The unbanks

Investors and consumers alike could reap the benefits as more and more start-ups step into what used to be the exclusive domain of traditional financial companies

By Todd Wallack
Globe Staff / July 17, 2011

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At PerkStreet’s downtown headquarters, a dozen employees - mostly twentysomethings in jeans and sneakers - are chatting or pecking at laptops in a few rooms surrounded by blond Ikea furniture and green partitions.

As at many tech start-ups, workers are paid partly with stock options. There’s no dress code. Notes about what each worker is doing are scribbled on glass panels on one of the walls.

But PerkStreet isn’t developing a new video game or social networking site.

Instead, it’s marketing checking accounts, competing with financial giants such as Bank of America, Citibank, and Wells Fargo. The company, founded three years ago as PerkStreet Financial Inc., has already attracted tens of thousands of customers by offering a debit card with the highest cash-back rewards in the country.

PerkStreet is one of many companies in Boston and nationwide using technology to reinvent financial services. Call it Finance 2.0. Call it fin-tech - short for financial technology. Whatever you call it, the sector is exploding.

Last year alone, venture capitalists invested $834 million in scores of US financial technology firms, up nearly a third since 2008, according to CB Insights, a New York information services firm. So far this year, venture capitalists are on pace to pour more than $1.4 billion into this industry, up 75 percent from last year.

In Massachusetts, financial start-ups have collected more than $78 million in 16 deals since 2008. “Financial technology is exploding with 2011 already poised to be a breakout year,’’ said CB Insights chief executive Anand Sanwal.

For consumer, it could mean more options than ever for banking and investments. Some companies are marketing products directly to consumers; others are developing technologies to allow financial institutions to offer new services, such as mobile payments.

Industry executives say a number of factors are driving this growth. First, consumers are increasingly comfortable with online financial transactions. The spread of smartphones and other mobile devices has created new ways to conduct business. And many customers are dissatisfied with traditional financial institutions.

“It looks like an area that can be disrupted,’’ said Eric Mattson, chief executive of the Finovate Group, which runs a conference dedicated to financial technology start-ups.

Financial tech firms are focused on everything from banking to investing to digital payments. For instance, Square Inc., launched by Twitter cofounder Jack Dorsey, is offering a free app and thumb-size credit card scanner that plugs into a smartphone or iPad, allowing almost anyone to accept credit card payments.

The San Francisco company pockets 2.75 percent of every transaction.

Two firms, Green Dot Corp. of Southern California and NetSpend Holdings Inc. of Austin, Texas, market prepaid debit cards. Both had successful initial public offerings in October, encouraging investors to pour money into financial start-ups. Fig Card, a tiny Boston start-up recently bought by eBay, is developing technology to let people use smartphones to make payments to merchants.

In Cambridge, Blueleaf is testing a website to help financial planners aggregate clients’ investments from different brokers, analyze data, and present information in an easy-to-understand format. The company plans to charge financial planners for the service.

Boston-based SimpleTuition Inc., helps students and parents find information on student loans, earning fees each time someone clicks on a link to a lender. Trefis, also in Boston, has developed a site to help investors analyze stock prices. Currensee, another Boston start-up, is developing a site for foreign exchange traders.

And just a few months ago, two local technologists started an Uxbridge company, TotalTab, developing software to let you pay your bar or restaurant tab with a smartphone app (instead of waiting for a server). “It all started with waiting for a check at a restaurant for way too long,’’ the company says.

PerkStreet was launched to focus on an area it viewed as neglected by traditional banks. While many customers pick credit cards for frequent flier miles and other rewards, most debit cards don’t offer such incentives. PerkStreet responded with a card that offers 2 percent cash back to checking customers when they maintain a balance of $5,000 or more (1 percent back for other customers), plus 5 percent on selected purchases.

PerkStreet generates revenue largely from transaction fees merchants pay when customers use debit cards. Like most privately held companies, PerkStreet doesn’t release detailed financial information; it says that it has more customers than most community banks and that it has raised $15 million in venture capital.

Some potential customers, of course, ask if it’s all a scam - given that PerkStreet doesn’t have any physical branches. Indeed, PerkStreet isn’t even an actual bank.

To get around costly regulations governing traditional bank start-ups, PerkStreet partnered with another institution, Bancorp Bank in Delaware, and focuses on new products, marketing, and customer service. All funds are held by Bancorp, where they are insured by the Federal Deposit Insurance Corp.

PerkStreet touts the FDIC guarantee on its website. To further reassure potential customers and partners, the company rented space for its corporate headquarters on State Street, the home of many traditional Boston financial firms.

“We wanted an address that conveys a level of gravitas,’’ said Jason Henrichs, the company’s cofounder and chief operating officer.

But in person, PerkStreet executives do little to hide that they are an upstart. No one in the office wears a tie (though Henrichs and the 32-year-old chief executive usually keep blazers tucked next to their desks for meetings with key partners). No one has a private office or even a private cubicle, instead working in a mostly open room.

But there are limits to how closely PerkStreet tries to emulate the stereotypical tech start-up culture. There’s no foosball table or free lunch.

Todd Wallack can be reached at