August 2019

BUILDING GRASSHOPPER BANK FROM THE GROUND UP: New Digital Venture Bank Prepares to Fully Launch

Judith Erwin was looking forward to a hiatus from banking after Square 1 Bank — where she was a member of the founding team — was sold to Pacific Western. Instead, the prospect of building a bank with a digital foundation from scratch lured her back into the business.



Judith Erwin
Founder & CEO, Grasshopper Bank

Dr. Grace Hopper is not a household name, but she probably should be. The Navy rear admiral was a pioneer in computer programming. She invented one of the first linkers and popularized the idea of machine-independent programming languages, which led to the development of COBOL, an early high-level programming language still in use.

During her lifetime — she died in 1992 at the age of 86 — she was honored by the Navy, which named the destroyer USS Hopper in her honor, and by Yale University, which renamed a college after her.

When Judith Erwin decided to start a new type of bank, building a digital platform from the ground up, Dr. Hopper was her inspiration, and the new bank was dubbed Grasshopper Bank in her honor.

COBAL, Erwin points out, is the language that forms the foundation of the banking industry. And grasshoppers themselves are worth emulating.

“Grasshoppers have also represented good fortune and hard workers,” says Erwin. “Grasshoppers are physically unable to jump backward, or sideways…only forward,” she adds, and that is the direction that Grasshopper Bank is moving.

Erwin is not a rookie when it comes to starting a venture bank. Back in 2005, she was a member of the team that founded Square 1 Bank, designed to help start-ups obtain venture debt. It was a successful concept. So successful that Pacific Western bought Square 1 in 2015, only a year after the bank went public.

The world, Erwin points out, was a very different place in 2005. Business people were addicted to their Blackberries, not knowing that Apple would disrupt their lives with the iPhone in 2007. It was also a differently regulatory world. The market, Erwin notes, was only 30% of what it is today.

Standing at the Crossroads

So, after the sale of Square 1, Erwin had decided to take a break from banking and try “a new adventure.” But fate intervened.

“I was approached about considering a new venture bank. I looked around at the banking environment,” she explains. “I looked at New York. I specifically looked at the venture banking space to see what was the future going to be like for this business. I’ve been in venture banking for 20 of my 30-plus years [in banking], and I knew that it was a great business model . But [it was] very much a niche play and difficult to scale on old school technology.”

Standing at a crossroads, she observed, “I was in a really unique position. I had done everything there is to do in banking, from a time when banking was incredibly manual to a time when banks were pretty much handcuffed by previous technology that didn’t allow them to adapt to the new world.” Quoting those great financial experts, Monty Python, she added, “And now for something completely different.”

Grasshopper Bank was created to be different in myriad ways. While originally Erwin was determined to build a digital bank from the ground up based on the latest technology and without those handcuffs, she grew aware that change also needed to come from other fronts to really make a difference in the banking community.

“I was more and more frustrated by looking at the management teams and boards of New York banks. The board management teams were pretty much middle-aged white men. The boards were the same. I’ve been in banking forever. I’ve worked with other brilliant women and people of color, and they just somehow never made it to New York,” she said.

Finding a Visionary

Moving ahead as a disrupter in the banking business, Erwin plucked Minerva Tantoco from the City of New York as Grasshopper’s first chief technology officer.

“While I may have a vision for what banking should accomplish from a client perspective, I needed to find a really visionary CTO to help write and draft this architecture,” says Erwin. “That’s when I was introduced to Minerva, who is that brilliant visionary.”

In their first meeting, Erwin asked Tantoco what she would do if she could build a bank from scratch.

‘How would you do it?” Erwin recalls saying to Tantoco. “And because of her background and career she immediately drew it. What we built was a completely open API architecture with real time data.”

This structure enables Grasshopper to obtain a complete view of each client and adapt its products to the client base. “And that’s what got me really excited,” she adds.

Today’s young entrepreneurs, Erwin points out, are often astonished at how different the banking world is from the consumer world, which operates 24/7. You can order shampoo from Amazon.com or Target.com at midnight, so why can’t you apply for a business loan or speak with a banker? Grasshopper is looking to create the same convenience in banking that people have in shopping.

Grasshopper, which is still in its beta stage and does not yet have a website available to the public, is also planning to be more than an online ATM. Erwin says that because entrepreneurs want to do their banking at 10 p.m., the bank will have live people ready to talk to them, help them and work to find the products that best fit their business plans.

As a digital bank, Grasshopper’s headquarters will remain in New York with one physical location and easy access via computer and telephone. But unlike many new online banks that are coming on the scene, Erwin went the extra mile to obtain a charter, which was not an easy task.

“It’s been hard,” she admits. “A lot of companies out there today,aren’t actually going that extra mile. They’re building a front end. They’re paying 2% on savings, and they’re giving away very minimal services for free. There’s no way those banks are actually making any money. How are they providing a sustainable service level is really my big question.

“As a charter, I have all the traditional levers of bank profitability. The difference between what I pay on deposits and what I get paid for loans will allow me to build a very scalable model where I can provide sustainable and repeatable products and services. I think what’s missing without a charter is that sustainability to make money and continue to return value to your clients.”

Another advantage? The charter is national so Grasshopper won’t have to register separately in every state. And unlike existing venture banks, Grasshopper will also offer small asset-based loans.

“We have created a lot of scale and repeatability with our technology. I can do those $250,000 asset-based loans, whereas my competitors wouldn’t want to do it for less than $10 million, because they’re not going to make money on it,” she says. “We also are, as I mentioned before, very focused on the micro bases and the smaller venture firms.”

While Erwin and the 42 “grasshoppers,” as she calls them, are already at work in the office, Erwin is moving deliberately from phase to phase, working the bugs out before the bank’s public launch. The bank opened quietly to about a dozen clients so it could test its Internet platform. As it eases into its beta phase, Erwin will invite about 100 companies to try the website. She says there is a waiting list as word has gotten out.

She plans to use the beta phase to find out what clients like and don’t like, so the team can continue to build the bank before the hard opening.

“We’re using agile methodology, so we’ll drop a feature every two to four weeks to continue improving the user experience. We actually hired the same guys that designed Venmo because we wanted the same sort of user experience — very clean, very intuitive, very elegant.”

Erwin is holding off on the formal launch until they feel that “our clients believe that we are presenting a product that will be gobbled up.”

She adds that while that could be two months from now or a year from now, she promises the result will be “delighted business clients.” •