Why Do You Need to Know About Griffin Bank and Follow It

Today, several BaaS-oriented banks such as Column, Lead Bank, and potentially B2 Bank are notable players in the US market. Major fintech companies like Brex, Affirm, and Ramp have partnered with these banks. Why should you keep an eye on Griffin bank in the UK? Here’s the scoop:?

• The license they've been granted shows that it is indeed possible to obtain such licenses in the UK.?
• They received a license for a unique business model—not like other banks that serve private or business clients directly, but to serve other financial and non-financial institutions (BaaS, embedded, correspondent banking). For those in the know, this is very new, challenging, and truly innovative for the infrastructure.?
• Regulators worldwide are used to a bank's business model and balance sheet structure (and therefore the reserves required for them) based on lending, whereas the rise of fintech brings more and more questions back to basics: can a bank be pure transactional (and profitable at that)? This might sound boring—but it's very important and really cool!?
• btw, I congratulate the UK regulators for granting a license to such a project, given what's happening with the BaaS market in the USA. It shows that regulators in London are not inclined to indiscriminately ban all that is new and unclear, but rather, they aim to assist players who will help "clean up the mess and implement new standards to make the market more transparent."?
• I wish US regulators would grant a license to this project (both co-founders, David Jarvis and Allen Rohner , by the way, are Americans and tech-guys), or sell them one of the distressed US BaaS-banks currently under scrutiny (due to insufficient attention to compliance, or in other words, inability to deliver banking along with compliance, and to perform KYCC and pKYC).?
• To BaaS projects and banks from other countries, I wish you to join the "coalition" with Griffin quickly: standardization of a single connection to multiple countries is convenient for clients and will help you quickly conquer the market together (and fend off attacks and claims: size matters!)?

I might be wrong, but Revolut and Nik Storonsky should consider the option to buy Griffin as a possible 'shortcut' - hm?) They realized and implemented that BaaS (and correspondent business) is more about compliance than the transactions themselves: thus, they deliver both payment rails and compliance in one package. There are three-four BaaS banks in the United States today that meet this description – like Column Bank,? Lead Bank, Increase (not-finally-a-bank) and (maybe? not yet) B2 Bank (spearheaded by Brian Barnes of M1 Finance).

Sound Credit Union in Tacoma, Washington, with a hefty $2.9 billion in assets, has finalized a deal to acquire the $104 million acquired First National Bank of Buhl, in Olympia for $26 million in cash (the bank remains solidly capitalized, holding a Tier 1 Capital Ratio of 19.19% as of March 31, 2024). In this transaction, shareholders of Washington Business Bank will see a return of approximately $34.00 – $36.00 per share in cash. Previously, Darragh Buckley , the trailblazing first employee at Stripe who later founded Increase in 2020 (onboarded a number of brand-name fintech clients, including Pipe, Gusto, and Ramp), had made an earlier offer of $30.00 per share, aiming to transform Increase into a critical BaaS hub. However, the sale faced multiple delays due to FDIC reservations and was ultimately abandoned when it became clear that it wouldn't secure regulatory approval. Buckley then opted for a smaller role, settling for a minor ownership share and a seat on the board. (For the quarter ending March 31, 2024, the bank recorded a net income of $312,191, slightly down from $388,182 in the first quarter of 2023.)?

Column Bank, founded by William Hockey and Annie Robertson Hockey in 2022, marked a new venture for William after he departed from his role as co-founder and CTO of Plaid in 2019. In 2021, the Hockeys acquired Northern California National Bank, a small community bank in Chico, California, for $50 million. They dedicated the following year to developing a cutting-edge technology platform. Despite a high-profile launch, Column encountered regulatory challenges that led them to reduce the pace of new client acquisitions, focusing instead on servicing a select group of major B2B banking and payment clients, notably Brex.

Lead Bank shares a similar trajectory. Acquired in August 2022 for $52 million by Jacqueline Reses , backed by a consortium of investors, this Kansas City, Missouri-based community bank has pioneered a compliance-first approach in the BaaS sector. Jackie Reses, previously a leader at Block's Square Capital, has steered Lead Bank into partnerships with sectors that typically draw regulatory scrutiny, such as cryptocurrencies. Forbes highlighted this in early 2023 when Lead Bank decided to collaborate with the bitcoin storage company Unchained, a move that challenged the prevailing regulatory attitudes towards cryptocurrency-related activities. Despite potential regulatory pushback, Reses has been clear about the bank's focus.

