On the heels of enhanced digital adoption during the COVID-19 pandemic, Bank of America is working to expand artificial intelligence-powered digital assistant Erica’s capabilities to include personalized banking, investing, credit and retirement-planning advice.

“This idea of reaching out to you proactively and telling you what your financial state is, almost like an adviser in your pocket,” Hari Gopalkrishnan, Bank of America’s CIO of retail, preferred, small business and wealth technology, said at a December conference held by Tearsheet.

The bank is working to expand Erica’s capability to offer proactive insights based on its understanding of a client’s typical transaction patterns. It may alert a customer of spending anomalies and suggest solutions, including, for example, if spending on a particular category was unusually high, Gopalkrishnan said.

Erica, which was launched in 2018, garnered 1 billion client interactions and has helped 32 million users. Bank of America expects Erica, in early 2023, to connect clients to banking agents regarding new products and services, such as mortgages, credit cards and deposit accounts.

The pandemic saw a growing number of older customers use digital banking tools, including Erica, Gopalkrishnan said. The bank now wants to build on enhanced adoption by improving the flow of transactions, including the seamless handoff from Erica to human agents and vice versa.

“We realized, at some point, people go, ‘I'm done with that chat, I need to talk to a human,’” Gopalkrishnan said. “What if we could just introduce the human agent right along with a chatbot, pick up from where you left the chat … and then step back and let the chatbot take over again.”

The bank is using natural-language processing tools to help draw insights from transactions and conversations, he said.

The use of predictive insights also extends to cases where customers dial the call center. Based on what the bank knows about the customer, Erica is sometimes able to guess why a customer is calling and suggest actions to resolve problems that arise, the bank said.

“We can, [for example], detect with the [interactive voice response] predictively that you're calling about a declined card,” Gopalkrishnan said. “We can then say … ‘Can I send you back a deep link that takes you to the part of Erica to take care of it yourself?’”

The pairing of Erica with human assistance can also help smooth the account opening process for wealth management products, he said.

Bank of America isn’t alone among large financial institutions launching or upgrading digital banking assistants. Wells Fargo announced in October that it would soon launch digital assistant Fargo, which is built on Dialogflow, Google Cloud's conversational AI platform. Wells Fargo’s digital platform leader, Michelle Moore, was previously head of digital banking at Bank of America and led the development of Erica.

In September, Truist launched Truist Assist, a digital assistant that taps natural-language processing and natural-language understanding to offer insights and advice.

Bank of America has invested more than $10 billion in technology annually in the past decade, with more than $3 billion of it allocated toward new technology development aimed at improving user experience and personalization for clients banking online or on their mobile devices, Aditya Bhasin, the bank’s chief technology and information officer, said in 2022.

When Cogent Bank set out to serve Florida’s legal cannabis industry, its mission was to serve cannabis-related businesses the same way it does its other commercial clients. 

“We saw that other financial institutions in this space weren’t doing that,” said Chris Hartman, chief deposit officer at Orlando-based Cogent Bank. “They were basically taking deposits and offering accounts without all the other features and benefits that customers want. So we felt really strongly that we needed to do that and not make this industry pariahs.”

Because of marijuana’s status as a Schedule 1 drug at the federal level, most cannabis-related businesses have had to operate on the sidelines of the financial system. With major payment processors and large banks reluctant to work with the industry, most dispensaries are cash-only.

The cash-heavy nature of the industry, in addition to the strict compliance and regulatory hurdles associated with banking it, make the space a challenge for banks to navigate.

Cogent Bank did its due diligence before rolling out its cannabis banking program, and kept regulators in the loop throughout the process, Hartman said.

“We were completely transparent with our regulators, and we got complete board endorsement. And once we got up and running, we felt pretty confident that our program was sound,” she said.

To help broaden the program’s cannabis banking program, Cogent Bank partnered with Green Check Verified, a fintech that works with banks to provide compliant cannabis banking services.

“We knew we needed to be [cannabis-related businesses’] go-to bank for everything, and when we didn't have something they needed, we looked to partners that could provide that,” Hartman said.

Green Check’s flexibility in working with businesses that use a wide variety of point-of-sale systems allows the bank to monitor transactions and feel comfortable in its clients’ compliance with state regulations, Hartman said.

The ability to use a third-party vendor to broaden the bank’s cannabis banking services is critical, she said.

“For a bank of our size, a billion-dollar bank, we can't go develop these things on our own,” Hartman said. “So, given our robust onboarding process and due diligence process, and Green Check being a part of that — we also have a really knowledgeable compliance officer that is the go-to in this arena — once they're onboarded, we don’t want to treat them any differently than any other client.”

Cogent Bank offers treasury services, mobile deposit, online banking, online wires, access to the Automated Clearing House network and cash processing services to its cannabis-related clients.

