Analysis Featured

Online Business Banking Grows From the Ground Up

online business bank Seed

Traditional banking is broken, and that is especially true for the small business segment. With 28 million small and medium businesses in the US and a trillion dollar market opportunity, it is surprising that they are still not being served properly. The issue is they fall between consumer accounts that do not require servicing and the $10 million-plus business accounts that are profitable for brick-and-mortar banks. Banks either saddle these SMBs with ridiculous fees meant for large businesses or they are serviced like consumer accounts. San Francisco-based Seed, a new online SME banking platform, has reimagined the space by providing a platform focused exclusively on the small business sector.

Planting Seed

CEO Brian Merritt and co-founder Ryan Hildebrand started Seed In July 2014. They had met at the consumer banking startup Simple where Merritt was vice president of engineering and Hildebrand was vice president of finance. They understood the pain points of small businesses and had deep insight into the SMB customer developed at Simple where they saw businesses using the service for their business needs. Their research estimated that over 90 percent of the small businesses are served on retail banking platforms made for consumers, and they realized that these small business require better tools for financial management.

Keeping this market in mind, they went to Silicon Valley and incubated Seed at Y Combinator. They raised $120k from the incubator in an angel round and raised another $5 million in a recent venture round from a group of investors led by General Catalyst. They have cumulatively raised a total of $6.5 million.

The Seed Business Model

The company describes itself as “a banking service for small businesses, designed for the way modern businesses work.” It has partnered with Bancorp to offer deposit account services and a business debit card through Visa. This assures a small business that its account is with a FDIC-insured financial service provider.

The company does not charge monthly fees. It charges a flat $25 for each outgoing domestic transfer and does not charge anything for incoming domestic transfers. It also generates revenue from the interchange fees on its debit card offering.

Seed targets all categories of small businesses, from freelancers to startups, and even microbusinesses. It seems to have reached a product-market fit as it has a net promoter score of 85, virtually unheard of in the banking industry.

Seed ended up being among the very few business banking platforms in the U.S. that were successful in creating a framework for opening business accounts online. Though there were many naysayers, it was able to reach its goal of helping businesses open an account in five minutes. Seed also hired a CCO (chief compliance officer) with eight years experience in FDIC to ensure regulatory compliance at all levels.

The Phases of Seed

Seed has started receiving offers from banks to help the company improve its digital bank offerings. This has led the company to explore licensing partnerships with other banks. There is a massive market for white label technology as the regional community banking ecosystem cannot afford to spend billions like the big banks. Moreover, in a digital era, they will cease to be relevant if they don’t have the tech offerings required by today’s customer.

By 2025, almost 75 percent of business owners will be millennials. The Facebook and Twitter generation will demand that banking systems keep up with the latest technology. Company founders believe that banks that fail to invest in technology will exit the space in the medium to long term. Bank consolidation will increase each year as it becomes unviable for the smaller players to compete in this new tech race. Seed, with its white label offering, helps small banks co-exist with larger banks while offering its customers the benefit of the latest financial technology.

According to a 2017 Javelin Strategy & Research report, only six of the top 30 banks serving business customers offer some form of digital checking account application, and only Capital One Financial and SunTrust Banks offer mobile-optimized capabilities.

Customer loyalty in the financial services sector used to be taken for granted, but, according to Hildebrand, with the cost of switching at an all-time low, there is no reason why a business person would be comfortable spending hours in a branch with dozens of stacks of paper when he can get the process done online in five minutes.

Seed’s Long-Term Goals

The company’s long-term goal is to build out the Seed brand and connect directly with its end customers. It will also keep on adding the right banking partners for licensing partnerships and revenue augmentation. It will look to branch into credit offerings and allied services in the near term. Opening an account is the customer’s first touch point with its bank. Its focus is on making sure the platform is able to delight every single customer.

Hildebrand says, “We are dedicated to building a banking service with modern technology, extraordinary service, and fair pricing. We’re motivated by our passion for supporting business owners and innovators who deserve a better banking experience.”


Written by Heena Dhir.


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