Business banking startup Mercury, founded in 2017, is now launching a consumer banking product. Mercury currently serves more than 100,000 businesses, many of which are startups, through its B2B practice.
The expansion is a natural move for the company and one that has been in the works for a few years, according to Immad Akhund, Mercury 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.
While there are many new banks, many of them “focus on the underbanked. It’s not a big market for power users” who need features like bank transfers or support for multiple users, features that Mercury’s service offers, according to Akhund. Other features are the type banking power users have come to expect: multiple debit cards with customized spending limits, access to up to $5 million in FDIC insurance through partner banks and their scanning networks, and interest-bearing savings accounts.
Essentially, Mercury hopes to convert many of its business customers into customers. He doesn’t go 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 becoming the target of federal scrutiny over its practice of allowing foreign companies to open accounts through one of its partners, Choice Bank.
According to his report The information, the FDIC was “concerned” that Choice “had opened Mercury accounts in legally dangerous countries.” Officials reportedly criticized Choice for allowing Mercury customers overseas “to open thousands of accounts using questionable methods to prove they had a US presence.”
And that’s not all. The FDIC also wasn’t happy that Choice had not “audited a compliance system used by Mercury, which the agency said flagged an unusually 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 as these cards would it no longer works where the merchant has a legal address in 41 countries, including Turkey, Ukraine, Cuba and Iran. (Evolve is also a Mercury partner.) When TechCrunch asked about these claims, the company declined to comment.
When asked about The Information’s report, a Mercury spokesperson emphasized that the company invests in risk and compliance teams. The person also said the fintech partner banking market as a whole has come under more regulatory scrutiny.
Alexey Likuev, who led the creation of the consumer offering for Mercury, acknowledges that there are “definitely more stringent regulations around consumer protection” and said the company took those regulations into account when creating its consumer product.
Passage
But success in B2B banking doesn’t automatically put Mercury in line to handle consumer banking. Each has different regulations and compliance issues, noted Gartner analyst Agustin Rubini. Risk management for personal banking, for example, is about assessing an individual’s financial stability, “which can be less predictable compared to businesses,” he said.
In addition, meeting strict regulatory requirements can be “challenging” for start-ups, he warns. “The complexity increases when working with a bank because of the additional regulations 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 operations to a larger customer base can open a different can of worms. Startups need “significant capital and strategic planning” to do well while remaining competitive and without running afoul of regulators.
Cesare Fracassi, associate professor of economics 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 sees “obvious synergies related to ownership of both the business and the individual” in the banking space.
This is one of the main reasons Mercury is expanding in this direction. It could leverage much of the software that powers its B2B product for its consumer offering, Akhund said.
It’s also not the only fintech to think so. Onyx Private, with a similar offer, recently made a reverse move, turning from B2C to B2B.
In addition to interchange fee income and interest margin, Mercury will make money by charging users an annual fee of $240 upon first deposit and annually thereafter. Last year, it was advertised a big blow to business after the SVB crisis, and a recent report by Kruze Consulting showed that 40% of startups were created after the SVB crisis you have an account with Mercury.
The company said it had seven consecutive quarters of cash flow and EBITDA profitability from March 2024. While it did not disclose hard revenue figures, it also claims that its new revenue grew by 180% last year, while its customer base grew by 60% and transaction volume by 90% $95 billion from January 2024.
With this growth, the startup has been hiring. Mercury currently has 620 employees, compared to 440 at the start of 2023.
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