Cash processing is an important service, Hartman said, since the bank doesn’t take cannabis cash in its banking centers, due to the liability of accepting large amounts of cash.

“And quite frankly,” Hartman added, “sometimes you can smell the cannabis on the cash and we don't want our banking centers to smell like marijuana.”

As part of its mission to approach cannabis banking the same way it does its other business lines, Cogent Bank has “dipped its toes” into real estate lending in the marijuana space, she said.

Lending in the cannabis space, however, still comes with its limits.

“We're doing primarily real estate loans for commercial real estate owners that are leasing space to dispensaries,” Hartman said. “We found that other banks were even unwilling to do that because they were concerned that if a developer developed a property and leased to marijuana, and then they got shut down, they would lose their revenue source to repay the loan.”

Cogent has been making loans to commercial real estate owners leasing to cannabis-related businesses for several years now, but is aware of a growing need outside of that realm, Hartman said.

“The biggest asset that a cannabis company has is their license, and we're still struggling on that side because we don't believe we can encumber the license or force a sale,” she said.

Identifying what the bank could take as collateral is a challenge, Hartman said.

“Clearly, we don't want to be in the marijuana growing business, so land or the facilities that process marijuana are not necessarily something we would want as collateral,” she said. “We might take a building. We're in the process of building that out, but we're not 100% there yet.”

‘A growing community’

With its cannabis banking program, Cogent Bank sees the opportunities beyond providing services to cannabis-touching businesses, such as servicing the industry’s vendors and ancillary businesses that are also often locked out of the banking space, Hartman said.

“Based on the data that we've seen, the cannabis industry is very lucrative and growing rapidly. We feel that it's a great opportunity not only to bank the licensees, but also the vendors that support them,” she said.

Cogent’s willingness to bank the industry comes with additional opportunities to serve accountants, attorneys and manufacturers that work with cannabis clients, Hartman said.

“It’s a growing community and we feel that it provides deposits as well as lending opportunities for us,” she said.

Cogent has branches in north, central and southwest Florida, where the cannabis is legal for medical purposes. 

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When Jenius Bank launches its consumer-focused banking platform nationwide this year, the digital firm will be throwing its hat into a crowded ring.

But Jenius Bank CEO John Rosenfeld said the new venture has ambitious plans to launch not just core banking products, but services that differentiate the platform from neobanks and incumbents alike.

“We want to create a more compelling and better value proposition for the consumer. We want to be the first bank really focused on helping customers live a richer life and better manage their financial life,” said Rosenfeld, who joined Jenius after heading Citizens Bank’s digital bank, Citizens Access.

Jenius Bank is a new division of Los Angeles-based Manufacturers Bank, and represents the commercial-focused firm’s expansion into digital consumer banking.

Jenius will offer personal loans, savings and checking accounts — core banking products that will roll out within the next 12 to 18 months, Rosenfeld said.

But the bank’s differentiator will lie in the financial insights it plans to eventually provide its consumers, Rosenfeld said. 

Jenius customers will be able to track cash flow, as well as link data from credit cards, other banks, loans and potentially investment accounts. The goal, Rosenfeld said, is to create a platform where users can view all of their financial data in one place. 

“Though some banks do offer aggregation today, they do it fairly similarly, which is they make it a service you can add on or you can enroll in. Once you enroll, you can add an account and so forth. They don't make it part of every single customer's experience,” he said.

Rosenfeld said he hopes to offer financial data aggregation to Jenius users from Day One. 

The digital bank’s target demographic is 25 to 44 years old with six-figure incomes — “customers that have complex financial needs,” Rosenfeld said. 

Jenius has hired close to 250 employees in the past year and a half, said Rosenfeld, who added the bank’s staff is nearly 100% remote. 

The company has an office in Charlotte, North Carolina, and plans to open another in Phoenix in the coming months. The bank also operates out of Manufacturers’ offices in Los Angeles and New York, he said.

“We're relatively unique. I don't think there are any banks in the country that have 95% of their workforce remote and plan to stay that way,” he said.

Parental support

The $4.9 billion-asset Manufacturers Bank serves middle-market businesses, and was purchased by Tokyo-based Mitsui Bank in 1981.

The firm came under the umbrella of Japan-based Sumitomo Mitsui Banking Corp. following the 2001 merger of The Sumitomo Bank and Sakura Bank, a descendent of Mitsui.

The Japanese banking giant has invested $150 million in the U.S. digital banking venture, according to Nikkei Asia. 

“We have the luxury of having an incredibly strong parent,” Rosenfeld said. “They believed in the vision. A lot of fintechs or startups don't have the luxury of that level of investment and a stable parent. Most of them want a quick win and they want to see somebody grow a million customers to prove the concept has value, regardless of whether or not it's making money.”

