For banks that struggle with the security and cost-effectiveness of their online banking offerings to small business, a cloud-based service launched today offers a partial answer. MineralTree, a Boston-based startup launched by BC Krishna, former CEO of fraud detection software company Memento, provides an electronic payments engine that runs on Amazon Web Services and can be white-labeled by banks. Silicon Valley Bank has signed on to be the first bank customer.
Krishna says the new service lets banks offer the kind of payments hub they provide for their large corporate clients, to smaller businesses (those with $500,000 to $50 million in revenue) that can't afford formal treasury management services. "One thing I noticed when I was at Memento was the increasing amount of online attacks on corporate accounts," he says. "Banks try to monitor transactions on the back end to prevent those fraudulent transactions. But the real issue is that the transactions originate mostly on poorly controlled small business computers. The vast majority of affected small and medium size business don't have the kinds of controls and IT hygiene and rigor necessary to protect themselves."
The company supports four major payment types: vendor payments, utility bills, employee reimbursements and government taxes. MineralTree will issue checks and convey ACH and wire payment instructions to the bank.
MineralTree has a virtual payment server set up in Amazon Web Services that accepts payments from the user and dispatches them to the bank. To the bank, MineralTree appears as one large, corporate account using the bank's cash management and treasury platforms. To the small business user, MineralTree is an iPad app that ties into QuickBooks as well as to the bank and provides a single place from which to send checks, wires and debit payments. There are actually two end user apps, one for the accounting manager (this is the one that ties into QuickBooks), the other for the payment approver. "The typical small business has a two-person accounting dept, one person who enters bills into QuickBooks, and another person who signs the checks that are produced in QuickBooks," Krishna explains. "It's very manual, ad hoc and paper oriented."
Why did the company start with an iPad app first (a PC version is in the works for release later this year)? "A lot of us think of the iPad as a convenient entertainment device," Krishna says. "But there's a whole other personality to the iPad, which is as a secure payment device. The walled garden that Apple has created for application developers turns out to be a secure environment for apps such as this. Also, every one of these devices is location aware and has a unique ID."
To confirm that the user is who he says he is, MineralTree uses out of band authentication involving extra code sent to the device associated with the account. It secures the payment itself by forcing it through a dual control regimen. All the payments have to come from a known, trusted iPad; MineralTree reprovisions the iPads before accepting payments from them.
According to Krishna, the demand for this service is vast. "There are 2.5 million businesses in the U.S. that run manual paper check payments," he says. "Over the summer we did 1,200 interviews of businesses in this segment and found that 70-90% of these payments are checks. This is a segment of the market banks make very little money from." Krishna suggests that banks could charge business customers $150 to $300 per month for this service - "money that you never saw before, that's now being spent at the post office and at Staples, and in the process you can extend your relationship and make the process more secure."