Is digital banking as easy as building Legos? This fintech thinks so

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Can digital banking be packaged and distributed for anyone to build, like a science kit?

That's the premise that attracted Bay Area venture capitalists to SynapseFI, a San Francisco fintech that recently received $17 million in Series A funding.

“We liked the idea of investing in a company that’s creating the building blocks of financial services,” said Arjan Schutte, founder and managing partner of Core Innovation Capital, which led the funding round with Trinity Ventures.

SynapseFI was founded in 2014 with the goal of creating an application programming interface infrastructure that would automate back-office banking capabilities. By developing a virtual exchange for banks and fintechs to transact with one another, it saw itself as the Amazon Web Services for anyone wanting to build a financial product with compliant banking tools. (The company previously raised $700,000 in a seed round in 2015.)

Now the fintech envisions the full potential of its offering: engineering digital financial services to work as parts that can be assembled and built by anyone with software aptitude.

“We started to work on a banking API platform for the college student sitting in a dorm room to be able to deploy a bank with these Lego blocks,” said Sankaet Pathak, CEO and founder of SynapseFI. “That's what the driving force has been.”

SynapseFI products includes a payments product, a deposit account product and white-labeled or virtual debit and credit cards. At FinovateSpring 2018, it demonstrated a white-label issuance loan issuance solution, and announced in May the creation of a cryptocurrency wallet for bitcoin.

“There are people who we could be competitive with us on certain verticals,” Pathak said. “There are people who do KYC, ACH payments, card processing, but we come to work thinking every day about how can we build an infrastructure that can enable developers to be able to launch financial products as quickly as possible.”

SynapseFI’s most popular product currently is it’s debit card, but it plans to release a product for offering customers consumer and business loans soon. With a monthly fee and a transaction fee, the company offers its product to its clients in bundles. It currently has three bank and more than 100 fintech partners that serve around 1.5 million end users.

The company began with a team of five people and has since grown to 65. With 10 of those employees having a financial services background, the company has a heavy emphasis on tech.

Most of the company’s marketing strategy has been focused on word-of-mouth marketing, which is how both Core Innovation Capital and Trinity Ventures discovered SynapseFI.

“Some of my portfolio companies that were complaining about the lack of trying to get stuff done with the complexity of banking came across Synapse and began using them because other startups were talking about them,” said Schwark Satyavolu, general partner at Trinity Ventures.

Both Schutte and Satyavolu were convinced SynapseFI was a worthwhile investment when the investors noticed the company’s founder, an engineer by trade who studied astrophysics at the University of Memphis, had a clear understanding of financial regulations and had a heavy emphasis on compliance.

“We’ve seen many folks who are doing the kind of thing they are doing get into financial trouble and lose their bank sponsor over being breezy around compliance,” Schutte said.

David Mort of Propel Venture Partners says that SynapseFI will allow fintechs to spend less overhead on compliance, enabling them to get to market faster when competing with banks and other fintechs.

Schutte was also impressed by the tech that SynapseFI had built into its API infrastructure. Pathak took some of the vision technology he worked with in his astrophysics research in Memphis and applied it to the onboarding process. Neural nets verify different aspects of a document like a human would at a bank branch.

“The broad vision that Synapse has around democratizing access to banking services is compelling,” Satyavolu said. “Unlike most visions that are mom and apple pie, this particular company has been able to break it down and say, this is how we are going to make that possible.”

Pathak plans to use the funding to increase marketing and hiring so that the company can follow an aggressive product road map while not falling behind on servicing.

“Going public one day would be great," Pathak said. “We're not close today, but I hope we get there. We're not going to sell at all, because I'm going to run this hopefully all my life.”

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APIs Fintech Disruptors Digital banking Digital payments Debit cards Venture capital