Germany-based savings and investments fintech Raisin is taking a leap into the U.S. market by growing its "savings-as-a-service" (SaaS) toolkit for banks.
The 9-year-old fintech this month was awarded a patent for technology enabling U.S. banks and credit unions to offer a "liquidity time deposit" certificate of deposit (CD) product that allows the depositor to select and plan a distribution schedule. The net effect of this would be that the account holder doesn’t have to wait for maturity to get the principal back.
"It’s basically allowing banks to offer a distribution time deposit or liquidity time deposit, which covers expected cash outflows," said Iñigo San Martin, chief operating officer at Raisin U.S. "Any bank offers the same savings account, the same time deposit [offerings], and through our technology, we allow banks to decommoditize the time deposit space and to offer value beyond rate."
The patent is Raisin’s latest move to build a toolset that allows American banks and credit unions to offer a wider range of savings products for their customers beyond the capabilities of many core banking systems. Raisin, which said its technology suite is interoperable with some FIS banking core systems, is integrating with Jack Henry core systems. Raisin plans to develop integrations with as many core systems as possible, San Martin said.
The company, which operates a consumer savings and investment product marketplace in more than 30 countries through a network of partners, began operating in the U.S. following its acquisition of Choice Financial Solutions last year. Choice developed enabling tools for unique deposit solutions, and was awarded a patent in 2011 for its savings technology toolkit. It offered a market-linked CD product, which is now part of Raisin’s U.S. product portfolio, along with CD ladders, which allow investors to divide a sum of money into equal amounts and invest them in CDs with different maturity dates.
Raisin launched its consumer product marketplace in Europe in 2013. It’s since brokered more than €30 billion ($36.4 billion) of transactions for more than 315,000 customers through 104 partner banks. Raisin also has a banking license through its 2018 acquisition of German lender MHB Bank.
Raisin said it was working with a top-20 bank it wouldn’t name on the delivery of savings products through its software-as-a-service solution. Raisin decided to pursue this model in the U.S. to help institutions grow core deposits, since brokered deposits — those made through a third-party deposit broker — are typically seen by U.S. regulators as riskier than core deposits, San Martin said. Raisin, however, plans to roll out a U.S. savings product marketplace through partners via a broker-dealer license later this year. The company is assessing the implications of a new Federal Deposit Insurance Corp. (FDIC) brokered deposit rule that narrows the definition of deposit broker and purportedly unlocks new avenues for fintechs to partner with banks.
Raisin’s compensation model for the savings-as-a-service offering is through a percentage of the total deposits gathered. With deposits growing by nearly 22% at commercial banks since January 2020, per Federal Reserve data, Raisin sees opportunities.
The company’s savings-as-a-service offerings, however, aren’t just intended to help client banks grow deposits, but to retain account holders through flexible and unique offerings that aren’t typically available at most banks.
"The current environment is of extreme liquidity since the pandemic broke out," San Martin said. "It’s not about placing more deposits, it's about keeping deposits, and providing value to the depositor than it is to just gather more deposits."
Raisin holds two U.S. patents, and is in the process of pursuing other U.S. patent applications that will enable future product releases. Asked why the company chose to patent its technologies in the U.S., San Martin said Raisin took these actions after consulting with U.S. industry practitioners who advised that patents are a necessary bulwark against potential intellectual property challenges that could be mounted.
"It’s a defensive strategy," he said. "It was an eye-opening scenario for the German founders. We don't have any patents in Europe, and as far as I know, are not pursuing any patent in the European Union."
John Popeo, a partner at bank consultancy The Gallatin Group and former counsel at the FDIC, said Raisin is likely testing the U.S. market through its SaaS offering. The low-interest environment offers opportunities for the company to break into the market, he said.
"I think they’re testing the market to see whether there's an appetite for their offering," he said. "I believe in the U.S., not only at the bank level but also businesses that hold a large amount of cash, will be interested in their offering because low rates are creating knock-on concerns related to inflation rate of return," he said.
While the deposit servicer model presents an opportunity for Raisin, there could be challenges around technology integration that it may face, as well as questions from regulators, he added.
Raisin’s enabling tools allow banks to bring a new form of client centricity to their offerings as they look for new ways to differentiate themselves beyond interest rates.
"Client-centricity is often pursued in financial services exclusively through service, instead of also product," Paul Knodel, Raisin’s U.S CEO., said in a statement. "The patent is especially timely at a moment when American banks need cost-effective strategies to attract and retain high-quality funding in the face of a challenging economic situation."
Raisin has raised €195 million ($236.5 million), with backing from Goldman Sachs, PayPal Ventures, Thrive Capital, Ribbit Capital and Index Ventures.