Did OCC Scrutiny of Column Drive Brex to Dump SMBs?

A Regulatory Action Against Column Could Soon Become Public, Sources Suggest

Hey all, Jason here.

Well, I made it home to the Netherlands finally. When all was said and done, I traveled 16,718 miles, give or take, but it was worth it! I can definitively say that in-person conferences are still a thing post-COVID — while Zoom is great, it can’t replace the experience of meeting face to face. Maybe the “metaverse” will?

With October wrapped up, we’ve made our donation to our last finhealth-related organization, microlender Kiva. To all our paying subscribers that made it possible, thank you! The next organization we’ll be supporting is financial literacy and education organization Jump$tart.

Existing subscriber? Please consider supporting this newsletter by upgrading to a paid subscription. New here? Subscribe to get Fintech Business Weekly each Sunday:

Connecting Fintech Leaders Across Latin America

Sponsored content: Latin America’s leading event for innovation in financial services is taking place in Miami this 13-14 December. Fintech Nexus LatAm brings together a stellar lineup including, Carlos Eduardo Brandt (Head of Pix Management and Operation), Paula Bellizia (EBANX), Gerry Giacomán Colyer (Clara), Adal Flores (Kueski), Sarah Clark, (Mastercard), Marlene Garayzar (Stori Card) and more.

We'll explore the industry’s most pressing topics including the acceleration of digital banking, fintech’s impact on the future, lending to the masses, and remaking payments. Don’t delay, tickets are going fast. Use promo code FBW15 and get 15% off! 

Did OCC Scrutiny of Column Drive Brex to Dump SMBs?

I spoke to 25+ sources while researching and reporting this story. Sources were granted anonymity, given the sensitive nature of the topics being discussed.

Column set out to build a “developer infrastructure” bank that would offer not only the deposit accounts and BIN sponsorships offered by numerous other banking-as-a-service providers, but also payment processing services, like ACH and wires, and lending capabilities, including loan origination and debt financing.

The idea was to be a one-stop-shop for any company building a financial services product — and to be as easy to get started with as developer-friendly offerings like Plaid or Stripe.

Screencap of Column’s website as of 11/4/2022

The offering was built on top of the license of single-branch Northern California National Bank, which was purchased by co-CEOs and husband-and-wife team William and Annie Hockey and renamed as Column.

Mr. Hockey is best known as the co-founder of financial data aggregator Plaid, though he stepped back from a day-to-day role at the company in 2019. Ms. Hockey comes from about a decade in management consulting and business development. Per a Wall Street Journal profile this April (emphasis added):

“​​Mr. Hockey stepped down as president and technology chief at Plaid in 2019, ready for something new, though he remained on the board. Ms. Hockey quit her consulting job at Bain & Co. the following year, and the two went searching for a bank to buy. They scoured textbooks to learn about bank M&A, then sent cold emails to see who might be interested in selling to a young couple with no history in banking.”

Seemingly before the ink on April’s WSJ story had dried, whispers were circulating of increasing regulatory scrutiny of partner banks in general, including Column specifically.

In July, Mr. Hockey told American Banker these rumors weren’t true, essentially saying there was just a misunderstanding. Per American Banker (emphasis added):

“Last weekend, a rumor went around that the OCC had forced Column Bank to offload all its customers.

The rumor was untrue, William Hockey said. What did happen was, some technologists using the sandbox didn’t realize their company had to be approved as a customer before they could start deploying their code, and some of those businesses were too high-risk for Column to accept them as partners, he said.”

Mr. Hockey also told Fintech Business Weekly:

“We are supporting our existing clients and onboarding new clients assuming they fit our risk and onboarding criteria. We are still a small team, and are only onboarding clients of a certain sophistication, size and industry — just like any bank is legally obligated to do. Because of this we’ve had to say no to a lot of amazing companies and potential developers, just like anyone who works in a regulated industry.”

However, it appears this might not entirely have been the case.