Jenius, by contrast, has a measured approach to growth, Rosenfeld said.

When it comes to launching personal loans, for instance, Jenius will start slowly, he said.

“We have a very long-term view, and we are going to be very calibrated in that growth,” Rosenfeld said. “We're going to grow loans that we believe are truly profitable to us, and we're only going to raise deposits to fund those loans.”

Jenius will partner with loan aggregators, such as Credit Karma, which will connect the bank with borrowers who meet a certain credit profile.

“We hope to be a very competitive offering for those customers. For the customer that comes to Credit Karma and doesn't meet that criteria, they're not even going to see us,” Rosenfeld said.

As firms brace for a possible recession, some of the nation’s largest banks have boosted credit-loss reserves over the last quarter. But Jenius won’t need to do the same, Rosenfeld said.

“We intend to start with a much smaller, more calibrated and probably a little slower trajectory of growth,” he said.

A competitive edge

Launching a digital-only banking platform with the backing of a chartered institution will give Jenius an advantage over other neobanks and fintechs targeting the consumer market, Rosenfeld said.

“A lot of startup digital banks struggle to figure out how they're going to get a charter,” he said. “For the most part, charters are not easy to come by, so the fact that we have one provided us an enormous head start.”

But Rosenfeld doesn’t believe the platform will compete head-to-head with customers of popular digital players like Chime or Varo Bank. 

Instead, he sees an opportunity to tap customers who are migrating out of traditional banks.

“I think what we're seeing is a massive shift from traditional banks to the new digital bank value proposition,” he said. “I'm building on a core that's only a few years old, whereas most of the banks in America are running on 30- to 40-year-old cores, which can't possibly do some of the things that I'm going to be able to do.”

Foro, a fintech backed by a former Bank of America CEO, announced the January launch of its national commercial lending platform designed to guide small-business owners through the commercial lending process and match them with banks.

Hugh McColl Jr., who helped transform Bank of America into a financial giant before retiring in 2001, became a founding investor in the fintech after a business partner drew his attention to the Charlotte, North Carolina-based firm’s mission. 

“It immediately piqued my interest because of the tremendous need for financing for small business, particularly minority businesses,” said McColl, who is a partner at Bright Hope Capital, a firm he helped launch in 2021 that invests in minority-owned businesses. “What we want to do is to put people that want to lend money together with people who need money. It's not complicated.” 

Foro, which has secured $8 million in Series A funding led by TTV Capital, with participation from Fin Capital, Correlation Ventures, AME Cloud Ventures and U.S. Bank, was founded in 2019.

The startup aims to remove the friction most small businesses face when seeking a commercial loan — a process Foro CEO David Godsman said has been ripe for digital transformation for some time.

Godsman, whose career spans positions at Citi, Bank of America and Coca-Cola, in addition to a stint as chairman of peer-to-peer payments platform Zelle,​​​ said the commercial lending process is often labor-intensive and outdated, which can be daunting for small-business owners.

“Banks have effectively transformed themselves on the consumer side and in many parts of the commercial side, but you still have this scenario where the process of a business owner trying to determine who would be their best partner to work with them to help them grow their business is somewhat archaic,” said Godsman, who joined Foro in 2021. “The original thesis behind the business was the belief that businesses deserved a better commercial lending process, and one that enabled accessibility and equality for any business owner who was seeking capital.”

Foro aims to serve small and middle-market borrowers looking for loans of $1 million to as much as $25 million. That range requires complex underwriting, a differentiation that sets Foro apart from other online small-business lenders, Godsman said.

“Platforms that are optimized to help a business get $100,000, typically are very automated. It's driven by the FICO score of the business owner,” he said. “We've moved upstream and we believe we can apply a lot of the same methodology in creating a better experience for business owners who, arguably, are even more interesting for lenders because of their size and scale.”

Playing matchmaker

Godsman declined to share specifics about Foro’s revenue model, but said the platform is lender-funded.

Banks tell Foro the type of industries or geographies they’re interested in, and Foro filters and curates businesses based on those needs, Godsman said. 

“We have a very healthy lender network that covers the entire spectrum of needs of the business owner,” Godsman said. He declined to share the number of lenders Foro is partnering with, but said the platform’s participants range from Top 10-oriented firms to regional and community banks.

“We don't just think of banks as potential partners that help to fund our model. We actually hope to design a lot of the experiences that we've built into our platform, based on how they operate or how they might want to operate,” he said. 

The platform also aims to solve pain points banks face in the lending process, such as overexposure in a singular market, McColl said.

