Starting your own bank is laborious but profitable (2009)
wealthmanagement.com
wealthmanagement.com
Conventional wisdom says small businesses benefit from a personal relationship with local bankers who know market conditions and can sign off on loans and lines of credit that a national bank might see as too risky or too small to deal with.
But as a depositor, I don't want a personal relationship with my bank at all. I want a reliable IT system with low costs and great tech support if something goes wrong, which is something the scale of a national operation can best deliver.
I don't keep large liquid in my CU, instead that is in higher yeild accounts, but that was true with Chase or BoA as well.
The reliable IT system has to be there, but you might be horrified about the beast of systems (human and computer) that make our banks/ach/transactions/etc function.
I don't worry much about loosing money in the bank due to FDIC/ NCUSIF. I can't audit their internal process so I instead depend on insurance. It kinda removes worry about their IT infra from my mind.
If you are above FDIC value, you should be banking with multiple banks and putting your money to better uses.
For me, 'good IT infrastructure' isnt for reliability (though that's important!), but got good digital products. I want an iPhone app for my bank that's made my actual humans that know how to make apps.
In my eyes, the most successful banks have realised that there's actually very little differentiation between financial products between banks, and where you can set yourself apart is with your internet banking and mobile apps.
I use Monzo in the UK and really enjoy it.
This would never happen with major banks - because they screwed the pooch with that in the 1980s and still have the same COBOL patches running today.
What I am trying to say is that the new banks will offer really good new products - but there is a risk premium.
What?
Do they tend to get some kind of private insurance against institutional failures for their entire balance? Or do they just not worry about it?
There isn't much of a gap between your average credit union and the best online banks. They all use one of a few COTS systems. Usually the only gap is that it is more difficult to setup inter-bank ACH.
For my personal bank account though I agree -- just do the job at lowest cost. A cash management account works better for me even than a credit union.
Note that this is an attitude where the banks are essentially assumed not to be at risk of bankruptcy. Maybe this means the depositor views the banks as a utility - access to the system whereby debts are settled and trade occurs.
This is completely at odds with what the banks actually do day-to-day, which is make judgments about which businesses and families have a chance to thrive. They execute this through their decisions on who to loan to, and how much.
There is an enormous tension here - the capitalist mechanism to encourage good performance of the banks day-to-day duties is losses and hence bankruptcy if they really muck up. A voting consumer who wants 'reliable IT' and 'Tech Support' isn't going to tolerate that in the design of the system.
I don't have any money in the American banking system, so I can be harsh. The world is full of threats and risk; if people can ignore what is been done with their money then the financial abstractions and safety nets are too extreme. It isn't reasonable for a depositor to be completely, purposefully ignorant of what is being done with their money. They should acknowledge and carry some (relatively small amount) of the risk, and have an actual relationship with their banker.
I miss the old-world personal relation with the banking manager that a reasonably wealthy individual could enjoy. I think it would create stronger local communities.
EDIT obviously depositors with account sizes in the <$10,000 sort of range should be able to ignore the whole financial thing, they don't really have enough money to be interesting. But serious amounts of money should feel some of the risk. Someone with, eg, a $50,000 bond should be able to ask probing questions.
When your short-term/emergency needs are fulfilled and you want a relationship, risk exposure, critical thinking about the use your money is put to, etc. you invest with a broker. Some traditional banks have associated brokerages (Chase/JPM, BofA/Merrill) and some brokerages have minor retail banks (Fidelity, Schwab) but the best-in-class services generally come from different institutions.
For most practical purposes, banking and investment are completely different things. That may not have been true historically, but these days the concept of interest on a deposit account is a vestigial curiosity. If you want returns, you go to the stock market.
[edit] source: I sit on the board of a credit union. This is a concern driven by the regulatory burden and cost to maintain a competitive IT infrastructure
You should check them out: https://www.narmitech.com/
I found them on the "Who's hiring page" here on HN and they seemed very on the ball (speaking as someone with lots of big bank tech operations experience).
I presume this is focused at retail banking? And focusses on the customer-facing system?
Looking at the api, it's seems very UK-focussed.
