use.'"

The companies ultimately decided it wasn't the right time to work together then.

Wallace said that as the company set out it ran into a major problem in the industry: each bank has more or less cobbled together a core system, meaning they couldn't offer a plug-and-play solution.

"It would have been very difficult to build a universal software layer," Wallace said. "Everybody they worked with would have required a customized and consultative solution."

Standard Treasury last year shifted its efforts to building a bank that would open its APIs for nearly every part of the business but "regulatory and geographic risks" quashed efforts to raise the necessary capital to pursue that, Townsend and Kimerling said in the blog post.

"With that door closed, we decided the next best thing was to closely align ourselves with one bank, in order to build a richer, more full featured, set of API-based services for customers," the blog post reads. "We believe this partnership will be a faster, better way to create the impact that we sought to create."

The pairing is another example of banks and fintech companies finding a symbiotic relationship, said Sam Maule, an emerging payments practice lead at Carlisle & Gallagher Consulting Group. Banks can't innovate as quickly as startups, but startups need the scale that banks can provide.

"There is no way that the larger banks can develop solutions at the pace of the startups," Maule said. "At the same time, very few fintechs are disrupting with scale."