“I think what Foro will do is allow them to access loans and markets that are outside their normal trade area. A lot of banks are in areas where they have been able to build up very good deposit bases, but have very little loan activity,” he said. “This is a way they can acquire financial assets and put their own rules on it.”

Blind date

Foro aims to eliminate bias by anonymizing the initial part of the process, Godsman said. 

“In the beginning, we don't share with the lenders the name of the business owner or the business. We give them the shadow profiles and the data points that matter for them,” he said. “We do that to try to help remove some of the subjectivity that has existed for a very long time in the space.”

Once the two parties have been introduced, Foro shares the small-business owner’s contact information with the interested bank.

“We're really a facilitator of high-quality introductions between these two parts of an ecosystem. We're there to support both sides of it as effectively as we can,” Godsman said. “We’re trying to take data technology and create a better way for business owners to prepare themselves and understand and drive transparency into a process and then help ultimately connect them with the right lenders who have developed credit strategies that fit that specific business profile and industry.”

When JPMorgan Chase released its 2022 summer reading list, the bank took a slightly different approach from previous years, choosing to make the collection of books available for visitors to peruse in the virtual lounge it set up in Decentraland.

The move represents JPMorgan’s bet on the benefits of establishing an early presence in the metaverse, an immersive world the bank believes represents a $1 trillion market opportunity.

The metaverse, a virtual world which users can explore through the use of virtual reality and augmented reality headsets, is a new interaction and engagement model for society, said Sandeep Vishnu, a partner at consulting firm Capco, and it’s a space the banking industry can’t afford to sit out.

“If the metaverse is a new model for society, for interaction and engagement, then banks have to follow that,” Vishnu said. “Banks have to figure out what role they are going to play in the metaverse, and getting a move and being part of the ecosystem early on might give them some landing rights that wouldn’t be there if they don't move early.”

Like JPMorgan, Quontic Bank, is taking a first-mover approach to the metaverse. The New York City-based digital bank, opened a Quontic Bank outpost in Decentraland in May.

To mark the occasion, the bank hosted a virtual launch party for the space, complete with a DJ and limited nonfungible token giveaway.

Quontic’s discussions around building a presence in the metaverse began at the beginning of the year, said Aaron Wollner, the bank’s chief marketing officer.

“We did an exercise in effort and impact and we estimated the efforts to be relatively low, and the impact could potentially be high – not immediately, but potentially,” Wollner said. “That's how we sometimes think about the innovative things that we do. What is the potential upside, even if it's not an immediate impact?”

The digital bank has long aimed to be at the forefront of merging new technology with the banking experience. 

Quontic claims to be the first U.S. bank to offer its customers a Bitcoin rewards program, a feature it launched in 2020. 

Quontic also says it is the first bank to introduce a tap-to-pay mobile-payment ring to the U.S. market, a product it officially rolled out in April. 

Through the metaverse, Quontic is excited about the three-dimensional aspect of hosting a space for its customers, Wollner said.

“We love our digital, dot-com experience, but it's two-dimensional. It's a little flat,” Wollner said. “We try and deal with it through chatbots and various forms of automation that extend that experience, but at the end of the day, it's limited.”

JPMorgan launched its Decentraland lounge several months before Quontic opened its space, a move Quontic viewed as a reinforcement of its own efforts to establish a presence in the virtual world, Wollner said.

But Quontic views the larger bank’s approach to the metaverse as an example of what to avoid, Wollner added.

JPMorgan’s Onyx Lounge, named after its platform of Ethereum-based services, features a roaming tiger, spiral staircase and a portrait of CEO Jamie Dimon. 

“We saw that as very self-promotional,” Wollner said, referencing the Dimon portrait and the space’s promotion of its new line of crypto business. “It's very much about JPMorgan, not about their customer. … We doubled down on the notion of, ‘If we're going to be doing this, let's do it for our customers. And let's build it for them.’ And that's the approach we took.”

Wollner said the bank is taking an educational approach with the space, inviting customers to visit, learn about Decentraland, crypto wallets and how tradeable digital assets work.

“With the click of a button on our metaverse landing page. You can jump in, and voila, you’re experiencing the Quontic metaverse,” Wollner said.

But when it comes to operating the space as a full-service branch, that’s where Quontic is taking a “wait and see” approach, Wollner said.

The notion of using the metaverse as an extension of a financial institution's banking presence raises several regulatory and security questions that have yet to be addressed, Wollner said.

“We're a heavily regulated financial institution and we take compliance and risk very seriously,” Wollner said. “Before we conduct any banking business in our outpost Decentraland, we're going to make sure that security and compliance regulation and rest are all tended to, and that is very much to be determined.”

It’s just a matter of time before regulators turn their focus to the metaverse, Vishnu said, with regulators likely to focus on the building blocks of financial regulation, such as identity management, know-your-customer transactions, and anti-money laundering in the virtual world. 

