Protocol | Fintech

‘The game really hasn't been played yet’: Why One thinks it can reinvent banking in a crowded market

One CEO Brian Hamilton thinks managing the new fintech's banking core is an advantage over Chime and Varo — but can he handle the risk of lending in a pandemic?

One neobank

One wants to "reinvent banking for the middle class."

Image: One and Protocol

Brian Hamilton's been here before. A former SVP at Capital One, he later worked at BBVA where he launched Azlo, a freelancer-focused neobank. But while he says that project was a success, he concedes it "had some limitations," with BBVA's ownership limiting its creativity and growth.

So why now, in 2020, when the world itself seems to limit creativity and growth as well as piling on risk, is he back with another fintech in the shape of One, launching today?

Hamilton's vision is far from modest: He wants to "reinvent banking for the middle class," he told Protocol. If you think that sounds like a big gamble right now, then you wouldn't be entirely wrong.

Hamilton's new startup is yet another neobank launching into a crowded market. Chime, which recently boosted its valuation to $14.5 billion, is the U.S. market leader, while earlier this year Varo Money became the first consumer fintech to be granted a national charter. Meanwhile, a host of European innovators are trying to enter the U.S. Starting from scratch in this environment seems tricky, to say the least.

But Hamilton thinks One has found a gap in the market. "There's become such a fragmentation" in digital finance, he said. A traditional bank offers credit cards, mortgages, savings products and shared accounts, to name just a few. "If I go to one of the neobanks today, it'll do one of those things for me, maybe two," Hamilton said. "I've got to go over here to Acorns ... in order to get some kind of meaningful savings back, and then maybe I'm going to go over to ... Greenlight in order to get my child access account." This fragmentation, Hamilton thinks, is ripe for a rebundling. "Why wouldn't I get all of those from one place?" he asked. Specifically, why not from One?

One, which is partnered with Coastal Community Bank, has the ultimate aim of being a comprehensive banking service in the vein of Wells Fargo or Chase, but with a better customer experience. To start with, it's offering a typical checking account, high-yield savings on your paycheck, a credit line that grows with your salary and a secret weapon that it calls "Pockets." Those are sort of like sub-accounts, which you can create for a specific financial goal or purpose — and which can be shared.

"You can spin up a Pocket, and I can share it with you, and you can point your One card at it and we can share expenses for whatever you and I put into that Pocket on an ongoing basis," Hamilton said. He gave examples such as two roommates using it to handle bills, or people using it to support their elderly parents' expenses. The feature has the side-effect of being a growth hack, by bringing new customers into the One platform. "The [Pocket] product is inherently viral," Hamilton said.

Credit is another area where One thinks it can innovate. "None of [the other neobanks] do meaningful credit," Hamilton said. While Chime and Varo offer small overdrafts, it's hard to find much more than that. Hamilton wants to change that: Every One account comes with an unsecured line of credit, which can be accessed like an overdraft. If you set up a direct deposit for your paycheck, that credit line will grow based on your income, and you'll be allowed to use the credit line like a credit card: "You can just swipe and have it sit on that line while you still maintain a cash balance," Hamilton explained.

This seems like an obvious thing to offer — yet no one else has. The key, Hamilton thinks, is the way in which One was built. "We decided to start from scratch, and build the stack from scratch, with a core that actually allows us to configure and run loan products, and deposit products, and savings payment products," he said. One is "built closer down to the rails," allowing it to "configure the actual financial products behind the scenes." The core, offered by Finxact, is operated by One — letting the company go beyond putting a UX on top of a sponsor bank's offering.

"Because the technology, operations and compliance teams at One come from regulatory and bank tech backgrounds, we are able to responsibly and reliably do this, in partnership with our bank sponsor, at a level that satisfies regulators and enables independent ownership and operation of the infrastructure," Hamilton elaborated via email. Other neobanks might avoid doing this because "it can be quite complicated" compared to the plug-and-play infrastructure provided by API platforms, he said, to such an extent that many early-stage companies might forgo it altogether.

"We also have access to the bank balance sheet for the lending products," Hamilton said, giving One a "competitive cost of funds, let's call it, as opposed to building some third-party funding mechanism like most non-traditional lenders do." Hamilton said that allows One to offer much more competitive loans than even big banks, which have significant margins given the current rock-bottom interest rate environment. "That bank margin is our opportunity," he said, adopting a reported Jeff Bezos aphorism.

One's partnership with Coastal Community Bank, then, seems more like regulatory box-ticking than much else: Hamilton described One as "much closer to what a traditional bank, [in terms of] economics and tech stack and regulatory relationship, would look like, even though we are not a bank ourselves right now."

But One is adopting far more risk than the average neobank. Credit in particular right now, is "a bit of a falling knife, in some ways, that you're trying to catch," Hamilton said. "You really have to take some risk there." He said linking the credit line to the size of your income offers some "natural risk mitigation," but the company will still need to be very careful. Managing that risk is hard even for fintechs dedicated to credit products: doing it alongside everything else that comes with a bank might be even harder. And then there's all the competition, from well-funded and more established neobanks that have been doing parts of this for years.

Hamilton downplayed the competition. "It is a crowded market," he said, but "there's more space than people think. Because if you add up all of the accounts of all of the neobanks, you're still talking about low single digits [share] of the potential market." So he's optimistic that One still has a chance. "The game really hasn't been played yet," he said

Clarification: This story was updated on Sept. 22 to clarify that Varo Money was the first consumer fintech to be granted a national charter.

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