Innovation in most commercial banking units is lagging in comparison to the consumer side, Grasshopper Bank CEO Judith Erwin told Banking Dive.
"There have been great strides for the consumer," she said. "The big banks have done a great job with apps."
But Erwin said entrepreneurs who are used to consumer features are left wanting when they can't find the same quality on the commercial side.
That's why Erwin created Grasshopper Bank, an entrepreneur and venture capitalist-focused financial institution that aims to serve a market Erwin said banks have largely neglected in favor of consumer banking.
"Consumer funding for many banks is their biggest source of funding for their loans," Erwin told Banking Dive. "And they're highly sticky. Once you open a checking account, it takes a lot to get people to move."
The country's largest banks continue to report strong results in their consumer banking units, and Erwin said it's the reason most haven't been as motivated to provide the type of tailored services that entrepreneurs and business owners want.
"The individual preferences of business owners are snowflake-like," she said. "And you can't build a repeatable, scalable process if every client needs something new."
Grasshopper Bank's digital model helps keep overhead costs low, and with the help of artificial intelligence and machine learning tools, the bank is able to curate its services for the individual, Erwin said.
"Our cost structure is so much lower than most banks that I have the capacity to invest in businesses," Erwin said. "I think clients and their bankers have gotten further and further away from each other in the drive to get big. Everything defaults to just getting bigger and bigger, when that's not necessarily the best choice for the consumer."
Grasshopper isn't Erwin's first startup. She was part of the executive team that founded Square 1 Bank in 2005. She managed strategic venture capital relationships, and was responsible for foreign and domestic products and product management for the bank, according to her LinkedIn page. Square 1 merged with PacWest Bancorp in 2015, and Erwin launched Grasshopper the following year.
Grasshopper — which is named after Rear Admiral Grace Hopper, a Navy computer scientist whose work inspired the COBOL programming language — received a national banking charter from the Office of the Comptroller of the Currency in April.
The bank offers its customers a checking account, debit card, prepaid expense card, revolving loan, revolving line of credit and a term loan. Erwin said Grasshopper also plans to launch check deposit capture for mobile and desktop terminals, and to roll out a credit card. She said she hopes to make the bank public by the first quarter of 2020.
Erwin said she wants Grasshopper to serve as an example to other financial institutions that want to target underserved markets.
"I think competition is good for the entrepreneur, and it will help the regulators understand the landscape better," she said. "And, you know, I'm not going to want to do every deal. So having other players out there who may have a different flavor means the entrepreneur has more choice again."