“Regulations are going to be a concern for banks, but in my personal opinion, probably not just yet,” Vishnu said.

The use of avatars to navigate the metaverse also comes with its own set of security and identity challenges, Vishnu said.

“One of the biggest considerations that would happen in the metaverse is the whole identity management part of security,” Vishnu said. “Do you know who you're actually dealing with? That linkage back to actual people, to actual identity is going to be important.”

While a virtual world presents a new form of customer interaction that banks need to consider, banks should approach identity verification in the metaverse in the same way they do on their digital and mobile channels, Vishnu said.

“It might be a new form of interaction, but the considerations are going to be similar,” Vishnu said.

Does it make sense for banks?

Along with JPMorgan Chase and Quontic, other financial institutions are planting their own flags on virtual metaverse land. 

In March, HSBC bought a plot of land in The Sandbox, a virtual world used primarily for gaming. 

HSBC said the space will be used to engage and connect with sports, esports and gaming enthusiasts. 

“The metaverse is how people will experience Web3, the next generation of the Internet,” Suresh Balaji, chief marketing officer for Asia-Pacific at the bank, said in a statement. 

But investing in the metaverse may not be the right move for every financial institution. Banks need to consider their target demographic when considering how involved they want to be in the space, Vishnu said.

For a bank with an older and less tech-savvy customer base, the metaverse may not have much to offer its customers, Vishnu said. 

“If you don't have the customer base to serve in this interaction model, are you going to now pivot and try to draw in a new set of customers? I think this has to be tied very much to the bank's overall strategy and not be a one-off,” Vishnu said.

In addition to the public metaverse, banks should be aware of the internal use cases for a virtual world, said Michael Moerman, a partner at Capco.

“There are public-facing metaverses where everyone can participate. But banks will have the potential to own their internal metaverses, which could be corporate, private-facing, just for their employees.” 

For example, Bank of America launched a virtual reality training program for its employees in 2021. The training, which is offered at nearly 4,300 of the bank’s financial centers nationwide, creates an environment in which employees can work on their client-facing interactions. 

A private metaverse could also potentially be used by banks for customer interactions, such as offering wealth advice in a virtual private space, Moerman said.

French lender BNP Paribas launched its own virtual reality app in 2017 that allows its retail customers to access their account activity and transaction records in a virtual reality environment. 

Aside from building out a virtual space, banks should see the metaverse as an opportunity to extend their existing services, such as enabling transactions and providing advisory services to clients interested in investing in the metaverse, in the new world, Vishnu said.

PNC and Morgan Stanley are already providing advisory services for clients interested in investing in the metaverse in the form of buying virtual land, Vishnu said.

‘Whether it's the selling of NFTs, or smart contracts, there are many different things that are going to start to happen here,” Vishnu said. “We're just in the very beginning of a new world.”

U.S. Bank launched a Spanish-language version of their mobile app voice assistant, the company said in an April press release. 

The Minneapolis-based lender said it is the first bank in the country to offer a Spanish-language voice assistant.

U.S. Bank app users who set their language preference to Spanish are now able to check their balance, transfer money, track their credit score, make payments and quickly search for other functions by speaking into their smartphone (or typing) in Spanish. 

Mobile banking has surged in popularity over the course of the COVID-19 pandemic. About 44% of American bank customers said mobile apps were their preferred banking channel, the American Bankers Association found in a survey conducted in October 2021 by Morning Consult. That's an 11 percentage-point boost from pre-COVID times. 

U.S. Bank aims to capitalize on user trends, citing a Pew Research Center survey that found 25% of Hispanic Americans are “smartphone-only” internet users, compared with 12% of White adults and 17% of Black adults. 

The lender’s Spanish-language voice assistant is intended to make mobile banking more accessible to and more convenient for underserved communities, the bank said. 

“Asistente Inteligente is the first Spanish language virtual assistant of its kind in the United States, offering Spanish-speaking customers the very best digital banking tools from U.S. Bank,” Dominic Venturo, chief digital officer at U.S. Bank, said in a press release. “This not only builds on ... our long-term approach to help diverse customers build wealth, but also demonstrates our continued emphasis on putting customer experience first, by creating new digital tools that enable them to bank however, whenever and wherever is best for them.”

The voice assistant was tested by Hispanic employees in the U.S. Bank Nostros Latinos Business Resource Group to ensure proper language usage, the bank said.  

Spanish-language service is Hispanic customers’ second-highest priority when choosing a bank, after branch location, U.S. Bank said, citing MRI-Simmons’ National Consumer Study. 

“Asistente Inteligente is not only cutting-edge technology, but precisely the kind of technology Hispanic Americans find particularly valuable,” said Ramiro Padilla Klein, U.S. Bank's vice president for Hispanic segment strategy.

