New York-based ModernFi has closed an $18.7 million Series A funding round to bring growth to community and regional banks with its deposit solution.
The funding, announced Tuesday, was led by Canapi Ventures and has participation from Andreessen Horowitz, Remarkable Ventures, Huntington Bancshares, First Horizon Bank and Regions Financial Corp.
ModernFi’s deposit solution aims to help financial institutions grow, retain and manage their deposit base by sourcing deposits, sweeping funds, and providing further insurance to depositors through program banks. The firm says it can help banks attract high-value depositors, too, thus increasing balance sheet stability.
“Community and regional banks form the foundation of the American economy, providing an outsized amount of credit and banking services to critical industries and areas that might otherwise be overlooked,” said Paolo Bertolotti, ModernFi chief executive and cofounder, in a prepared statement.
“Faced with fundamental shifts in the behavior of deposits, institutions benefit from modern tools to manage and grow their funding. ModernFi has been privileged to help institutions of all sizes protect their deposit base, and the team looks forward to continuing its support of the sector,” said Bertolotti, who cofounded ModernFi with his Columbia University classmate Adam DeVita.
In a single week amid last year’s regional banking crisis, marked by the domino-like collapses of several regional banks, customers pulled $109 billion in deposits out of small financial institutions, according to a Moody’s report covered by Bloomberg.
In that same time, the top 25 largest institutions saw a $120 billion influx, and information from the Investment Company Institute showed a $121 billion increase in money-market mutual fund balances. Bloomberg reported that non-seasonally adjusted Federal Reserve figures showed a decline of $52 billion for the week within the U.S. banking system.
“You’re left with a situation that disproportionately impacted small and mid-sized banks,” Bertolotti said of 2023’s bank runs to TechCrunch. “On this whole notion of deposit growth, retention management became first, second and third priority for a lot of institutions. We were very fortunate to be in a position to help deposit networks and institutions weather that storm and continue their growth and trajectory.”
Bertolotti told American Banker that after the collapses of Silicon Valley Bank and Signature Bank, ModernFi received a big uptick in interest from banks for its network.
“That remains incredibly strong and is still growing ... [although] the speed of that growth has tapered off,” he said.
Tyler Craft, First Horizon Bank ‘s director of transformation in fintech and emerging technology, said deposit management is of high priority for the banking sector right now.
“ModernFi's technology to streamline onboarding and operations for depositors and banks provides an innovative additional way for our industry to serve clients,” he said in Tuesday’s press release.
Igor Cerc, chief enterprise strategy officer for Huntington National Bank, said ModernFi’s functionality “should expand digital capabilities for the banking sector and offers a robust, modern service with the potential to further differentiate how our Wealth Management customers can manage their money.”
Building on a $4.5 million seed round from last winter, the company has raised $23 million to date.
Beyond the funding, Bertolotti told TechCrunch that ModernFi “makes money from basis points based on deposits in the network.” He declined to give specifics on revenue from 2023, the fintech’s first full year, but said it was “a very good year.” Worker headcount doubled in 2023, and the number of banks who utilize “has grown very meaningfully,” he told TechCrunch.