I had this as an idea a couple days ago, ha.
(ninja edit, found their pricing) Their pricing seems decent https://www.solarisbank.com/content/partner/preis-_und_leist...
The problem is that banking is a business for suckers. Banks only make money because, theoretically, they have low capital costs. But these days there are many, many entities flush with capital and eager to lend and they certainly don't care about actual cash flows or hard assets. In a world with 100B VC funds and SBICs and sovereign funds all desperate for any kind of real growth only suckers actually go to the bank for loans. And actually loaning real money to such people won't move the needle. This makes banking an inherently risky, and very boring commodity business. In the UK everybody's constantly asking why banks won't lend to anybody but real-estate developers and real-estate investors. What else are they supposed to do to pay their rent? Finance another kebab shop?
China, frankly, has done the right thing and fully embraced shadow banking. Having the economy held hostage by a bunch of golfers is insane. Extend the special privileges enjoyed by banks to a wide array of institutions and you will see capital find its way to the best allocators. This isn't about deregulating banks. This is about recognizing there are wide array of lenders out there who are ready to invest. Bring the shadow banks in from the cold.
There are few industries that even approach that.
I hope you're not serious about that.
I would actually counter this with the point that many of the historic banks are so steeped in technical debt that newcomers are at massive advantage in terms of iteration speed and IT cost. This comes from a lack of competition (until very recently), and cultural problems at the executive level that stop them from considering themselves technology oriented firms.
Look at Monzo in the UK, recently given full banking license, been on the scene for 3 years now.
No bank in the UK has been able to come close on ease of use/access, onboarding speed, settlement speed, customer service, clarity and feature set of their current account. From the outside, it looks like they aren't even trying...
And if you're a $100-$200 million in assets credit union, you may have an IT team of 2-3 people (that's a swag, but it wouldn't be > 5)
I really liked the Beal Bank model when I read about it, they raised from CDs, money market funds, etc which had a low funding cost but not much IT needs. The guy who started it is worth 10B+ now
There are non-depository financial institutions, but you'd be more familiar with them by other names: investment banks, insurance companies, pension funds, mutual funds
I highly recommend it. Most CU boards are in desperate need of younger members (younger here being <50), you learn a TON about governance vs management vs doing the work, and it looks good on a resume too
Credit unions (or their closest form) in Europe, (co-op banks and various incarnations such as Sparkasses or Caisses d'Epargne) are now spreading their risks, and to alleviate the geographical niche issue merged together (several dozens Caisses d'Epargne in France 15 years ago, about ten now for instance).
Other forms of pseudo co-op banks such as Credit Agricole (which started as a network of farmers credit unions) or Caja Rural are now banking behemoths doing everything from retail banking to investment, HFT: Credit Agricole is now probably in the top 10 largest banks worldwide.
http://credit-agricole.ro/en/2018/05/23/credit-agricole-ente...
I've used CA in France and it was a very miserable experience, even by French banking standards (which on themselves are surprisingly low).
I'm using them in Egypt and it's a shitty experience too. Better than French CA, better than most government-owned banks in Egypt, but still shitty.
Their offer towards startups "Le Village By CA" seems, however, interesting.
[edit] re: ldayley comment, I'm referring to vertical niches of service rather than horizontal market niches
https://en.wikipedia.org/wiki/Abacus_Federal_Savings_Bank
https://en.wikipedia.org/wiki/Abacus:_Small_Enough_to_Jail (an excellent documentary)
Though they were cleared of all charges, I'e the stress caused onto the staff of 19 people was great.
The point was to show how this is a negligent use of public resources unless the laws changed, which they won't.
Maybe it backfired because the jury felt it was unfair by that point, the result is still the same and it solidifies the case law itself raising the bar for prosecution even higher.
https://www.linkedin.com/in/michael-wagner-60a65b116/
So I guess you...can't open a bank?
My email on my HN profile if you are interested in learning more.
any takers?
https://www.lendacademy.com/ant-financial-is-now-a-top-10-ba...