Common banking tasks like depositing a check and using an ATM to withdraw money have been made more accessible to folks with autism, thanks to a new partnership between Huntington Bank and app Magnusmode.

Huntington in December became the second U.S. bank after M&T to partner with Magnusmode, a free app offering step-by-step guides for everyday tasks for neurodiverse people and their families. Outside of banking, some of these tasks include ordering food at a local restaurant or checking out a book from the library. 

"Putting people first — our customers, colleagues, and communities — is at the very core of everything we do,” Huntington CEO Steve Steinour said in a prepared statement.

The relationship with Magnusmode helps Huntington “achieve our vision to be the leading 'people-first, digitally powered' bank for all customers,” Steinour added.

Magnusmode was founded by Nadia Hamilton, who was driven to make everyday tasks easier for her autistic brother, Troy.

Steinour learned about Magnusmode from M&T CEO René Jones and was intrigued by the concept. He signed on as a partner after a series of conversations with Hamilton.

Donald Dennis, Huntington’s chief diversity officer, told Banking Dive the bank is working with Magnusmode “because we believe that everyone deserves a shot at financial success.”

Huntington’s deck of cards includes guides on how to buy things with a debit card, use a phone to deposit a check, create an emergency fund, create and track a budget, dispute a transaction at a bank, open a checking account online and set up bill pay.

The guides feature two Huntington employees who joined the bank through its Autism2Work program, which has provided workforce training and employment opportunities for neurodivergent adults, including those with an autism spectrum disorder.

Autism2Work has onboarded 13 people across nine IT disciplines into the program since 2020. 

The world, as it is, can be challenging to navigate for neurodiverse folks, Hamilton said.

“Community spaces, including banks, can be confusing, overwhelming and difficult for these individuals to navigate without assistance," she said. "As a society, we have the wonderful opportunity to welcome, engage and support people who are different and move through the world differently."

Inclusion “allows our business partners to grow in the marketplace,” Dennis told Banking Dive.

“It also creates and strengthens our communities,” he said. “Huntington is committed to looking out for people and helping ensure that everyone has the opportunity to succeed financially.”

Business banking startup Rho in August launched a corporate expense-management tool aimed at larger clients with complex financial needs. 

The move is part of a broader effort to reach organizations with dedicated finance teams, said Everett Cook, the New York City-based company’s co-founder and chief executive.

“[These companies] want to be as efficient as possible, and they're not Fortune 500 companies … but they're operating at the same level, they're competing at the same level,” Cook said.

Rho’s new capability lets clients set custom spending rules and auto-approves employee expenses based on pre-set rules. It prompts users to provide receipts and other documentation and escalates out-of-policy expenses to managers for approval, the company said. 

The product upgrade comes as competition for business-banking tools — particularly for middle-market business customers — heats up. 

Fintech Brex announced in June it would shift away from small-business clients in favor of venture-backed startups. The move paved the way for competitors like corporate expense-management startup Ramp to pursue those clients. Ramp, for example, doubled its revenue run rate since the start of the year while going after businesses at all stages of maturity, TechCrunch reported.

Rho, meanwhile, said recent developments haven’t changed its core strategy.

“We’ve had the same laser focus on the mid-market,” or companies with revenues between $10 million to $1 billion, Cook said. Rho differentiates itself through an integrated cash and spend-management platform, he added.

The company sees old-guard incumbents, such as American Express and SAP Concur, as its competitors. But it won’t be easy to loosen those companies’ hold on much of the market, analysts said. 

“I’m a bit skeptical that Brex, Rho and Ramp pose a serious threat to traditional expense-management platforms any time in the near future,” said Jason Mikula, a fintech consultant at 312 Global Strategies BV. “Displacing Concur is far more difficult than convincing an early-stage startup to use your product and then growing with it over time.”

One advantage for Rho is its ability to operate alongside clients’ primary bank relationships, said Gilles Ubaghs, a strategic adviser for commercial banking and payments at Aite-Novarica Group.

“If it can sit alongside primary bank relationships and scrape away business,” it should be able to grow, given that many businesses are slow to shed those primary ties, Ubaghs said.

Rho, which was founded in 2018, has raised a total of $205 million in equity and debt financing. It partners with Evolve Bank & Trust and Webster Bank to deliver its products. It launched with a business checking account, and has since expanded to treasury management, credit cards and an accounts-payable offering. The platform also has integrations with NetSuite and Intuit QuickBooks. 

Rho generates a significant proportion of its revenue from interchange fees, which Cook said is a good model if it scales properly. The company doesn’t charge subscription fees.

