A startup is taking on traditional banking with a crypto-powered offering — but it's letting its customers still deal in dollars.
Eco CEO Andy Bromberg says he's not running a neobank, which typically offers a different brand and interface over accounts that are actually housed in a chartered sponsor bank. It's also not a crypto exchange or wallet: It's going after consumers who haven't caught the crypto bug. Instead, he said , Eco's attempting to rethink the entire system of savings, checking and payments with a crypto-based business model on the back end.
"A lot of fintech has made better consumer products," Bromberg said. "Neobanks are better products to deal with money, but they don't work on better infrastructure and alignment" with customers.
Staking a claim
"Eco is not a bank," the company proclaims in bold font on its website. But it lets you "spend, save and make money," aiming to replace a bank, a checking account and a credit card. When you spend at certain merchants you get 5% back. And you earn a 2.5% annual yield on your balance — compared to less than 0.5% at many banks. Goldman's Marcus currently offers 0.5%, among the highest bank rates.
Eco customers only deposit and only ever see fiat dollars in their Eco account. Consumers can deposit their paychecks, or send in cash. But on the back end, Eco converts that to crypto, in the form of USDC stablecoins.
The crypto world is alight with interest in staking, a process of leaving crypto coins in an account and allowing them to be used to secure blockchain transactions. It's part of the complex world known as decentralized finance or DeFi, but the end result of this "yield farming" looks a lot like earning interest. And the rates are high — Coinbase offers 4%, and others offer yields of 8% or more for staked coins. USDC coins are created by Centre, a consortium backed by Circle and Coinbase, and they're popular for staking.
Eco lends out USDC, and provides 2.5% cash back to consumers, or up to 5% for referrals — which is all converted back to fiat for consumers. This is Eco's version of a savings account. They could earn more if they bought the USDC directly and staked it at Coinbase or other crypto companies, but Eco is betting that consumers will prefer the simplicity it offers, and Eco's approach is safer than direct "on chain" approaches, Bromberg said.
Unlike a regular bank, Eco accounts are not FDIC insured, which is standard at most banks. Eco says that many of its customers don't need or care about FDIC insurance.
Eco uses Wyre, a crypto-fiat API provider, to convert its users' fiat dollars into USDC. Wyre, a FinCEN-registered money services business, also handles compliance issues.
"Our job is to abstract away all dollars, stablecoins and money movement stuff behind the scenes and have one simple balance," Bromberg said.
Eco is lending out deposits just like a traditional bank but in a different way, Bromberg said. However, it's not regulated the way a licensed bank is. Eco users' capital is only lent out to regulated financial institutions, Bromberg said. He wouldn't name these institutions: "We leverage Wyre to provide yield but do not have anything to share beyond that."
There is demand to borrow stablecoins for a variety of different uses, from retail investors looking for leverage to crypto miners that need loans for operations to OTC desks, Bromberg said.
Bromberg is the former president and co-founder of startup CoinList, which spun out of AngelList to do token offerings for projects like Filecoin. Eco initially planned to launch a token, but as of now has not moved on those plans. Its website makes reference to "Eco Points," and says its team's compensation is tied up with them.
Regulatory questions
Regulators could have questions about the model. BlockFi, a crypto company, has been scrutinized by regulators in Vermont, Alabama, Texas and New Jersey, for its BlockFi Interest Account with concerns that it violates securities laws.
"We are closely watching all that, and haven't been convinced by the regulatory arguments on the status of that," Bromberg said. "We're monitoring and making sure we're up to date."
Eco customers can also spend their money through transactions from their Eco account — currently it only works at Amazon, Uber, DoorDash and Instacart. The merchants get paid in dollars via virtual gift cards, which provide 5% cash back to the consumer. This is designed to be a replacement for a traditional credit card, but it's limited at present.
Eco is also preparing to launch bill pay, to enable a much larger set of payments. And in November, the company plans to introduce a debit card to enable spending anywhere. That will require engaging with a chartered bank, Bromberg said — it's hard to escape the established financial system.
Eco is not regulated as a bank, but the entities it uses are regulated, Bromberg says. One company it works with is Prime Trust, a Nevada chartered trust company which receives Eco's deposits, since Eco is not regulated as a money transmitter. Prime Trust is a money transmitter regulated by FinCEN. And either Prime Trust or Wyre holds Eco customers' deposits at any given time, Bromberg says.
Aside from some explainers on its website, Eco doesn't promote the fact that its back end is crypto-based, because it wants to make its product as simple as possible for consumers. "We're happy to talk about it," Bromberg says. "People don't really care."
Eco recently raised $60 million just five months after raising $26 million in pre-seed funding—from investors including Andreessen Horowitz, Founders Fund and L Catterton.