Column’s Missing Clients

At the time of its public launch, Column touted numerous clients in its press coverage, including Nearside (formerly Hatch), Oxygen, Point, Brex, and Plaid, the company Mr. Hockey co-founded and still has an ownership stake in.

But now, nearly all of Column’s clients mentioned at launch have moved to new bank partners or shut down altogether.

It’s unclear if Nearside, an SMB-focused neobank, ever actually launched with Column. It now lists Piermont as its bank partner.

Oxygen, which offers personal and business accounts, was also listed as a Column client. But today, nearly all mentions of Column have been scrubbed from Oxygen’s website, except for a stray Column GLBA privacy notice dated 02/2022 that appears to have been uploaded in May, 2022. Now, Oxygen lists The Bancorp Bank as its partner.

A Column GLBA notice dated 02/2022 that appears to have been uploaded in May, 2022 to Oxygen’s website

And Point, which still shows Column account agreements on its website dating to November 2021, ultimately shut down altogether, pointing the blame squarely back at Column:

Point notified customers on July 25th it would shut down; screencap via Point’s FAQ website

Interestingly, in the approximately eight month period in which Point appears to have partnered with Column, Column cycled through six versions of its Deposit Account and Debit Cardholder Agreement — something a former regulator described as “completely out of the ordinary.” The last iteration of the agreement is dated July 25th — the same day Point communicated to users it would shut down.

Point is planning to relaunch as Atlas, whose site indicates it will partner with Lead Bank.

While Plaid was touted as a customer in the press, it’s unclear exactly how or if Plaid is using services from Column. People with knowledge of the matter said Plaid has had conversations with Column, but isn’t currently a customer.

Hopscotch, which wasn’t mentioned in press coverage, shows Column as its partner bank on archived versions of its website going back to March; but, as of September, its site had been updated to reflect Piermont as its partner bank.

Found wasn’t mentioned publicly either. The business neobank for the self-employed was suppose to transition from LendingClub Bank (formerly Radius) to Column. Instead, around August, it also switched to partnering with Piermont.

Also going without mention in the press was Anchor, a crypto wallet that continues to list Column as its bank partner. While Anchor’s site and app are still live, based on app store reviews about endless delays getting new accounts approved and difficulties moving money, it’s unclear if Anchor is still actually working with Column or if it is live at all.

Crypto wallet Anchor also lists Column as its banking partner, though it’s unclear if the service is actually functional

Sources close to the fintechs that partnered with Column, but ultimately found alternate banks to work with, complained that the Column team became extremely slow to respond to communications or ceased responding and progressing joint workstreams altogether — leaving the fintechs, some facing deadlines with other partners or who had already communicated information to end users — scrambling to find other solutions.

“It’s like Column just ghosted us” — employee of a former Column fintech partner

And finally, there’s Brex. Brex transitioned some banking capabilities to Column in April, based on when it communicated a change in account and routing information to its customers.

And while there’s little doubt Brex is still up and running, including using Column as a bank partner, the buzzy startup abruptly decided to stop supporting traditional SMBs in June, in favor of focusing on startups, of any size, with “professional” backing. 

A Regulatory Action Against Column Could Soon Become Public, Sources Suggest

Sources close to Column suggest a regulatory action against the bank could soon become public. Asked about any pending or final regulatory action, Column declined to comment.

It’s not hard to see areas of potential concern that could have given rise to regulatory scrutiny. A look at the OCC’s recent agreement with Blue Ridge Bank offers some possible clues, including Column’s approach to:

• Third-party risk management, including fintech partner due diligence

• BSA compliance, including independent audit and adequate staffing

• End customer due diligence and enhanced due diligence, including beneficial ownership for business accounts

• Suspicious activity monitoring and reporting

• Information technology control program, including risk assessment, governance, and standards

Examining Column’s staffing, it’s difficult to imagine how, even with the best technology, it could perform due diligence and adequately monitor the fintech partners it quickly took on and their end users — particularly given the breadth of capabilities Column purports to offer.