“If you're going after a consumer that is going to spend $1,000 a month on your piece of plastic, that’s fine, but you have to make sure that the rest of your cost structure is aligned with that,” he said. “Our customers are of a scale where we can afford to build the best products … and cover our expenses.” 

Room to deepen relationships

Through a business-to-business model, Rho has more room to deepen relationships with clients, compared to consumer-focused neobanks that have come under pressure, Cook said.

“There's only so much innovation that you can actually do for a consumer checking account,” he said. “Our customers are much bigger. We’re solving much more complicated problems for them than just giving them a checking account and a piece of plastic.”

Rho declined to comment on customer or revenue numbers, but Cook said the company has onboarded “more complex organizations” and that clients run the gamut of tech, private equity, construction, manufacturing and health care sectors.

At the time of its Series B fund raise in December 2021, the company said its annualized transaction volume grew from a little less than $2 billion in December 2020 to a cumulative volume of $3 billion between January and November 2021. The company has 200 employees globally, Cook said.

Cash and expense-management startups may serve companies of all sizes, but venture-backed startups may continue to be a focus for many, Mikula said.

“The players that deploy a wider array of capabilities aimed at venture capital-backed startups are the most likely to come out on top — think offerings like ‘revenue-based financing’ or venture debt, or software-as-a-service-like software capabilities,” he said. “I think the dream of companies in this space is to become a tech-led version of Silicon Valley Bank — not American Express.”

Two Nashville, Tennessee-based banking veterans are teaming up on their third bank venture — this time with an eye on the national market.

With the launch of Sonata Bank, banking executive Dan Dellinger and Taco Bell franchise owner Farzin Ferdowsi have plans to grow the financial institution into a national digital platform serving employees of the quick-service restaurant (QSR) industry.

Dellinger, Sonata’s president and CEO, was instrumental in the launch of two previous banks. He teamed up with Ferdowsi, the CEO of Brentwood, Tennessee-based Management Resources Company, for both of those ventures. 

Dellinger and Ferdowsi launched Brentwood-based Premier Bank, now BancorpSouth, in 1997. The two teamed up again in 2005 to form Reliant Bank, now United Community Bank, where Dellinger served on the board and as CFO. 

The idea for Sonata Bank spawned in 2019, when Ferdowsi approached Dellinger about launching a tech-forward bank offering products and services digitally.

“I felt like it was a pretty good idea at the time, but the timing wasn't quite right,” Dellinger said. 

Then the COVID-19 pandemic hit, showcasing how various sectors, including the banking industry, could successfully operate in a remote environment, Dellinger said.

“It became very apparent that we could create another bank in this Middle Tennessee area that could be tech forward, have a single branch that delivers products and services, and have a remote workforce,” he said. 

The banking entrepreneurs’ plans for Sonata go beyond offering digital commercial banking services. They hope to eventually launch a national banking platform that serves employees of fast-food franchisees, a market segment that has a particular set of banking needs, Dellinger said.

Ferdowsi, who owns 90 Taco Bell restaurants in Middle Tennessee, southern Kentucky and Atlanta, saw the issues franchise owners and their employees face regarding turnover and access to banking services, Dellinger said.

Through offering banking services, rewards and benefits, Dellinger said Sonata can meet the needs of employees in the fast-food industry — and help employers attract and retain talent. Dellinger said he plans to add nonbank products such as telehealth and financial literacy to the platform. The goal is to help franchise owners offer a competitive employee package to their workers to help reduce turnover.

“We're creating the products and services,” he said, adding the franchisee would pay a subscription fee to Sonata to offer the services to their employees. New hires would be instructed to download the Sonata app as part of the onboarding process, Dellinger said.

Sonata selected Jack Henry for its core banking system, Dellinger said, adding the firm’s open application programming interface allows the bank to easily “bolt” additional products onto its app.

“It will all be branded under Sonata, and that's extremely important. With these employees, you want a single point of access for these different products and services,” he said.

Dellinger said he expects the business model will also give Sonata access to a young customer base. 

“A lot of these employees are young — 18 to 20 years of age,” he said. “What we’re looking at is not only gaining that relationship early, but retaining that relationship through their various life stages, whether that's professional career, college, home, whatever it might be. … The average life of a bank customer is roughly 14 years. So if you can get them early enough and retain that relationship and provide a good customer experience, then the chances of them staying with you are very good.”

Not a de novo

Rather than file for a de novo bank application, Dellinger said he and Ferdowsi struck a deal to recapitalize a small family-owned bank in Sebree, Kentucky. 

“The family didn’t want to sell” 132-year-old Sebree Deposit Bank, which has rebranded to Sonata Bank, Dellinger said. “They wanted to find somebody that they could work with and move them into that next phase of their life. They loved what we were doing, they loved the Nashville market, and they loved the quick-service segment. So that's how the relationship developed.” 

