Suresh Ramamurthi's Supercharged Community Bank
Banker and software entrepreneur Suresh Ramamurthi is hesitant to use the word 'disruption' when talking about his businesses. As he explains it, he simply finds ways around problems in the making of transactions. "Human beings," he says, "have been making transactions since the dawn of time."
At a time when thousands of people have been pouring out of banking and into the fintech businesses looking to disrupt the banking world, Mr Ramamurthi is one of the few going in the other direction. In 2009, after years working in California as a software enterprenuer and then as a financial software engineer with Google, Mr Ramamurthi and his wife Suchitra Padmanabhan bought a bank in the small Kansas town of Weir.
What he and his wife are doing with the Citizens Bank of Weir in Kansas is equivalent to rebuilding a classic car: leaving the outer shell in place, but replacing the frame, the wiring, the filters and the fluids, and then putting in a supercharged engine, a digital dashboard – and powerful brakes.
Mr Ramamurthi moved to Kansas in 2005. Four years later, he and his wife, Suchitra Padmanabhan, bought the Citizens Bank of Weir, in the town of Weir, Kansas. From his experience at Google, where he worked on Google Checkout – predecessor to Google Wallet – Mr Ramamurthi had realised the privileged position that banks held in the movement of money, and felt there were opportunities to combine technological wizardry with the existing banking infrastructure.
From teller to technologist
After taking over Citizens Bank of Weir, and renaming it CBW Bank, he dived into his new career as a banker, taking deposits and making loans. "I worked behind the desk, as a teller," he told Retail Banking Intelligence. "I went out to meet farmers who were our customers." He didn't shy away from the dirty work: "I repossessed a Hummer." Yet it was in the everyday work inside the one–branch bank on Weir's main street that he was struck by the contrast between the world of banking and the rapidly–evolving world of technology. "I came from a world where everything happened instantly," said Mr Ramamurthi.
Inside CBW Bank, he could see precisely what points in the network were holding up the flow of the payments processes. "It reminded me of water supplied to the house where you have pipes running almost to the house, then using buckets to gather and transfer the water into the house water tank and the piping inside," he said.
At the bank, money transfers were executed through the Automated Clearing House (ACH) system or by wire transfer. Wire transfer was relatively fast but expensive and the addressing system was inconsistent. ACH had a superior addressing system, but it was uneconomic for banks to send transfers on a rolling basis because compliance requirements were integrated into the core systems, so they were sent in batches once or twice a day instead.
In order to make this process faster, Mr Ramamurthi says he had to "rebuild the plumbing". As he started, he discovered that he would have to become an expert in both compliance and technology. They were functions that banks had progressively outsourced to external providers and few people, he found, had a foot in both camps.
One of his first steps at CBW was to offer customers an online portal to sign up for an account. In a recent interview with the Payments On Fire podcast, Mr Ramamurthi recounted how his bank's original compliance provider declined to sell him a licence to use its disclosure forms for the online service. Undaunted, he trained in compliance and designed a course for his staff.
The bank's original core provider was another obstacle, and only sold standardised platforms for banks. When Mr Ramamurthi asked for an API, so data entered by customers opening accounts would go directly into the bank's database, the provider said that work was underway on such a project and it might be ready in a couple of years.
Realising that his providers were unable or unwilling to meet his needs, Mr Ramamurthi took matters into his own hands, but when he looked around for a suitable technology, he couldn't find one. He decided to develop the new technology himself.
Yantra, the financial engine
The key challenge, he said, was to seamlessly and rapidly integrate new technologies into the existing systems, rather than randomly attaching bits and pieces to the legacy infrastructure: he describes his approach to the process as "holistic". Searching for a name for the new business, he turned to the ancient Bhagavad Gita for inspiration, and selected the word 'Yantra'. "It means apparatus or machine," he says. "It's interesting that this word appears 5,000 years before the industrial revolution. It can be suffixed to any word, so a flying machine, or a financial machine." Yantra became CBW Bank's financial machine, and Mr Ramamurthi added a full–time position as CEO of Yantra to his full–time job as chairman of CBW Bank.
Yantra raised $8 million in venture capital, hired engineers and began searching for a new mechanism for payments. Realising that the debit rails could serve an additional process, CBW and Yantra began talking to the debit networks. "We plugged into every major debit network," he says. "Your debit card is nothing more than a pointer to a bank account, to push or pull money." Previously, the counterparty settlement networks such as Pulse or Star had only been used to debit a customer's account for making a payment; CBW made an agreement with the networks that allowed it to send a credit message along the same rails, which became instantly available in the customer's account.
The remaining problem was to bring the risk management and compliance regulations up to the same velocity. "When you have a fast car, you need good brakes or else you only go fast once," he says. When he looked at the existing systems, he realised that they were limited in the amount of data they could handle – a hangover from times when data storage costs were far higher.
Yantra's solution was to exploit big data and cloud technology, using the descriptive variables now available on every transaction – such as IP addresses, machine signatures, mobile signatures and all of the information available when consumers transact through a financial system. With between 20 and 40 variables available, it was possible for each client to have a unique digital signature, with deviations from the variables sounding an alert.
