Banks aren’t letting fintechs have all the fun when it comes to using technology, giving startups a chance to show what they’ve got.

In the same vein as companies like Flourish Fi, Treasury Prime, Savana and Amount that offer banking software, ModernFi provides a marketplace for banks to exchange deposits on demand.

Banks typically use deposits to make loans, leaving them in one of two situations: Either they have too many deposits and not enough credit or investment opportunities, or they don’t have enough deposits to meet the demand for loans, explains Paolo Bertolotti, co out. founder and CEO of ModernFi.

For banks that need additional deposits, some of the go-to solutions include opening a new branch, hiring more relationship managers, or increasing marketing spend.

However, Bertolotti, whose background is in financial engineering research, said there has been a trend over the past 20 years for banks to buy deposits directly from other institutions through the wholesale funding market, which has become a $2.3 trillion market.

“It’s an over-the-counter market, meaning there’s no marketplace or exchange and the market is very outdated and opaque,” he added. “It’s really relationship-oriented and broker-run, where you’re basically picking up bank CFOs on the phone, calling other banks and brokers to understand market prices and find liquidity.”

Seeing how bilateral the relationships were, ModernFi was founded in 2022 by Bertolotti and Adam DeVita to build a transparent marketplace that connects banks to exchange deposits on demand. It also helps the banks manage balance sheet size and generate potential income. It currently partners with US-based banks ranging in size from $500 million to $100 billion in assets.

As fintechs partnering with smaller banks have become popular, they have also found themselves in this situation, Bertolotti said. They want to stay small, but also enjoy the exchange income that comes with sponsoring a fintech.

“We have seen scenarios where the fintech partner is growing so fast that the bank has to tell them to find another sponsor,” he added. “We can hook up these sponsor banks and give them a way to transfer the deposits to us so they can do what they want to do. You need a healthy interbank market to smooth out the edges, and that’s really how we see ourselves see fit.

ModernFi does not charge any transaction, account, or setup fees, but it does take a portion of the proceeds banks pay on the deposits. The company does have some income at the moment, but Bertolotti declined to go into details.

The company is also the latest startup to attract investor attention for its banking software, raising $4.5 million in seed capital. Andreessen Horowitz led the round and was joined by executives and founders from JPMorgan Chase, AWS, Coinbase, Q2, and BlackRock.

David Haber, general partner at Andreessen Horowitz, said in a written statement about the increase, “After more than a decade of being relatively steadfast, this market has become increasingly dynamic, laying a strong foundation for ModernFi’s business. With its technology-based marketplace, ModernFi is poised to become the go-to interbank solution for those looking to monetize excess deposits and others who need on-demand access to balance management.

Bertolotti plans to use the funds for growth, including hiring engineering, banking partnerships and compliance, and product development related to integrations with banking partners and expanding the types of financing available through its marketplace.

Investments will also be made in banks on both sides of the market, which benefit from diversified and stable funding sources from multiple banks. For those banks on the receiving end, ModernFi is working to help them eliminate any counterparty risk while increasing the number of FDIC insurance policies the banks can offer.

“Today we are calling on deposits, which is a source of funding for banks, but we are very excited to roll out time deposits, which is a second source of funding,” he added. “There’s quite a bit to do on the analytical side, but also to help banks manage their balance sheets.”