As a founder of a startup in 2008, Immad Akhund found himself frustrated. Heyzap, a tool that maximized how much money app developers made from advertising, worked with a variety of banks, like Silicon Valley Bank and Bank of America. None of them was noteworthy. Akhund found banks’ technology woefully behind and they had a way of charging fees for everything.
“I was just really frustrated as an entrepreneur that I had all these great other services, which improved over time, but banking was this kind of static thing that I was forced to use and rely on,” he said. “I was never happy about it.”
Akhund’s experience was that the more niche a bank was, the more unlikely it was to write its own software. That leaves their startup clients with a bunch of disjointed services that that are all like ‘enterprise software that the banks contracted out’. Recalling his most frustrating experience, he remembers spending three days at the end of each month manually copying and pasting numbers from his firm’s back office into the bank.
“I think startups and technology companies kind of expect to be able to automate their business processes,” he said.
In 2017, he started Mercury, a bank for startups. In preparation, he spoke to everyone he could talk to: entrepreneurs within fintech and outside of the field, bankers, and people who had tried to fix banking before. “There was almost no success,” he said.
Mercury offers FDIC-insured bank accounts with API access and powered by Evolve Bank and Trust. The challenger bank’s accounts come with virtual cards, cashflow analytics, programmatic payments, and instant runway estimates. Mercury doesn’t charge monthly fees and has no minimums. The company currently makes money through debit card interchange and through opening up deposits with its partner bank.
Unlike the playbook used by many upstart consumer banks, Mercury doesn’t plan to roll out premium accounts. The startup bank targets funded startups and ecommerce firms, 35 percent of which start using Mercury immediately upon opening a corporation. There’s kind of a power law with these types of firms, according to Akhund. Its top customers have over $20 million in deposits or are doing $500,000 in monthly revenue. That more than covers the smaller firms that aren’t producing a lot of revenue. The startup bank generates revenue of about $50 per user.
“From my perspective, I could give away free accounts all day and still make money on the big ones,” he said.
Having one type of account also means that customers all have a similar experience. Entrepreneurs don’t have to stress about missing out on features or not hitting minimums.
Mercury has a lot of Silicon Valley betting on it to win — investment firm Andreesen Horowitz and angel investors like Plaid’s Zach Perret, Allison Barr from Uber Money, Bill Clerico at WePay, and Roger Smith, founder of Silicon Valley Bank. This leads to the majority of Mercury’s customer acquisition — 80 percent — being generated by word of mouth. This frees up Akhund to focus on serving customers.
“The best part is just having a service that our customers really love. And then, whenever someone’s having a casual conversation, either online or offline, Mercury’s often kind of at the top of people’s minds. It happens all the time,” he said.