The challenger bank Current has broken up with its technology and payment processing provider and is connecting directly to Visa DPS to process transactions. It's using Visa Forward, a new cloud- and API-based way of working with the card network.
The move makes Current more nimble and will enable it to roll out new products more quickly, its leaders say. Last week, for example, they launched cryptocurrency trading in the Current app, in partnership with the crypto-custody provider Zero Hash. Later, they plan to have a combined debit and credit product.
There are several benefits to Current of plugging directly into Visa rather than going through a third party, according to CEO Stuart Sopp.
"Obviously cost is one," he said in an interview. "Two is customization. So you could imagine when a centralized party like we were connected to before had to customize for all these different people and it was like a game of telephone, where they're like, hey, Visa said this, but we should do that. And it's just messy. And product innovation cycles take longer. They're going to prioritize their work around their biggest clients. So if you're not the biggest client, you're going to be a second or third-class citizen."
The change will give Current a competitive advantage over neobanks that continue to use third-party processors, Sopp and Trevor Marshall, Current's chief technology officer, hope.
Most third-party processors only allow debit ledgers and very few enable credit, Sopp said.
"Lending is clearly at the forefront of everyone's mind," he said, in a nod to the pressure all
Many neobanks have to work with two or more ledgers and two or more know-your-customer programs, Sopp said.
"That experience is disjointed; it's not customer centric," he said. "What we've built with Trevor's team and Visa is one source of truth, one ledger, one processor capability, which enables us to then build debit and credit on the same rails in the same ledger."
Current can now more quickly and easily build new products, he said. One product on the drawing board is what Sopp calls a "supercharged checking account," with high-yield savings and an unsecured credit-building component.
"The best way to think about it is as a charge card with an unsecured revolving line of credit, depending if you qualify," he said. "That's something that's not easily done from those debit rails."
Customers will get more value from Current by using these different features without having to change their behavior because it's still within a single platform, he said.
Another benefit of using one ledger for everything, Sopp pointed out, is that now there is a single source of data for personalization.
"It's category-killer stuff here," Sopp said. "We've done the hard work in terms of the back end, and now we're racing to do the front end stuff to get this out" in coming months and years. Current's bank partner is Choice Financial Group.
"It does seem like it's an elevation in scale for them," said James Wester, director of the cryptocurrency practice at Javelin Strategy & Research. "Normally if you're a smaller financial institution or neobank, you partner with somebody who's going to be more turnkey. They're going to provide you access to rails, they're going to provide you access to issuing, they're going to do all of the work for you and what you're going to do is acquire accounts."
Once neobanks get bigger, they can start doing more in-house, Wester said. This can lower their costs. It also brings more risk and compliance responsibility, he noted.
Challenges
Current, which is based in New York City and has four million users, has had a do-it-yourself mindset for some time. Chief Technology Officer Trevor Marshall led a team that built a proprietary core banking system in 2015.
Migrations like the one Current just went through are difficult, Marshall said.
Processors like Galileo handle all the back-office work around card transactions, including card swipes, refunds, disputes, ACH origination, direct deposit processing and check deposit processing.
"It comes down to the fact that there is a tremendous amount of data synchronization that's required," Marshall said. "On the four different networks that we're configured on, you had authorization clearing messages coming down through one provider one second, and another provider the next second. The amount of data and the structure of the data changes, but more importantly, your authorization and clearing messages get broken. You get an authorization down one processor, and then when the merchant comes to actually say, this is the final amount, it comes down to another processor. So if you don't have proper data synchronization and your own view of the data, it's impossible to join the clearing message and the authorization."
The goal of the transition was to be able to roll out new products more quickly, without having to wait for a processor to accommodate them.
"Working directly with Visa gives us a ton of ability to push changes faster because you're no longer working with a third-party relationship," Marshall said. "We're able to coordinate changes extremely quickly now, and that's just one element of working further up the chain. There's also just the consistency of working with the world's largest issuing processor globally, and they've got a ton of operational reliability and stability."
Because the cloud version of Visa DPS, Visa Forward, is API based, Current didn't have to co-locate hardware in Visa's data centers as would normally be required. Visa handles all of the tokenization of card data.
"We're benefiting from being able to deliver all of their products and services through an API as opposed to different physical and disparate integrations," Marshall said.
The new platform will enable Current to start offering credit products, where up until now the neobank has only offered debit.
Crypto trading
Current began offering crypto trading on its apps last week. Customers can buy and sell 27 cryptocurrencies.
The timing seems less than ideal, as cryptocurrency prices have dropped about 60% over the past year. But Marshall says this is not an issue.
"In the past, crypto winters are when real progress has been made," Marshall said. "Markets are cyclical, and while there have already been many price cycles in crypto, we are not taking a directional view. The way money works is changing, and it's our responsibility to provide access and enable our members to become owners in the new financial system. We believe this will deliver even more value back to them and help improve their financial lives over the long term."
Current hopes to drive engagement and retention from this capability.
"We've actually seen higher retention in our core business from people using it" during the past four months as Current has been testing the new feature with customers, Marshall said.
This is not surprising, Wester said.
"When PayPal started offering buy, sell, hold of cryptocurrencies, they saw that people who held cryptocurrencies use their app much more frequently," he said. "They were checking their holdings, they were checking their balances and they were much more engaged." The flip side is that cryptocurrency has been volatile, so many people have just been looking to see if they have lost or made money on it, without any banking activity.
With all these changes, Current is on a path to become profitable in 2024, Sopp said.
