A new bank in San Francisco, Column Bank, is offering clients a do-it-yourself approach to creating banking applications. It offers a “sandbox” that developers can use to create software that will work directly with Column Bank accounts. Plaid and Brex have signed on as customers.
Column Bank is the brainchild of Plaid co-founder William Hockey and his wife, Annie, who began the process of buying a small community bank, Northern California National Bank, with $50 million of their own money two and a half years ago.
"I wanted to build and work on something for the next few decades," Hockey said. "Given the business model and regulated nature, banking is very conducive for extremely long-term thinking. There has also been a dearth of technical progress inside of regulated industries like banking, given the high barrier and long-term requirements. I think we can bring a fresh mindset, energy and skillset to the industry that will end up creating a safer, better and more efficient financial system."
The deal was approved by the Office of the Comptroller of the Currency last year. The community bank continues to operate out of a branch in Chico, California.
At the same time, with a team of developers in San Francisco, the Hockeys built a core banking system from scratch that was designed to be easy for partners and customers to work with.
In April, the Hockeys rebranded the parent company Column Bank and called it “the developer infrastructure bank.” Column customers are offered deposit sponsorship, ACH and wire payments as well as warehouse facilities. The bank collects fees for these services.
“We enable developers that are clients to integrate directly with us,” Hockey said. Partners and customers can build their own banking interfaces using Column's sandbox.
Many companies that partner with banks work with middleware services providers like Unit, Rize, Treasury Prime and Synapse to create tools that will integrate with the bank’s core system, which is typically from FIS, Fiserv or Jack Henry. Because Column Bank has its own core system and developer platform, there’s no need for such middlemen, Hockey said.
“Column has simplified some very difficult things for developers,” said Ben Milne, founder and chairman of Dwolla and founder and CEO of Brale, a startup building technology bridges between centralized and decentralized finance. “Programmatic, FDIC-insured accounts offered directly from a bank with good APIs is an incredible step forward. I have done my fair share of bank integrations and I've yet to see a bank-offered API as elegant as what Column appears to have done here.”
A programmatic bank account is a bank account users interact with through an application programming interface, Milne explained.
“What is special about the Column approach is that it's easier to implement against an API instead of all the automation that needs to be built to interact with most bank systems,” Milne said.
“A developer building a bank integration could easily get months of their life back,” he said.
Last weekend, a rumor went around that the OCC had forced Column Bank to offload all its customers.
The rumor was untrue, William Hockey said. What did happen was, some technologists using the sandbox didn’t realize their company had to be approved as a customer before they could start deploying their code, and some of those businesses were too high-risk for Column to accept them as partners, he said.
“When we launched, I think people thought that we were a software-as-a-service company,” he said. “A lot of people thought, awesome, I'm this great Web 3.0 crypto company, I'm going to now be able to do all this cool stuff with this banking partner,” Hockey said.
But when these companies tried to take their new Column-based technology into production, they would get a message thanking them for trying Column out, but telling them the bank couldn’t support them at this time.
Because of the relative newness of the bank and its need to build relationships with its regulators, the OCC and the Federal Deposit Insurance Corp., Column is being cautious about which companies it takes on, Hockey said.
“We take a significant amount of counterparty risk with all of our clients,” Hockey said. “Business models that people thought were sustainable two years ago may be different now. And the FDIC, the Federal Reserve and the OCC over the past 12 to 18 months have been paying attention to bank-fintech relationships, and we are not devoid of that. We need to make sure that our risk tolerance is aligned with our regulators.”
As a consequence, Column Bank is mostly taking relatively lower-risk, larger, more sophisticated clients, Hockey said.
“And I think that has resonated in the market positively with some, negatively with others,” he said.
The incident is an outgrowth of a few growing trends: More banks are working with tech and fintech partners, regulators are watching these relationships closely and as competition heats up, these banks are trying to differentiate themselves to sophisticated clients that are asking for better tools to work with.
At least 40 U.S. banks offer banking services to third-party partners and more are getting into this business all the time. These banks, which have banking charters and full approvals from bank regulators, focus on providing banking services behind the scenes to companies that create their own banking tools to use internally or offer in banking apps; many of these clients are neobanks. The banks tend to be community banks that have limited technology staffs and budgets. These limitations can sometimes cause frustration for clients that want to innovate and quickly offer competitive new features.
Column has the potential ability to do several things, noted Todd Baker, a senior fellow at the Richman Center for Business, Law & Public Policy at Columbia University and managing principal of Broadmoor Consulting. It has direct access to federal payment systems, so it can cut out any middlemen associated with card or ACH payments. It can take insured deposits and DDA accounts. It can generate interchange fees and make loans. And it can provide software as a service.
“What's going to differentiate them on the one hand is, is my software better?” Baker said. “Is my solution better? Is it smoother because I'm doing it all in-house? On the other hand, am I able to manage the risk management side of the regulators, so that I'm actually able to compete? That remains to be seen. As a new bank, they are in regulatory purgatory for a while.”
Column Bank is in communication with its regulators and it’s already profitable, Hockey said. It has 60 employees. The bank is 100% owned by founders and employees.
There aren’t a lot of co-CEOs in the banking and fintech space, and husband-and-wife co-CEOs are a rarity. Annie Hockey was formerly a management consultant at Bain & Co. and director of business development at Move Loot.
William Hockey said he learned a lot about how to work with co-founders and run a large company at Plaid. Co-founding Column with his wife gave them aligned incentives, he pointed out.
“I think a lot of times co-founder relationships become strained when one person wants to take a company in this way and the other that way, or maybe one wants to sell and the other doesn’t,” Hockey said. “When you start with your spouse, you have the same incentives because if she wins, I win, and if I win, she wins. That's very difficult to replicate in a typical co-founder relationship.”
One thing Hockey knew for certain was that he did not want to start a company by himself.
“It's a two-person job,” he said. “I am good at building software. And she is good at other things apart from building software.”
