Fintech Mercury Expands into Consumer Banking Amid Regulatory Scrutiny

Business banking startup Mercury, founded in 2017, is now launching a consumer banking product. Mercury today serves more than 100,000 businesses, many of which are startups, via its B2B practice.

The expansion is a natural move for the company and one that has been in the works for a couple of years, according to Immad Akhund, Mercury’s co-founder and CEO.

“We already have a few hundred thousand users of our business banking product, and a lot of people have expressed that they want a personal banking product,” he told TechCrunch in an interview.

While there are plenty of neobanks, many of them “focus on the underbanked. It’s not a great market for power users” who need features like wire transfers or support for multiple users, features that Mercury’s service offers, according to Akhund. Other features are of the type expected by banking power users: multiple debit cards with custom spending limits, access up to $5 million in FDIC insurance through its partner banks and their sweep networks, and interest-bearing savings accounts.

Essentially, Mercury hopes to convert many of its business clients into customers. It’s not going after the masses like say Chime or Dave.

The expansion into personal banking comes at an interesting time for Mercury, which recently made headlines for being the target of federal scrutiny around its practice of allowing foreign companies to open accounts through one of its partners, Choice Bank.

According to a report by The Information, the FDIC was “concerned” that Choice “had opened Mercury accounts in legally risky countries.” Officials also reportedly chastised Choice for letting overseas Mercury customers “open thousands of accounts using questionable methods to prove they had a presence in the U.S.”

And that’s not all. The FDIC also wasn’t happy that Choice hadn’t “vetted a compliance system Mercury was using, which the agency said was flagging a curiously low number of suspicious transactions.”

Adding fuel to the fire, Mercury also earlier this year reportedly told users with Evolve Bank & Trust-issued debit cards that those cards would no longer work where the merchant has a legal address in 41 countries, including Turkey, Ukraine, Cuba and Iran. (Evolve is also a partner of Mercury’s.) When TechCrunch asked about these allegations, the company declined to comment.

When asked about The Information’s report, a Mercury spokesperson emphasized that the company is investing in its risk and compliance teams. The person also said the fintech partner banking market as a whole has been the target of more regulatory scrutiny.

Crossing over

But success in B2B banking doesn’t automatically queue up Mercury to handle consumer banking. Each has differing regulations and compliance issues, noted Gartner analyst Agustin Rubini. Risk management for personal banking, for instance, is about assessing the individual’s financial stability, “which can be less predictable compared to businesses,” he said.

More than that, adhering to stringent regulatory requirements can be “challenging” for startups, he warns. “The complexities increase when partnering with a bank due to the additional layers of regulation that apply to banking services,” he said. “This includes everything from anti-money laundering (AML) protocols to meeting capital requirements.”

Rubini added that partnering with a bank can help the startup by providing an initial platform and compliance framework, but then scaling up operations to a larger customer base can open up a different can of worms. Startups need “substantial capital and strategic planning” to do that well while staying competitive, and without running afoul of regulators.

Cesare Fracassi, associate professor of finance at the University of Texas at Austin, also told TechCrunch that business and consumer banking are “two different beasts, two different types of services.” But he’s a bit more bullish on fintechs trying their hand at both because he does see “obvious synergies involved in owning both the business and person” in the banking space.

That’s one of the main reasons Mercury is expanding in this direction. It could leverage much of the software powering its B2B product for its consumer offering, Akhund said.

It’s also not the only fintech thinking like this. Onyx Private, with a similar offering, recently did a reverse move, pivoting from B2C to B2B.

Besides earning revenue off of interchange fees and the interest rate spread, Mercury will make money by charging users an annual subscription fee of $240 upon the first deposit and then annually after that. Last year, it touted a big bump in business following the SVB crisis, and a recent report from Kruze Consulting showed that 40% of startups created after the SVB crisis have an account with Mercury.

The company said it’s had seven consecutive quarters of cash flow and EBITDA profitability as of March 2024. While it would not reveal hard revenue figures, it also claims that its new revenue grew by 180% last year while its customer base climbed by 60% and transaction volume by 90% to $95 billion as of January 2024.

With that growth, the startup has been hiring. Presently Mercury has 620 employees, compared to 440 at the start of 2023.

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