0. don't tell the customers that we can do anything we can't do
1. cap profits at a low percentage of the capital base to discourage being irresponsible with customer money; enforce corporate austerity to keep costs very low
2. any profits over the cap are returned to customers
that's it, i think. the idea is to have a bank that is rock solid (even when compared to other banks) and profitable for customers. maybe only offer one type of account, and have no minimum deposit. no fees, and offer ATM cost refunds. no personal loans. no credit cards. maybe offer a mortgage package, but probably not. no branches, obviously. customer service would be top priority.
the corporate side of the bank would ride on austerity. no advertising beyond what is necessary to start the bank in motion. no luxuries for the c-suite. maybe enforce a max disparity in pay between the lowest rung and highest rung of employees to something outrageously constrained like 10 or 20k. maybe only have five or six job titles in total, if possible. fill those jobs on a first (somewhat qualified) come first serve basis and a 20 minute interview. advertise the jobs only as necessary.
is this idea crazy? maybe in the banking sector it might be, but you can't trust them. they're drunk on chasing money, and they're reliably unreliable in the long term-- the article even mentions how many banks have gone under.
but there are a lot of great examples of other kinds of companies (i am specifically thinking of the food wholesaler called aldi) which make their money by offering what the customer needs and nothing more. you don't need to go crazy profiteering to make robust profits...
some 30+ years ago, when banks were on COBOL mostly, the system analysts would try to lower costs because you couldn't charge a fee, and if you didn't provide services that cost the bank money, the clients would move to your competition.
In that time, banks had the concept of Client Acquisition Cost. Today banks uses fee for everything and everyone is ok with that, so they now have the concept of Recurring Fee Profit Per Customer. If you don't pay many fees, they treat you like garbage.
So yes, it is very possible to make a profit by not only having those things but having that without fees. You will just have a harder time getting institutional investors because now they will only ever invest in predatory banks because they provide a return much faster.
They actually don't. Most ATM fees and inter-bank payments (at least in the UK / Europe) are swallowed by the banks rather than exposed to customers.
> So yes, it is very possible to make a profit by not only having those things but having that without fees.
How? As far as I can tell you're describing a bank that runs deposit accounts but doesn't loan the money back - that is not obviously a profitable enterprise. Something in the whole scheme has to make some money to pay for the employees, the infrastructure, and all the other fixed costs.
You will get there, unfortunately.
And you completely missed the point. Loaning/re-investing with volume is a very sure way to make money, and was what banks used 30+ years ago. now they pad it with fees for everything.
And I did not miss that point, thank you. I just disagree with it. I don't think banks make their primary income from fees; current accounts are still basically a loss leader.
A simple multiplier makes more sense. Top position shouldn't be making more than 10x the bottom position (or something like that). A janitor, for instance if full-time and more than just sweeping floors, is making $20-40k/year (big spread, but that's starting at $10/hour and going up to $20/hour which is a reasonable rate in much of the country for that work). So that means top brass is making $200k-400k (on a 10x multiplier between top/bottom incomes). If the big boss wants a pay raise, they have to move at least the bottom of the pay range up with them. If you add a constraint on the mean/median income, they have to bring everyone up with them.
i think using that framework the ideal constraint would be something like 1.2X or maybe at the very most 1.5X. this leads to overpaid janitors and underpaid execs, which is the desired result of the policy. it sucks having to find a new janitor because things get dirty in the meantime, but there are a billion execs out there and most of them should be doing very little other than keeping the ship stable most of the time.
holding people's money safely is not an occupation for people who can afford to treat money carelessly in their personal lives.
i know that these are "stupid" and petty things, but i think little petty things like this add up into a corporate culture if you have enough of them. the corporate culture of this hypothetical bank would do a lot to add to its branding and also its credibility.
honestly i wouldn't even be proposing extreme measures like these (or advocating that the execs should be doing very little) if i didn't think it was necessary for the concept, which i've now put far too much effort into :p
There are other perks an executive could ask for that are harder to track as total compensation.
You're basically describing Fidelity to some degree. Their . cash management product basically has all of those features. They do offer a credit card, but word is they lose money on it to capture brokerage business.
