I have the highest respect for detailing the real reason instead of generic "awesome journey".
Moreover, being acquired by SVB sounds way better than average acquihire. You actually can execute your idea, but as part of other company instead of separate entity.
Bummer. This was the one startup I've seen over the last few years on HN that I was actively rooting for.
Blame the Fed, I guess? De novo charters aren't being handed out anymore apparently, so you either have to acquire a charter, or be acquired. It's a pity VCs don't have the gumption to play the game, so Standard Treasury ended up going with the latter route.
De Novo charters are available, but in very limited supply. I think there have been maybe 5 new charters since the crash. Prior to 2008, 100's were issued annually.
The problem with acquiring an existing bank is that for any tech company, you are likely to be changing the business purpose of the acquired bank, so you'll need to basically go through the de novo process again.
Either way, you're looking at 5+ years to get a charter that you can use to run any new digital banking business.
And then there are the capital requirements. The capital required to launch a Bank is tremendous. You need to have sufficient capital against your projected future deposits. Way out of the range of VCs. And only a limited number of PE firms play in that space.
And even if VC's did have the financial resources, the returns are dismal. Chartered banks, particularly new charters (either de novo, or acquired for a new business purpose) are limited in their growth. A very fast growing bank might grow 50-100% yoy. The return on capital equation just doesn't work out for VC capital.
It doesn't make much sense either for PE firms, given the limitations imposed by the Bank Holding Company Act.
Not an issue of supply, just regulation. It's significantly more difficult to start a bank today than 5-10 years ago but not impossible. Provisions in Dodd-Frank actually insulate current banks while raising the standards to start a bank.
Also - charters are issued at the state level, but not without the blessing from the Fed/FDIC.
> De Novo charters are available, but in very limited supply.
Is it limited supply or limited demand? While I've seen some articles pointing to higher FDIC standards, I've seen others indicating that the market conditions that are historically linked to high levels of de novo applications simply haven't existed since the crash, though there are some signs conditions are edging toward them.
> Prior to 2008, 100's were issued annually.
Prior to 2008, those new banks were almost without exception chasing the then-booming real estate loan market, whose collapse was a central element of the crash. Those hundreds annually in the years just before the crash were a symptom of the bubble that was about to burst.
The standards are now much higher, which may be limiting demand. It is far less attractive to apply for a new charter when your growth is curtailed and examinations are more intense and frequent for your first _seven_ years of operation.
You're right on the prior to 2008 comment, but it was indicative that any bum and their mortgage broker could get a charter. But tech companies who are (hopefully?) less shady, can't.
> Blame the Fed, I guess? De novo charters aren't being handed out anymore apparently
They are, though not many (I think two in the last four years); a big part of that, AFAIK, is that applications (and, perhaps more fundamentally, investors willing to supply capital for de novo banks) have dried up since the 2009 financial crisis, though several sources this year have reported signs of a potential incipient rebound in the space.
As a techie in the banking industry, I have to say I am very disappointed. I wish they had persevered with their initial product and expanded on that instead of trying to become a bank. There is a huge market for banking software -- for skilled sales teams and they certainly proved their mettle judging by their sales success . There are several companies that have done very well by staying focused and selling solutions to the banking sector.
edit - typo
This shows the danger for any financial services business that relies on a third-party platform. Due to the steep costs of compliance, and of dealing with legacy tech of existing banks that are the platform's customers, there is always a good chance that any particular payments platform is going to be acquired by a bank, or by a larger payments company. When that happens, the goals of the new owner will not always be to continue supporting a platform that benefits their competitors.
Hopefully they can structure the deal in such a way that the team remains incentivized both financially and passionately. This actually seems like the right way to do it: find a progressive bank willing and able to let a team come in and modernize some functions. My recollection is that SVB online capabilities were pretty dismal so there's not a whole lot to lose. SVB would be a much more attractive player with better DDA functionality.
> SVB would be a much more attractive player with better DDA functionality
They would be an even more attractive partner if they didn't always throw a wrench in the works when you are trying to do an orderly liquidation of your company. It's pretty horrible when you realize that Chase had been a (much!) better banking partner. They talk a good game, though.
Sure. I was just making the point that as a business partner, they have a lot of things beyond a DDA offering that they need to fix.
When you are trying to get 100% of the investor's money back after a hard run that didn't make, it makes one feel a bit raw to have sand thrown in your gears in process. And the cool thing about getting investors whole is that they'll show up to your next party. If I had remained a fan of SVB, the investors would not have allowed them back at the table after some of the things that occured. If all that SVB is is money, I can that from GE Capital. I start to question what value they are bringing to the table.
I know-- anecdote is not data and all that.
None of this is meant as commentary against what's going on in the head-line story. I could see this being a solid win for both parties. Yay. I like happy middle-ings.
The name 'Standard Treasury' is a little bit on the grandiose side to be honest. 'Standard Markdown'? :-) In some culture, people deliberately give their little children rustic/ugly/low-key names in the hopes of being deemed worthless by the devils and thus left alone during the growing up. Not I am saying the name has something to do with the current affair.
Money transmission laws are irrelevant in this case. Standard Treasury was never keeping customer cash on their balance sheet, they were enabling APIs for banks.
If you're a payments business and cash passes through your balance sheet, then transmission regs apply.
If you're moving bits, but not money, they don't.
And if you have a bank charter, or bank sponsorship, you're mostly exempt from them.
Bullcookies. Transmission laws are the cause of both the stagnation and the innovation. Innovation is literally people finding new ways around established methods.
Put a blockade up, and people will innovate around it. Engineers are not known for going gently into that good night.
...except that A) Bitcoin doesn't get around money transmission laws, it causes large numbers of people to inadvertently violate them; B) that's why Coinbase had to completely shut down in Wyoming as I recall; and C) is anyone seriously suggesting that Satoshi Nakamoto took a look at some state money transmission statute or 18 U.S.C. § 1960 and decided to create Bitcoin as a result? If so, that would be the first time I've heard that.
This isn't Uber fighting petty city bureaucrats and taxicab owners; "disruption" in this field fucks with what it means to be a nation state, and the state will never tolerate any infringement on its right to issue and manipulate currency.
I'm not saying that innovation isn't possible -- I'm just saying that it has to come from within the establishment.
Not really. That article has numerous errors in it, and I'm not even counting Europe solving everything. If you have one U.S. customer you are subject to U.S. law.
I have the highest respect for detailing the real reason instead of generic "awesome journey".
Moreover, being acquired by SVB sounds way better than average acquihire. You actually can execute your idea, but as part of other company instead of separate entity.