Things to consider when ramping up startup banking

Banking is starting to look a bit different, with newer digital-first entrants like Chime, Varo, Cash App, digital wallets, etc. We talk to a lot of founders who are just starting out and trying to ramp up all their startup banking. They often ask, “When I’m in the market for a bank, where do I start?” Here’s some things to consider when deciding which “bank” to use for your startup: 

Cost/FeeSchedule:

Banks typically have a fee schedule listed online that detail the cost of their services. Google “Fee Schedule (insert bank name)” and a pdf of services will be listed. In addition to cost breakdown, this can be a good place to identify which services they offer. The primary fee is typically analysis fee/monthly maintenance, however, depending on which services you’re interested in; business account, business savings, ZBAs, ACH, billpay, etc., cost may vary across banks. Understand the fees associated with those services and ensure they’re in line with the market.

Digital-first banks may have the edge with certain costs. Since they don’t have physical locations, they don’t have to worry about as much overhead, therefore they may provide certain services for free that traditional banks may charge for.

Security:

Are they FDIC insured? Great, but how protected are your assets? With traditional banking, assets are physically and digitally protected. With Digital-first banks, assets are primarily protected digitally.

In situations where fraud has occurred, the bank needs the capacity to act to mitigate issues that arise, and protect your assets. Ensure there is an adequate team in place to address ever evolving fraud issues. 


Access/Reliability:

Are there physical locations to complete in person transactions via ATM or teller? If not, what are the work-arounds for certain transactions like a bank check or using cash?

Digital-first banks will not have physical locations so understanding the work-around for certain services is key. They may reimburse certain fees for pulling out cash at non-member banks. If you prefer to do business in person, then this may rule out digital first banks, but if you’ve embraced the remote life, this can be a good option.


Basic Offerings: 

To run a business effectively we need access to cash. Day to day ops require us to pay for services, receive payments from customers, pay debtors, track and store cash. To do this effectively, a bank, be it traditional or digital-first should provide a few basic offerings:

Wires and ACH ability - Businesses need the flexibility to send and receive cash securely, and quickly. Some banks have limits on the dollar amount of wires or ACH in a given timeframe. Depending on any hard limits, this may or may not fit your needs and is a factor to consider when selecting your bank. 

Online & Mobile access - Will the bank allow you to access your accounts and complete banking transactions on the go and securely?

Billpay - Does the bank give you the ability to pay vendors easily? Before starting with a separate bill pay service like Bill.com, banks are typically the first place to start paying vendors.

Business Cards/Digital Cards - Does the bank issue business cards that provide flexibility to run day to day operations? Initially founders may be using their personal cards, but when transitioning, a bank should provide an opportunity to get business credit or debit cards. Digital-first banks typically have the edge with issuing cards. They can issue cards quicker, and may have digital cards in addition to physical cards that can provide an extra layer of security. Traditional banks may have more cash back rewards that hold up better than the perks that digital banks offer.

Remote and Mobile deposits - Although two-thirds of the world make and receive digital payments, having the ability to deposit checks quickly and safely are a must. Some clients you may have will still send physical payment in, so having that extra flexibility is helpful.

Financial services:

Savings/Investments: Does the bank provide the opportunity to maximize cash? Early on, it may be a Money Market, but there are alternative financial instruments that a bank can provide with larger amounts of cash on hand.

‍Funding: Can the bank provide financing that would help a business profile similar to yours? Some banks are more traditional and need hard assets or a certain number of years in business to provide a line of credit. For startups, explore banks with teams specifically dedicated to tech, these banks have nuanced understanding and can lend on non-traditional metrics where other traditional banks may not be willing. Inquiring as to how a bank can help finance new businesses, especially tech businesses can be time well spent.

Software Ecosystem:

‍Does the bank have the ability to integrate with popular operational and back office softwares i.e. Quickbooks, Stripe, Zapier, Xero? Consider banks that connect to these systems and provide real time information. Thanks to third-party platforms like Plaid, connectivity isn’t typically an issue, however I’d avoid most banks that can’t be supported by operational systems you plan to use.

Digital-first banks do this well and market their ability to connect to the latest and greatest startup softwares.

Keep in mind, a bank is a partner along the financial journey. Evaluate what you want out of that partnership, and make sure that price and services properly align with the direction of the business. As your company grows, so will your banking needs. Choose a bank that can provide value at each stage of your business.