The issue is all of that is subsidized by brokerage clients, where the fee structure is still reasonable depending on what you're doing, but still mixes retail and investment banking, which I take as an implied no-no in this thread?
Now, both he and his wife is in prison.
This is non-obvious to me. Care to elaborate?
Finance is high wizardry, treating literally every single problem you have in dollar terms, but it built the modern world. Us software developers exist in what's basically the frontier of business. $10 million is just getting started for a software company. But it's enough to push through to profitability in every single other sector.
The key is you have to have it as cash in the bank. You can't finance a turnaround, the better move at that point from a financial perspective is to just fold up the business, but if you have it, you can use it as collateral for a more aggressive expansion.
That way if you run into enough problems, the money guys can 'foreclose' and use the reserve capital to enact a turnaround plan, and eventually earn their money back. It's an extra form of security.
If a finance company is running a business, it's because the industry people that started the company managed to run it into the ground, finance people never seek to start businesses in any other space than the finance space. It's just not interesting to them. When they wind up running companies, they mostly just delegate all the decisions to the consultants they have a working relationship with.
It's simple, you go to a lender who demands you keep $10MM in the bank as a contingency fund. You run the company into the ground, and the lender has to foreclose on the loan, taking control of the business. They then use the $10MM to turn the company around, eventually recouping their investment over the long run.
You're bringing the $10MM in collateral, not the bank, so the bank doesn't have to use their own money for the turnaround. It's a hedge against risk, not some kind of magic bullet like you seem to think. No paradox needs be invoked, the finance company simply runs the company differently than you would, from a purely financial perspective.
Perhaps solving the problems costs $4 million and the revenue is only $3 million.
It could be marketed as low fee, community-centered banking. Offer no ATM fees and low mortgage rates without the typical profit motive.
https://www.alliantcreditunion.org/help/who-is-eligible-to-j...
I'm not sure about who their primary market is now, though - they grew out of United Airlines as their primary employer group, and now have many others (I joined through Google). I think they're among the largest credit unions in the US.
Regardless of the primary market question, they meet the needs you outlined.
So the obvious feature I would like from a regular, boring checking account is one-time random numbers for everything. Every check should have a unique, completely opaque number. Every time anyone wants an account number for direct deposit, wire transfer, bill pay, or anything else, I should be able to instantly generate a new, disposable number that works until I chose to retire it.
* Quick and customizable bill pay for onetime or recurring payments * Integration with peer-to-peer transfer systems (Zelle, Venmo, Paypal, etc.) * Simple budgeting tools and analytics. Doesn't have to be mint, just have something. * No ATM fees * Easy and fast transfers to other banking institutions * API to allow for devs and other apps to integrate basic functions * Good customer service - let me talk to a real person * All the functionality available from an app. Don't make me log into a desktop browser to access certain features. * Clear descriptions of different types of accounts * Credit reporting
That's all I can think of right now but there are probably a ton of other issues we hit daily that could be solved. Though I have no idea of the regulatory hurdles of implementing these and other solutions.
Specifically "ATM Fees" are something I've never had to deal with, fast transfers were the norm, simple analytics were common-place. (Things like pie-charts showing where your money had been spent from your "checking account".)
The only thing that has always been missing from companies I've used has been easy-to-automate-exports of data. You could login and export manually to CSV, etc, but you couldn't easily script that. That seems to be changing at the moment, and EU-wide there are provisions being made for exporting and API-usage (though I suspect it'll all be terrible.)
The Nordea bank I use in Finland has a very nice little mobile app for showing my my accounts, mortgages, and investments. It also lets me schedule appointments, or call customer-support.
Customer service is hard though; much like delivery companies there are only so many banks to choose from. Name any name and ten people will say "Worst. Bank. Ever". I've used maybe five banks in my life-time, and none were terrible, even if some were better than average.
Really? There are lots of little independent ATMs around the UK that charge a fee, and if you use a UK card abroad, there's a fee. They're not huge, but they're not zero.
You're right about using UK-cards abroad, which I guess I'd forgotten about, though!
Let the user generate an API key that is (somehow) transmitted to the application with limited access. Then the user, at the bank's site, can revoke these authentications at any time. Stopped using YNAB? Revoke its key. Stopped using Mint? Revoke its key. Started using gnucash? Add a key.
