Companies Want to Become Banks. Zūm Rails' “Bank in a Box” Just Removed the Barriers to Doing it.

The line between what a bank is and what it’s not has blurred with the rise of digital wallets like Venmo and Cash App. Consumers are increasingly using these non-bank platforms to receive direct deposits, spend money, and even manage credit without touching a traditional bank account. These platforms aren’t banks in the traditional sense, but functionally, they’ve become bank alternatives.

These types of fintechs are the obvious bank challengers though. Companies are also acting like banks. Starbucks, for instance, holds more than $1.5 billion in customer funds through its digital card program. This is more than some regional banks.

The problem? Offering financial services as a non-bank is complicated.

“If a business wanted to offer embedded finance products, secured cards, or stored value, it would need to work with up to five different providers–and the banks themselves–to move the money and manage the risk,” explains Miles Schwartz, CEO of fintech company Zūm Rails.

Companies have long dreamed of the new revenue streams, savings on processing fees, and efficiencies that could result from processing payments, funding pre-paid and other cards, and storing balances for customers. But the complexity of having to work with multiple banks, vendors and integrations has historically made entering the financial services space expensive and time consuming enough to act as a deterrent.

For fintechs, this might seem an intriguing challenge, but few are tackling this exact problem.

When we tell companies what we’ve built, they don’t believe it. Their first reaction is literally, “Whoa, you’re actually doing this? None of the fintechs we’ve talked to are working on this problem,’” shared Schwartz.

Zūm Rails’ solution is what it unofficially refers to as its “bank in a box” offering, which Schwartz notes makes light of the complexities they’ve had to work through to enable companies to function like banks. “It’s more appropriate to call it a Financial Operating System.”

We sat down with Schwartz to discuss the offering, how the company got here and what’s coming next.

A bank-like experience, without the bank.

The goal of the “bank in a box” offering is to make it significantly easier for companies to launch new financial products, without ever working with a bank or becoming regulated like a bank.

According to Schwartz, getting there meant bringing together payments rails, prepaid and secured card infrastructure, and a full ledgering system—all in one place.

Zūm Rails has long been companies’ behind-the-scenes infrastructure for customizing and streamlining their payment rails. With this system already in place, companies began looking to the company to address other areas of its payments ecosystem where it could also remove friction, give them more control, and introduce payments-related revenue streams.

“Over the past two years, we heard from our clients that they wanted to do more than just account-to-account payments and risk management through our platform,” said Schwartz. “They wanted to find a way to expand their business model with payments.”

This set in motion a bigger vision to review all the payments tools that have traditionally been gate-kept and figure out how to democratize them for use by businesses–with as few middlemen as humanly possible.

Next, turning any business into a fintech.

Western Union, Questrade and LoanPro are among the first major companies now using Zūm Rails’ platform to offer new services and streamline old ones.

Consumers are already leaning on these companies to manage part of their financial mix, such as their investments or international money transfers. But often, consumers will load money into their account for its sole intended purpose– and then pull it out when the given transaction is complete. These companies have recognized this is because they haven’t given them other options. Customers pulling out this money, in other words, represents a lost opportunity for the business that could be enabling them to leverage their money in other ways.

For example, investment platform Robinhood now offers a credit card and is launching its own private banking offering later this year. This is allowing the company to offer additional financial services to their customers, in a place where they already manage their money.

The “bank in a box” solution, which is built for businesses of all sizes, is supporting a range of use cases for companies that arealready in the financial space or in completely different industries, such as:

• Fintechs can launch peer-to-peer or business wallets with virtual accounts and branded cards that can be spent anywhere the customer shops.
• Online marketplaces can manage funds and vendor payouts with a full sub-ledger system.
• Lenders can issue secured cards that improve the customer’s credit.
• Small businesses can pay freelancers in real time with a card, rather than dealing with a bank and waiting five days for the payment to settle.

Now, even organizations that don’t traditionally offer financial services can offer them directly, while those that do offer financial services can drive efficiency and streamline their existing offerings.

Zūm Rails sets its sights on becoming the financial operating system of record.

Zūm Rails has been steadily expanding its U.S. presence, with Schwartz relocating from Montreal to Miami last year to open the company’s U.S. headquarters and build its stateside team as the company moves billions of dollars.

Since then, the company has doubled its revenue, and it has invested in an expanded roll-out of new products like the “bank in a box.”

Schwartz said ”A significant contributor to this growth has been our consistently expanding client base across the US and Canada as well as the launch of our card program or as we like to call it, the Zūm operating system with a “bank in a box”.

Next on the roadmap for Zūm Rails is becoming the operating system of record for financial products. That includes a full compliance suite, complete with advanced AML monitoring and fraud detectionbeyond basic KYC checks.

Miles Schwartz, CEO, Zūm Rails