A Boardroom Conversation

Bankers fed up with dealing with old core systems rarely develop their own core systems, but that’s exactly what the folks at Cross River Bank are doing. The Fort Lee, New Jersey-based bank has been around for a decade now, providing banking services to fintech companies that serve consumers, including marketplace lenders. The bank developed its own APIs (application programming interfaces), which are a series of protocols and tools for building application software. Cross River offers ACH, wire transfer and other services that comply with regulatory requirements to companies in the lending and payments arenas. It originates loans for marketplace lenders such as Rocket Loans, the personal loan platform of Rocket Mortgage. And the next great adventure for this $877 million asset bank is launching a core processor that will give nonbanks access to a variety of banking services. It seems to be working so far. The bank has a year-to-date return on assets of 3.56 percent, according to the Federal Deposit Insurance Corp. as of the third quarter of 2017. Bank Director digital magazine caught up with Cross River Bank President and CEO Gilles Gade recently.

Q: What was the origin of your idea for saying: This country really needs something like a Cross River Bank?
GG: It didn’t come by design. It came by default. We didn’t wake up one day and say let’s cure the world’s ills on the banking side. We have an open mind. We came across some opportunities in the lending space. Marketplace lenders were our first opportunity. We started out with one marketplace lender, and we have 15 [marketplace lending] platforms today.

Q: Your background is in investment banking and finance. You were the CFO of a mortgage lender. You worked in investment banking for Barclays and others. What made you decide to take such a leap into leading Cross River?
GG: I always had the entrepreneurial bug. I was looking for the right opportunity. The organizers of [a banking] charter couldn’t raise enough capital to get regulatory approval. Our group took over the charter 10 years ago and raised the initial capital. We raised our first institutional round of capital last year, $28 million from three firms, Battery Ventures, Andreessen Horowitz, and Ribbit Capital.

Q: How many fintech companies are clients and what’s the potential market out there for you?
GG: We have approximately 50 clients. The market is huge. It’s not all fintech companies. It’s big transaction companies looking for fintech solutions. For example, you wouldn’t think of companies like Uber as a fintech play, but they do need fintech solutions. For instance, their drivers can’t afford to wait for biweekly paychecks, as they want to be paid in real time. Fintech can power that need.

Q: How do you make money?
GG: We collect money on transactions and interest on loans that we originate, as well as collecting interest on the loans we hold to maturity.

Q: What are your risks?
GG: Compliance risk is a big focus for us. Another risk is cyber security risk as we deal with so many third parties. It exacerbates the risk even further. There is operational risk as you need to have controls in place over the third-party relationships. Knowing this, we focus a significant amount of resources in these areas.

A lot of banks wouldn’t want to touch this.
GG: Cross River isn’t directly focused on the consumer space; we understand that it is owned by the large banks. We are looking to service companies like Amazon, [Chinese conglomerate] Alibaba, Starbucks, Apple, Facebook and Google as a banking platform, enabling consumer focused businesses and brands the opportunity to offer a suit of banking products and services to their consumers. That’s our play.

Q: You plan to launch your own core banking platform using APIs to connect with a variety of vendors and their software. Can you tell me what that is and when it will be available?
GG: Over the course of developing our services such as ACH, automated wire, etc. we realized that if we could somehow make all of these solutions talk to each other, we would have a core processor. That’s how, two and a half years ago, we decided to venture into the core processing business. We are close to having an end-to-end solution, purely API-based, that enables us to open an account, generate a statement, calculate an APR, originate a loan and a deposit.

The truth is, all our technology development came from dissatisfaction with the existing system. We wanted an automated wire solution, and no one could provide it to us. That’s how and why we started developing our own. It’s really by default. We currently have approximately 50 developers on staff.

Q: Is your business model under threat, now that the big banks are buying fintech firms, and some of the fintech firms are applying for an industrial bank charter?
GG: I don’t think anyone but Square is applying for an industrial bank charter. SoFi withdrew theirs. Big banks are trying to develop their own financial technology. Most of them aren’t buying other fintech companies. Chase, for instance, is going the partnership route with a marketplace lender, OnDeck. Others are either launching their own marketplace lending platform or buying loans from existing platforms. We welcome all that. That keeps us on our toes and validates our business model.