Challenger bank Current plans to pursue decentralized finance

Seven years ago, the founders of Current envisioned a challenger bank that would balance blockchain-based services with traditional banking. This was well before the term “decentralized finance” existed and when cryptocurrency was in its infancy.

“We thought, maybe money doesn’t need to be held in banks,” said Stuart Sopp, Current's CEO and one of its co-founders.

Sopp started thinking about this when Trevor Marshall, an intern at Morgan Stanley when Sopp was the investment bank’s head of foreign exchange, showed him the bitcoin white paper in 2011.

“Maybe it could be held outside the banking system,” Sopp recalled in a recent interview. “We knew intuitively which direction we should go in but it was very hard to put it into words.”

The two co-founded Current in New York City in 2015 and built a proprietary core system that was compatible with both traditional and decentralized back ends. The long-term vision, which they are actively working on this year, is to provide “hybrid finance,” which combines the benefits of decentralized finance with the familiarity of traditional banking.

If it comes to fruition, the idea is that Current will be able to offer, at scale, eye-catching benefits such as interest rates that are even better than the 4% it currently extends on balances up to $6,000. There are other companies that hold crypto deposits and provide such high interest rates, including BlockFi and Circle. Jiko, which started as a challenger bank providing traditional banking and crypto services, has pivoted to only offering such products through traditional bank partners.

Alex Johnson, director of fintech research at Cornerstone Advisors, is aware of only one other neobank, OnJuno, that is executing a hybrid-like strategy combining traditional banking with cryptocurrency features. Crypto-native neobanks, such as Eco, do not incorporate traditional finance the way Current does.

“Current is writing a new blueprint,” said Johnson. “They are figuring out ways to pull in some of the benefits of defi, like higher yields on deposit accounts, but doing it in a safe, stable, easy-to-interact-with way for customers. It's a huge amount of work and regulatory and compliance checks they have to do. If they are successful, they will offer a set of capabilities that will be highly differentiated compared to other neobanks.”

Current, which has nearly 4 million customers, took root as a challenger bank for teens. It later broadened its audience to underserved adults — more than 40% of customers have never had a bank account before — with checking and savings products, early wage access, debit card rewards and no fees for overdrafts of up to $200. It will launch cryptocurrency trading in the second quarter.

The deposits are held by Choice Financial Group, a $3.2 billion-asset institution in Fargo, North Dakota.

In May 2021, Current announced a partnership with Acala, a decentralized finance network and liquidity hub of Polkadot, a protocol that lets blockchain networks operate together. (Bette Chen, the co-founder of Acala, coined the term “hybrid finance.”) Acala's decentralized finance network offers financial applications that let users trade, issue self-serviced loans, earn high interest rates on their digital assets and more.

Using its proprietary core and its partnership with Acala, Current is planning to allow its users to take advantage of forms of decentralized finance. Current’s version might look like a savings account where users earn a return in dollars.

“If we can be part of providing access to those things through our technology, we can bring better outcomes to everyday Americans without having to go through the burden of understanding what these pieces of technology are,” said Marshall, Current's chief technology officer.

Right now, Current users earn 4% on up to $6,000 in their “savings pods.” The challenger bank funds this return by staking money in high-interest protocols and taking on some risk.

“Going forward, there are people who would love to get access to that and put in more than $6,000,” said Sopp. “How we do it will be a technology decision by Trevor and his team,” but it will likely involve defi.

Integrating traditional banking and defi is not, on its own, a selling point for customers, said Johnson. “They do care about things like a 4% annual percentage on savings,” he said. “If Current can realize its vision of hybrid finance, then it would theoretically be able to fund above-market interest rates based on the returns it generates through defi activities like yield farming.”

Overall, Current hopes to remove complexity from such experiences for its customers. The company expects to earn revenue, such as commissions, by introducing customers to new products.

Marshall thinks of Current as a hotel concierge, who procures but doesn’t manufacture whatever guests want. “We have no intention of becoming a bank or competing directly in the traditional business of banking,” he said. “We do want to fill that role where we are your bank, we are where you go for financial products.”