A startup is bringing its own twist to coping with liquidity shortfalls.
On Monday, Grounded Technologies announced the launch of its product — what it calls a core deposit, loan, and Community Reinvestment Act marketplace. Grounded is operating with underlying support from BMO Financial Group, which is headquartered in Toronto, Canada. BMO has also invested in Grounded, along with Susquehanna Private Equity Investments and other investors, to raise $3.5 million to date, and selected this company as part of its third annual WMNfintech accelerator program in 2022, which focuses on women-founded and women-led startups.
The challenge of retaining deposits is a
"This has been the overriding concern for a large number of banks, particularly regional banks, since the
Grounded differs from
IntraFi, R&T Deposit Solutions and other companies help banks capture and insure the entirety of their customers' balances — a cogent need in the aftermath of SVB.
Instead of arranging for reciprocal deposits or one-way buys or sells between financial institutions, Grounded seeks deposits from a broad array of asset managers. Its suppliers include 401(k) companies, 1031 exchanges, the EB-5 immigrant investor program, Opportunity Zones and class action lawsuits. In its initial phase, Grounded will help financial institutions, particularly community banks, acquire deposits as needed. Later it will expand to loan syndicates and collaborations with minority depository institutions and community development financial institutions for CRA credit.
"Those types of deposits are stable and sticky," said Danae Vachata, CEO and cofounder of Grounded. "When we push them from the liability supplier's asset managers to the financial institutions, we diversify that mix."
Crane points out that some of these programs require that deposits be put into escrow for a period of time.
"You can probably count on a steady stream of deposits, so my guess is these would be both stable and pretty low-cost, and be fairly attractive to banks on the network," he said.
Vachata says these large asset holders are typically looking for a place to park excess cash, but some are also driven by a larger, community-minded purpose. For instance, one of Grounded's registered investment adviser clients specifically wanted its funds to be directed to Black-owned banks. Grounded set parameters around this client's deposits accordingly.
In its second phase, Grounded will release an operating system for chief financial officers and chief risk officers that it says will equip financial institutions with a predictive and analytical view of their balance sheet needs.
BMO, which has total assets of $1.25 trillion, will enable payments, hold deposits, provide information reporting such as balance reports and reconciliations, and more. But, "our vision is larger," said Andrew Harrison, head of U.S. digital partners at BMO. He hopes that BMO will itself become a client of Grounded's services, and notes that BMO banks a number of financial institutions that may find value with these services "[in helping] them run their business better," said Harrison. BMO also earns fees for the banking services it supplies to Grounded.
Vachata and her co-founder, Pete Chiccino, who was also a founding member of The Bancorp Bank, started building Grounded in 2021, betting that the oversupply of deposits and low interest rates at the beginning of the pandemic would eventually reverse.
Although the company pre-dated the three bank failures of 2023, "they have clarified the need for what we are bringing to communities," said Vachata.
The institutions on Grounded's waitlist range from $14 million to $2 trillion of assets. Although it will work with banks and credit unions of all sizes, it is focusing on community institutions first.
"The ambition [Grounded has] to what they pitch as a marketplace both for loans and deposits is interesting," said Crane. "The need and desire for diverse and low-cost sources of funding will be a priority [for banks] going forward."
BMO has turned several accelerator participants into partners, including
"Being at the center of a powerful ecosystem for women founders will have huge benefits to BMO, being in the middle and seeing what is going on with fintech," said Harrison.
