“Banking as a Service” startup Griffin obtains full banking license and raises US$24 million

UK-based Griffin Bank, an API-driven banking-as-a-service platform founded by former Silicon Valley engineers, just received its banking license about a year after beginning the application process. This means it has received approval from the UK’s financial services regulators, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), to exit “mobilization” and become a fully operational bank.

The move contrasts with Revolut, the UK’s most valuable fintech company, which has yet to secure a banking license despite repeatedly stating its intentions in three years. (Revolut can no doubt take solace in the fact that from 2013 to 2019, only 28% of firms progressed to the submission stage, according to PRA and FCA data.)

Griffin said it now provides fintech companies with an end-to-end platform that delivers banking, payments and wealth solutions through automated compliance and integrated ledgers. In fact, Griffin is unlikely to offer bank accounts directly to consumers, but rather to other businesses that need to provide embedded financial solutions, such as savings accounts, protection accounts and accounts that hold customer funds.

Founders David Jarvis and Allen Rohner have extensive experience. Jarvis was an early engineer at Standard Treasury (acquired by Silicon Valley Bank in 2015), and then joined Airbnb to work on infrastructure. Rohner founded software startup CircleCI.He co-authored with Jarvis study Clojure scriptan introductory book to the ClojureScript language, which Griffin uses to build IT systems.

They believe it is important that Griffin offers a deeply technology-driven product. UK banking has not historically been a particularly tech-friendly sector, but that all changed a few years ago when open banking standards were imposed on the ultra-traditional sector, leading to the launch of a slew of new banks such as Starling, Monzo, Tidal wait.

But now that fintech companies have gained a foothold, these and other types of companies are leaning into what’s known as “embedded finance.” The advantages of embedding financial products into existing services are becoming increasingly clear. They increase customer lifetime value by centralizing functionality in one place. For the same reason, they will reduce customer churn. They also create new revenue streams for companies that previously did not offer financial products.

Last year, U.S. banking as a service was expected to grow 15% annually and be worth nearly $66 billion by 2030. Among other companies in the space, Treasury Prime raised $40 million in Series C funding in North America last year, Synctera raised $15 million and Omnio raised $9.8 million. Others joining the banking-as-a-service bandwagon include M2P (India), Pomelo (Argentina), Cross River (US) and Solaris (Germany). They are raising funds.

Commenting on Griffin’s next phase of development, co-founder David Jarvis told TechCrunch that Griffin customers will be able to deposit funds into their “own bank” rather than large banks, many of which have stopped offering such services. He said the advantage of embedded finance and BaaS is not that consumers “end up with 50 bank cards.”

“We emphasize the part where embedded finance is synergistic with our paper. We’ll work with payroll finance companies that already have relationships with their employees because they’re getting their paychecks. Let’s say they want to do embedded savings accounts. So they leverage Existing financial relationships are bundled with additional financial services in an embedded way. That makes sense. Do we want to help people issue cards for their brand? No.”

He said there’s “a lot of historical confusion between core banking systems vendors and banking-as-a-service providers,” meaning BaaS is lumped in with other companies.

“When people talk about banking services, they tend to conflate actual banking services with a lot of non-banking services that still tick the boxes and ‘look like banks and smell like banks.’ But that’s not the case. In this space, The relationship between us suddenly having a banking license and new banks that are not real banks becomes very important. Because we can allow nested customers to actually earn interest on their money.”

He also said that in addition to companies regulated by the FCA, there are a large number of companies that are not regulated by the FCA, but have some form of regulator or regulatory body that requires them to hold funds in a purported fund account: a large number of companies in the real estate industry Part… Anyone who does anything in managing the tenancy, anyone who does anything with the tenancy deposit. All require deposit into a specially marked bank account. “

Griffin said his goal is to take over the business if possible.

Investors are betting it will achieve its goals. After raising $28.1 million, Griffin has raised a further $24 million (£19 million) in an extended Series A round led by MassMutual Ventures, NordicNinja and Breega, with participation from existing investors Notion Capital and EQT Ventures. Last June, Griffin raised $13.5 million in Series A funding led by MassMutual Ventures. The company has now raised approximately $52 million since its founding in 2017.