"The risk management system has turned out to be a hit," says Mr Ramamurthi. "It operates on a millisecond speed and can manage billions of transactions." Although Yantra was developed to provide solutions to the logjams at CBW Bank, the new products found favour with other banks. The provision of instant money transfer attracted business to CBW Bank. Insurance providers took accounts with the Weir bank to send claims money to their customers. Moven, the mobile banking start–up that offers instant tracking of payments, joined forces with CBW, as did payments firm Omney, bringing new customers to the bank.
With the problem of domestic transactions solved, Mr Ramamurthi moved on to another part of his business plan for CBW Bank: remittances. Like other services in the banking network, the remittance flow tended to go through a few large providers, with the major correspondent banks channeling remittances and money transfers through their own international networks. Along with that, the main thing stopping banks from doing remittances was the account opening problem: KYC and AML requirements. Yantra's risk management engine allowed CBW Bank to offer significant fraud prevention behind the scenes without affecting the user experience.
Mr Ramamurthi began by looking at Mexico, as a major corridor of remittances from the US, and then moved on to India, the land of his birth, travelling to India himself to establish direct bilateral banking relationships. Now Yantra's second strand of business, it is called Global Remit. While it currently takes a day to send money from the US to India, Mr Ramamurthi anticipates that the service will soon be available in real time using its Indian banking partner, and it will also be extended to several other countries. Yantra's risk management system will also play a part in the remittances business.
The third strand of Yantra's development is One Card, which offers card processing services. Like CBW Bank's approach to accounts, Yantra takes the approach of operating on the "entire gamut", as he puts it. "We offer every way to put money in and every way to take money out." Recent offerings include cards whose uses are limited or constrained. "It's adding context to payments," he explains. "Take this example. With a dollar bill, the only way to limit its use is to rig it with some magical chemical. But again, with digital instruments, you have a pointer, and you can get the pointer to go away at a certain time, or to restrict the access." Yantra also offers this service to other banks.
Ripple, Fidor and new corridors
CBW Bank – along with community bank Cross River Bank in Teaneck, New Jersey – is one of only two US banks to sign up to the Ripple protocol. "Ripple is a very interesting protocol," says Mr Ramamurthi. "It's a messaging protocol for communicating, and there are also liquidity providers operating within Ripple." The liquidity providers – whom Ripple declined to name – will enable CBW Bank to maintain a liquidity buffer in different countries for settlement purposes.
As a bank, CBW Bank has to meet FDIC's regulatory requirements on new processes, and it is currently doing the due diligence and testing of how a third party such as Ripple can integrate with bank systems. It's the type of experimental project that might normally fall to a large bank, but it's the in–house development of technical and compliance resources at CBW and Yantra that has enabled the bank to take on that task.
If and when the bank does start using the protocol, Ripple would provide the messaging and the liquidity providers but the bank would maintain the system of records, and Yantra's real time risk management system would allow CBW Bank to implement the system without recourse to the big core providers. Like some of the other leading developers of payments systems, he sees an evolution of the risk management system into analytics. "It's becoming more than risk management because risk is a way of analysing transactions. It's an analytical engine."
When the German online bank Fidor signed up to Ripple, an interesting possibility opened up: if both banks get regulatory approval to use Ripple, the protocol will allow any bank within the US to transfer money between the US and Europe, using CBW Bank's network on one side, and the SEPA system on the other side.
In a few short years, CBW Bank has become a provider of core payment services to other banks. Mr Ramamurthi says that as marketplace lending eats into the loan business, banks will increasingly look to non–interest income such as payments, which will in turn drive the market for real–time risk management solutions such as Yantra. He says that CBW itself is looking at alternative sources of loans, and he has been talking to several players, including Lending Club, which recently announced a partnership with a group of community banks.
Is there any operator that keeps Mr Ramamurthi awake at night, like Apple and its Apple Pay offering? It appears not. Referring to the enormous data thefts at businesses such as Target, he cites Apple's use of tokenisation as forward–looking. "Apple is a great way to tokenise payments outside of the telcos," he says. "The telcos failed to open up NFC, to open up the secure element, and they chose to monopolise it. So the telcos got disintermediated – not just at handset level but at the payments level as well."
While most fintech businesses are hoping to carve a slice out of niche markets, Mr Ramamurthi's businesses are carving into cards, domestic money transfer, international money transfer and core services – all out of a bank that serves a town of less than 1,000 people. This enterprise has attracted attention from both fintech businesses and media outlets looking for a good news finance story. In December 2014, the New York Times Dealbook came to Kansas to write a feel–good story about the little town of Weir and the Indian–born banker revitalising its main street.
Mr Ramamurthi himself is at a loss to explain how CBW Bank and Yantra has grown so popular. "It's a bit of a mystery to us," he says, pausing as he searches for an answer: "We've spoken at a few conferences." The truth is probably more prosaic: CBW Bank and Yantra are showing the way for small banks to make money and attract new customers, and that doesn't go unnoticed.
Have the people of Weir been happy to see their local bank not only survive but prosper, Retail Banking Intelligence asks? "I can't say myself," says Mr Ramamurthi modestly. "I think if you read the article in the New York Times, it seems so."
Suresh Ramamurthi will make his first appearance in Europe as a keynote speaker at the Banking Innovators 2015 conference in London. The conference takes place at Level39 in London on 30 June. Registration details are available at www.laffertyevents.com
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