Another notable figure in the BaaS landscape is Brian Barnes , the founder of M1 Finance, and his B2.bank. In 2021, Barnes acquired the modest-sized First National Bank of Buhl, rebranding it as B2 Bank. The transition wasn’t smooth; in December 2023, the bank faced regulatory actions from the OCC, suggesting challenges ahead. Despite any hurdles on fintech market, the California-based M1 has raised $315 million and achieved a valuation of roughly $1.5 billion by March 2024. Previously valued at $1.45 billion in October 2021, M1 is now managing $8 billion in assets for over half a million customers. By being an early adopter of fractional shares and achieving such increase in customer assets since early 2020, with significant funding rounds from prominent investors such as Left Lane Capital , ソフトバンク ’s Vision Fund 2, and Coatue . Notably, Barnes’s acquisition of the bank was a personal investment, separate from M1 Finance’s future ambitions to potentially become a bank.

The dynamic BaaS landscape continues to evolve under the influence of regulatory pressures, which are shaping the possibilities and constraints of what these innovative platforms can achieve. I strongly recommend reading 'CAN ANYONE WIN BAAS?' by Alex Johnson . It's an insightful and straightforward piece that avoids sensationalism and adds depth to the conversation by presenting a range of viewpoints. If prudential bank regulators continue to push as aggressively as they have been, we might see this market disappear in the near future. To stay relevant, you'll need to cultivate a high level of expertise and risk tolerance for a niche within the BaaS sector that's currently underserved—such as cannabis, cross-border payments, or adult entertainment. These areas can offer significant advantages when partnering with fintech companies and BaaS platforms.

Are we witnessing the twilight of BaaS, or is this just the beginning? Don't you find the regulators' responses and requirements somewhat nebulous, as if they're aiming for utopian goals without a clear strategy? It often appears that they're more interested in appearing busy, ostensibly safeguarding the public (though where's the proof?), while championing all that's good and opposing everything they deem bad. If we strip away the lofty rhetoric and supposedly beneficial new rules and processes, doesn't it boil down to a fundamental shift where banks must integrate their compliance frameworks directly into each fintech client, ensuring real-time Know Your Customer's Customer (KYCC) checks, rather than relying solely on periodic audits? Isn't it true that American regulators are so caught up in their own battles and in lobbying on behalf of traditional regional banks that they miss the bigger picture? Unlike these American regulatory challenges, the Chinese with their CBDC initiative and the UK's regulatory body are adapting to contemporary market demands, focusing on real customer needs, and supporting entrepreneurs who contribute to job creation and tax revenues.

At ArivalBank.com, our revenue finally primarily comes from treasury operations rather than other sources (treasury unexpectedly generated much more revenue, that we haven't predicted). Essentially, we're able to offer (in theory) completely free transactions and account opening services while remaining profitable. So, if it will be possible to realize second time for Griffin - basically it could make BaaS and all cross-border transactions their clients completely free (and you could earn more money from treasury), which could revolutionize and change the BaaS&payment landscape dramatically.

What if BaaS banking isn't Griffin's final destination, but just an efficient user acquisition channel for something bigger - like digital identity for example?:

• their clients store tons of data about their end-users (senders and recipients), including images of IDs, real-time photos and videos, social and business connections, presentations and docs, reasons for transactions, etc.
• you generate thousands of new government-accepted KYC-ed profiles for end-users,
• which could be an amazing basis for services like online-voting and elections, automation of visa-application processes, check-ins in airports, and more.

From BaaS to correspondent banking: US regulators have equated and combined them in terms of compliance risk?

• Starting from January 1st, FinCEN introduced a new regulation, AMLA, which requires banks to conduct KYCC, which affects correspondent and BaaS banks the most
• A new paradigm — using automation and integrations for continuous or perpetual KYC (pKYC)

I launched my previous startup, ArivalBank.com, five years ago. From the outset, the main challenge was compliance, followed by establishing better BaaS (and correspondent) banking relationships. This was a common issue faced by many in the fintech industry, including various BaaS platforms, digital banks, European EMIs, Asian e-wallet giants, IFEs, MTs/MSBs, and brokers. We secured our banking license in the US for Arival Bank in May 2021. Then began the second phase: BaaS and correspondent banking are not solely about payment rails; it also requires orchestrating compliance systems.

