The Heart of the Matter

Cross River Bank opened its doors on June 23, 2008 – just a few months before the collapse of Lehman Brothers. There’s a saying that opportunity doesn’t knock twice and Gilles Gade, the founder, president, and CEO of Cross River took the chance. “This opportunity fell in my lap,” he said in an interview in 2009. “Somebody had the charter and they needed help to come up with the capital – $10 million – to start the bank. I called a few friends of mine, and we decided to do it together.”

​The bank, which closes early on Friday in observance of Shabbat, had big aspirations for a community bank. It chose the name Cross River as it was eager to do business with both New Jersey and New York customers, and even customers from other states. “It suggests that we have no boundaries,” Gade said. The name also refers to Abraham’s crossing of a river to enter a new land. Aspiration and imagination go hand in hand and on Gade’s office wall was a photograph of Albert Einstein with the following quote: “Imagination is more valuable than knowledge.”

A little over a year from the start of its operations, Cross River Bank had ~$30 million in deposits, mostly from individual households. A few months later, Gade was seeking borrowers with creative ideas. He predicted that there will be a lot more activity in small-business lending because of the number of unemployed people due to the financial crisis. “People have got to do something. They can’t be perpetually looking for jobs,” he said. “We’re going to see a lot of applications out there, and some of them are going to be some very good ideas.” It turns out that Gade was both right and wrong – the bank did see a lot of applications but not the kind they envisioned.

Cross River’s first fintech partner was GreenSky, an Atlanta-based company that helps businesses offer credit to their customers. The company was looking for partners who could originate loans for Home Depot customers doing repair and renovation projects. From renovation projects, Cross River moved on to offer loans for mattresses, electronics, and even clothing through Affirm’s ‘buy now, pay later’ model. There’s nothing unusual about providing loans for renovation projects – banks have been doing that for ages. But giving out loans for new grills, for example, is unusual for a bank.

The fintech opportunity led Cross River to go through an unusual pivot for a community bank and in 2016, Battery Ventures, Andreessen Horowitz, and Ribbit Capital invested $28 million in the bank so it can dedicate more resources to enabling fintechs. With this deal, Cross River went from a community bank serving the Teaneck area to a bank serving the fintech community and its millions of customers across the country.

Banks like Cross River have enabled the fintech revolution, which led Chase CEO Jamie Dimon to tell his management team that they “should be scared s—less” about the fintech threat. On the other hand, Chubb CEO Evan Greenberg says insurtech is just hype.

Some folks like to draw connections between fintechs and insurtechs – here’s one example. The main theme is building the infrastructure for insurance-as-a-service similar to banking-as-a-service. There are several insurance companies offering some form of insurance-as-a-service and a popular one is State National with their fronting model. In 2017, Markel announced a deal to acquire the company for $919 million. “Strategically, State National will help us to leverage our insurtech and digital distribution initiatives, diversify our underwriting and fee-based portfolios and revenue streams, and add to Markel’s third-party capital capabilities,” said Markel’s co-CEO Richard R. Whitt.

In 2016, it was reported that State National’s fronting business had approximately $1.3 billion in gross written premium. In 2018, Markel reported that its program services, which is the fronting offering, generated $2.1 billion of gross written premium volume, bringing in $95.7 million in revenue. In 2021, the program services business reached $2.7 billion in premiums while contributing $119.8 million in revenue for the company.

Markel says that its acquisition of State National “worked out wonderfully” but it’s worth mentioning that the company is one piece in the grand scheme of insurance-linked securities. The other side of the coin is that while fintechs have helped a community bank accumulate billions and billions in assets, insurtechs haven’t done the same with State National as their fronting partner.

On its site, Markel writes that the digital revolution has changed customer expectations in every industry, and insurance is no exception. It goes on to say that it partners with startups in the insurtech-driven ecosystem to utilize their technology to offer new insurance products and enhance existing ones. One example of a product is a short-term insurance policy. Many have tried and failed to popularize short-term insurance coverage. On the other hand, Affirm and others in the ‘buy now, pay later’ space were able to generate strong demand from both companies and consumers for short-term loans.

This leads us to the heart of the matter – banking products and services are pretty standard while insurance products are not. This standard allowed fintech startups to offer a product that actually worked – whether it was a payment service or a no-fee checking account. We can’t say the same about insurtechs, as many disappoint potential clients by charging high prices and having a limited appetite.

Before you build the infrastructure you have to ask yourself if there’s any structure – even in an offline setting, there is such a thing as order. The bank across the street from another bank isn’t offering rates twice as high. The P&C insurance industry has no standards – technology can only enable a process that has order.