Another former regulatory official said a regulatory action, such as a cease and desist, could arise if a bank has an obvious compliance failure, lacks the needed staff to handle risks, or needs additional staff in an area where they are violating guidance, regulations, or laws.

Column’s most recent call report shows a total of 60 full-time employees — though this would include workers inherited from the single branch of NorCal, which, Column has said, is continuing to operate separately from the new business. 

Reviewing LinkedIn data shows 35 employees who list Column as their employer. Of that number, just five have compliance-related roles, and four of those five joined in 2022 — after, it appears, the new banking platform was already built and running — though it is possible there are additional compliance personnel who are not full-time employees or don’t list the role on their profile. The second compliance hire to the company, who joined just this January, abruptly left the startup last month.

According to the WSJ profile, compliance functions report up to co-CEO Annie Hockey — who doesn’t have any compliance-specific experience nor banking experience in general. Sources also indicated the husband-wife nature of the management team drew concerns from regulators, though this was a known factor when the couple received OCC approval to acquire the bank.

Given previous OCC guidance and the Blue Ridge decision, it seems likely any regulatory action would have centered around lack of adequate compliance staffing or potential risks or deficiencies in compliance management systems, such as how Column ensures BSA compliance, conducts customer due diligence/enhanced diligence, verifies beneficial owners, etc. 

Any regulatory action limiting Column’s and its fintech clients’ ability to take on new customers or develop new products, as was the case with Blue Ridge, could further help explain the abrupt departures and shutdowns of one-time Column clients like Oxygen, Nearside, and Point, as well as crypto startup Anchor’s seemingly impaired ability to open accounts and process transactions.

The Brex Connection

So, why is Brex still live with Column?

As Column’s largest client, Brex is also Column’s most important client. Brex’s sheer scale would also increase the risks involved with transitioning it to a new banking provider.

If the size and scope of Column’s activities vs. its systems and personnel were part of any problem, it would follow that Column decided to prioritize limited resources in order to try to adequately service and preserve its relationship with Brex. If this resulted in other Column clients being bottlenecked, blocked, or ignored because of Column’s limited resources, it’s not surprising they would seek new bank partners, even if they weren’t “kicked off” Column per se.

Around the time that reports of Column’s issues began ramping up, Brex also made the seemingly abrupt decision to drop traditional SMB customers and focus solely on “professionally-backed” startups.

While this has been positioned solely as a change in strategic focus driven by the newly challenging economic and venture climate, multiple sources indicate Column’s limitations likely played a role in Brex dropping tens of thousands of small business customers.

Asked if Column had any capacity or regulatory constraint that contributed to Brex dropping SMBs, a Brex representative said, “No banking partner posed a restriction on serving small businesses.”

However, people with first-hand knowledge of the matter paint a picture of a sometimes chaotic relationship between the two companies. Sources said Brex frequently received urgent or same-day requests from Column, including related to customer onboarding processes and to verify or update documentation for specific customer accounts.

If Column became subject to a regulatory order, numerous industry experts suggest a hard cap on its number of end clients and/or customer accounts wouldn’t be a surprising restriction.

Should Brex have faced a limitation in the number of accounts it could service, either because of its own or Column’s constraints, it is logical it would optimize for the highest revenue and highest revenue potential accounts — fast-growing startups — and de-prioritize slow-but-steady bricks and mortar small businesses.

While the overall changing economic and venture environment surely informed Brex’s thinking, it seems there were additional factors in play — potentially Column’s resource limitations, a regulatory constraint, or both — helping to explain the squishy definition of what Brex customers were eligible to stay and the haphazard roll out of the news.

Other Good Reads

ONE Customers Say They’re Getting Left Behind After Walmart Deal (Business Insider)

Low Code, High Expectations (WTFintech?)

Andreessen Horowitz Went All In on Crypto at the Worst Possible Time (WSJ)

Contact Fintech Business Weekly

Looking to work with me in any of the following areas? Email me.

• Sponsoring this newsletter

• Content collaboration or guest posting

• News tip or story suggestion

• Early stage startup looking to raise equity or debt capital