Sonata Bank has raised more than $20 million in capital, half of which has come from 15 investors who are owners of fast-food franchises, Dellinger said. Those franchise owners represent more than 100,000 employees. 

Sonata plans to launch its app targeting the QSR market in the second quarter of 2023. The bank will first roll out the product to Ferdowsi’s Management Resources Company before branching out to other regions, Dellinger said.

Dellinger said he thinks there are additional opportunities to eventually bank the QSR industry — owners of franchises that may be too small to bank at some of the larger institutions. 

“Newer franchisees don't go to Bank of America or Chase to get their credit because they’re going to say, ‘You’re way too small for us.’ So our opportunity or point of entry is with those franchisees that don’t have a level of sophistication yet, or may not have established any credit facilities yet,” Dellinger said.

Geography will no longer be a limiting factor in Hawaii-based Central Pacific Bank’s ability to gather deposits beyond the state, the Honolulu lender’s executives are saying. 

The bank made its first foray into banking-as-a-service in 2022 with the spinout of Swell Financial, the digital bank it incubated during the COVID-19 pandemic.

Central Pacific wants the partnership to be the first of several such tie-ups, said David Morimoto, the bank’s senior executive vice president and CFO, who added the ability to provide banking services to fintechs is an efficient way for the bank to access the broader U.S. market.

“Hawaii banks have explored ways to access more of the U.S. banking market rather than limit themselves geographically,” he said. “In the past, it required a physical presence on the mainland. In today's environment, that physical presence is no longer as important.”

The Hawaii banking market is a unique one. The nation’s major firms, such as JPMorgan Chase, Bank of America and Wells Fargo, don’t have a physical presence in the state, and the market is dominated by four Hawaii-based institutions.

Bank of Hawaii, First Hawaiian Bank, American Savings Bank and Central Pacific, collectively, hold 93% of the market’s share of deposits, according to data from the Federal Deposit Insurance Corp.

While local lenders have a strong hold on the state’s banking market, mainland-based neobanks like Chime and MoneyLion have managed to attract Hawaii consumers amid the pandemic, Morimoto said. 

“During the pandemic, they were attracting hundreds of thousands of consumer customers across the nation, including Hawaii,” Morimoto said. “As we were brainstorming and going through a strategic planning process at Central Pacific, the discussion was, ‘How do we respond?’ 

“We could be business as usual, and continue focusing on traditional community banking in Hawaii, or we could take a different tack,” Morimoto added. “We chose to participate in the disruption rather than just allow that disruption to occur and impact our business.”

In 2020, the bank tapped fintech veteran Kevin Dahlstrom as its chief marketing officer. Dahlstrom helped launch Swell and formulate the institution’s broader BaaS strategy.

Swell, which helps customers automatically control their spending and invest in private market opportunities, plans to remain in invite-only mode for a year before officially opening to a wider audience, Dahlstrom said.

A month after its January 2022 spinout, the startup raised $10 million in a Series A funding round, attracting investment from Elevate Credit, a lending technology company, which is also partnering with Swell to offer personal lines of credit through the platform.

Central Pacific maintains about a 20% ownership interest in the fintech, Morimoto said. Paul Yonamine, Central Pacific Financial Corp.’s CEO, is also a member of the startup’s board of directors.

"Swell is much more than a bank sponsorship to CPB," Yonamine said in February 2022. "It's a deep strategic relationship that has already resulted in significant innovation."

CPB’s BaaS initiative could evolve into a lucrative business, Dahlstrom said.

“CPB has a great banking business in Hawaii,” said Dahlstrom, who previously held chief marketing positions at home loan servicer Mr. Cooper and Elevate Credit. “And this can slowly become a new line of business for the bank, but it doesn't have to happen overnight. I think both Swell and the bank are thinking about this as a long-term, multiyear play.”

Central Pacific is in the initial stages of due diligence with several other fintech firms to which it could potentially provide banking services, said Laurie Okinaga, the bank’s senior vice president and director of operational excellence.

“We're not just going out and partnering with any fintech,” she said. “We're really trying to make sure that the fintechs that we do partner with fulfill what the bank was founded on, which is to provide financial services and financial service access to communities that don't have great access.”

Modeled similarly to other tech-savvy community banks like Fort Lee, New Jersey’s Cross River Bank and Everett, Washington-based Coastal Community Bank, which have successfully scaled their BaaS operations, Central Pacific Bank’s integration technology platform can be repurposed to serve other fintechs, Morimoto said.

“It really makes sense if we can leverage what we've built to partner and help other fintech companies,” Morimoto said. “Traditional banking is evolving. And all we're trying to do is participate in that evolution.”