The main bottleneck in (correspondent banking and) BaaS is compliance - there's a lack of trust and understanding between parties, causing inquiries or concerns to halt the flow. In the worst-case scenario, when additional information is needed for a transaction or client, there's no seamless process for correspondent or BaaS banks, bank clients, and end-users to communicate and share information.

The cross-border economy is growing each year, and the demand for cross-border payments is rapidly increasing as well. Compliance requirements from regulators have become more stringent, making it impossible to address this as an ad hoc business. Fintech has disrupted many banking verticals, but correspondent banking remains an untapped niche.

There is a huge demand, lack of supply chain, significant problems from customers, a crazy payment volume, a high-margin business, and zero acquisition cost if you have anything to suggest. It is a real cash cow and can quickly become operationally profitable, which is critical in the current economic situation.

Tech (core-banking) and compliance are two main puzzles of correspondent banking too. The problems after SVB , Silvergate Bank , and Signature Bank have made demand even higher, and we know this not just from the media but also from the requests we receive each week from potential customers. These are not problems—these are opportunities for better (more focused) players! BaaS-adhoc is dead—long live BaaS-first!

From BaaS to ATMaaS?

Imagine a world where Revolut, AliPay, Binance, and Worldcoin spearhead an ATM-as-a-Service (ATMaaS) possible revolutionary product from Griffin, combining traditional ATM functions with the ability to vote in elections and (instant!) print bank and ID cards on demand. This biometric-first concept isn’t just about withdrawing cash; it’s a futuristic take on empowering users with on-the-spot financial services, identity verification, and democratic participation.

Compliance Everywhere: Mercury, TikTok, and Deel Navigate the Tightrope of Regulation

In the high-stakes world of fintech and global tech platforms, compliance isn't just a checkbox—it's a critical business imperative that can dramatically sway fortunes overnight. Let's delve into how companies like Mercury , Evolve Bank & Trust , TikTok (owned by 字节跳动 ), and Deel are navigating the increasingly scrutinized landscape of financial regulations.

• Mercury’s Compliance Conundrum. Mercury, initially celebrated as a fintech savior post-Silicon Valley Bank's collapse, has hit regulatory snags. A detailed examination by the FDIC revealed significant lapses involving its partner bank, Choice, particularly concerning anti-money laundering (AML) practices and questionable account openings in geopolitically sensitive regions. The regulator’s ire was particularly drawn to Mercury’s low flagging of suspicious transactions and its high-risk customer onboarding practices in countries like Russia, Pakistan, and Myanmar. As a result, regulatory measures have tightened, signaling a shift from fintech exuberance to a sobering crackdown on compliance failures.
• TikTok’s Regulatory Dance. ByteDance, the behemoth behind TikTok, faced its own compliance challenges. The company misled Irish regulators during an inquiry into significant money movements intended for "liquidity management purposes," which were actually responses to HSBC closing ByteDance’s accounts due to poor AML controls. This incident has stalled ByteDance's payment division’s licensing process in Ireland, crucial for its EU operations, underscoring the delicate balance tech giants must maintain in global financial compliance.
• Deel’s Compliance Review. Deel, a $12 billion HR startup known for facilitating global contractor payments, recently halted services to several prop trading firms amid a sweeping compliance review prompted by the Commodity Futures Trading Commission. This move came as regulators increasingly scrutinize online trading platforms for adherence to financial regulations, pushing companies like Deel to rigorously vet their clients to prevent misuse such as Ponzi schemes or unauthorized trading practices.

The narratives of Mercury, Evolve, TikTok, and Deel exemplify a larger trend: compliance is no longer just a regulatory requirement but a cornerstone of sustainable business practice in the digital age. Regarding Evolve and other BaaS-banks in the US - as I previously said: BaaS-adhoc is dead—long live BaaS-first! These are not problems—these are opportunities for better (more focused) players.

As regulatory landscapes evolve and the stakes of non-compliance soar, tech companies and fintechs must navigate these waters with prudence and proactive engagement. Whether it's through enhancing KYC processes or aligning with stringent banking partners, the path forward is clear—rigorous compliance is indispensable. This shift might slow down some ambitious growth plans, but it ultimately steers the industry towards a more stable and trustworthy future.