Business Analysis: Seed
Founders: Brian Merritt and Ryan Hildebrand
What is Seed?
Seed is not a bank, but it focuses on businesses banking. Its founders, Brian Merritt and Ryan Hildebrand, came from another banking tech firm called Simple, which was sold for more than $100 million (https://techcrunch.com/2015/02/17/yc-backed-seed-wants-to-reinvent-business-banking/). Seed is trying to make business banking more transparent, easier, and cheaper. In an interview on Tech Crunch, Merritt states that many businesses do not necessarily understand how much they are paying for banking services, what fees are involved, that there are many unnecessary fees due to an archaic system, and that many banks charge high rates (such as 6% for international transactions).
Seed offers two different types of services. Seed offers banking services for a flat fee (for most services), saving customers money compared to the standard, transaction-based fee structure. For example, it includes free domestic wire transfers, free ACH transactions, free check sending, low-cost international payments, and up to $50 million of FDIC insurance, instead of the $250,000 offered by traditional banks. Also, Seed provides an API that allows businesses to build applications that interact with their own bank (https://medium.com/@seed/welcome-to-seed-eaee30a7f57e#.b61906pwd).
Outlook: Seed’s outlook appears to be positive, but it could face difficulty by with the The Open Bank Project and Silicon Valley Bank.
Competition: The Open Bank Project is not a bank, but a company that provides services for banks and bank customers. The Open Bank Project (https://openbankproject.com/for-developers/) provides an open-source API, allowing businesses to develop their own applications that interact with their banks and to make it easier for banks to build more applications for their customers. The Open Bank Project also has an App store with various banking applications for bank customers (more about The Open Bank Project here: https://openbankproject.com/about/). This means that The Open Bank Project is competing with Seed in regard to offering banking APIs, but not in regard to offering banking services at a flat rate.
The Silicon Valley Bank is a commercial bank which focuses on providing a variety of services to startups, ranging from traditional banking services, such as deposits, account transfers, and ACH transactions, to proprietary insights and providing industry connections. the Silicon Valley Bank is increasingly becoming a greater threat as it appears to also be entering the market of giving companies the ability to customize their banking APIs. Unlike the Open Bank Project, SVB is a powerful player in the banking industry and could more easily compete with Seed if it decides to focus on this market more aggressively, which according to this post seems to indicate such an emergence is likely (https://www.svb.com/Blogs/Dan_Kimerling/Our_Mission_for_API_Banking/). SVB could start to implement the various unique features that Seed offers (free domestic wire transfers, etc) to prevent Seed from entering the market. Seed will have to claim the market faster than SVB or it may have to either improve their product or add features to compete with SVB. That being said, it is possible that since this is a relatively new market, that there will be room for all companies to grab a portion of the market—especially because Seed seems to be targeting many small businesses, while SVB seems to target startups and companies around Silicon Valley.
As for traditional banks, many traditional banks seem to lack both the ability for API customization and the other features that Seed boasts. Unless they begin to pursue such features, they will most likely not pose as significant a threat.
Demand: There appears to be a high demand for bank API services in general. Many banks have come out with their own APIs (http://resources.xignite.com/h/i/217848582-is-it-api-or-die-for-banks) and banks are one of the highest investors in IT at $59.4 billion (http://www.bsa.org/country/public%20policy/~/media/files/policy/security/general/sw_factsfigures.ashx).
Strengths: Seed is able to customize solutions for businesses, catering more to customers’ business needs than competitors. For businesses that understand how to use API and have the resources to build out tools, Seed is an obvious solution for them. However, it is the other features that appear to be Seed’s real strength. Free domestic wire transfers, free ACH transactions, free check sending, low-cost international payments, and up to $50 million of FDIC insurance, instead of the $250,000 offered by traditional banks, give Seed an advantage over traditional banks. As long as Seed makes it easy to access these features, it should be an easy switch for most small businesses to move to Seed.
Weaknesses: Seed allows businesses to build their own banking tools, but this means that that businesses have to have an understanding of how API works and have employees build out the tools for them (or outsource the work). This means that Seed’s target audience, with regards to customization, will be narrow as a majority of small businesses in the U.S will not have the help or know-how to use Seed. A quick look at their authentication/login page shows how their API might be overwhelming to a small, mom and pop store (http://docs.seed.co/docs/authentication-login).