Of course, I know why. Different teams. There's no cohesive vision to their IT work, same as every other enterprise out there.
EDIT: Cleaned up language. Removed some info I didn't really want here but really botched the posted version when I did.
If the API is sufficiently standardized, that could turn banks into commodities: let third-party software figure out the best bank to store your money at any given time, and do all the accounting for you; no need to actually deal with any specific bank manually.
If anyone has any feedback about their service, I'd love to hear about it. From what I understand they don't support checks; only debit cards. But that allows them to not charge any fees since all the transactions happen online.
The budgeting is neat, though they added a new "expense" budgeting thing that I haven't quite figured out yet. Previously they had "goals" which you'd set up one at a time, burn through. Like "August Lunch Money" with $200 in the account by 31 August (give me a little to spend each day, not all at once). Now you can make a "Lunch Money" expense that'll get replenished each month, but it's only been around for a couple weeks and I think I set it up wrong.
They still have goals, which are effectively digital envelopes. But if you use other budgeting tools it's somewhat redundant.
Deposits happen quickly, typically within 24 hours of sending the money from my primary checking account (I set up Simple to try and bring some more financial discipline to my life, not to be my sole account).
They don't offer any better API access than anyone else. The joint accounts are neat (3 accounts, one for each person and one shared). But only works for US citizens, my fiancee will have her green card but not qualify until they change that policy or she becomes a citizen (late next decade). Instant transfers between other Simple account holders, which is nice if you have other people you know who use it but the same is true for most banks (near instant intrabank transfers).
Responsive customer service. I've had maybe 3 or 4 issues or questions over the years, and I've always gotten a response (conducted over email) within 24 hours, probably faster but I only check my home email a couple times a day.
For instance, I have accounts at three different credit unions but I only have one mobile phone number (and Zelle insists on having that phone number). So far as I can tell, I can't register with Zelle at all three credit unions, only one. And leaving the first and signing up at the second requires manual intervention.
Also, I apparently can't use Zelle to transfer money to myself. (This seems to be a limitation of all person-to-person systems, where I can't be the owner of the source and destination accounts.) So, right now, the fastest way for me to move money between two credit union accounts is to go stand at an ATM, withdraw cash with one card, and deposit it with another.
I've been able to continue banking with them, even though I've been 3-4 timezones away for the last 5 years, exclusively through their app.
- mobile app check deposit
I like many of rgersten's features too: https://news.ycombinator.com/item?id=17752320
Fifth, bankers in jail that have broken the law, and revocation of charter for repeat egregious offenders.
I'm genuinely curious, what cryptocurrency related services would you want a bank to provide? And, related, what do you expect or hope to be using that cryptocurrency for?
I use robinhood at the moment. If robinhood was able to act more like a bank, and supported transferring cryptocurrency in and out, then it would basically be what I was looking for.
In the past I've just used coinbase/poloniex, and I just transfer to my wallets. I currently use bitcoin to buy domains on namecheap, and I use purse.io to buy stuff from amazon - but I can see myself using it for a lot more in the future.
There may not be a lot of demand for it, but like I said, if local banks started offering these services it would get my attention.
What advantages over USD are there for using bitcoin to buy domains or items from amazon?
I guess N26 already does it or will soon as they and Revolut copy each other on features as fast as possible (to such minute details as the card design itself)
Also, the exchange rate is a tiny bit worse than the major exchanges. The real service revolut offers here is an incredibly easy way to invest in cryptocurrencies, for people who do not want to deal with the friction of getting real cryptos.
Think big retail stores or insurance companies with high cash flow coming every month through the bank.
Was there an earthquake at the NYSE?
The gist:
> The use of literally in a fashion that is hyperbolic or metaphoric is not new—evidence of this use dates back to 1769. Its inclusion in a dictionary isn't new either; the entry for literally in our 1909 unabridged dictionary states that the word is “often used hyperbolically; as, he literally flew.” We (and all the other “craven dictionary editors”) have included this definition for a very simple reason: a lot of people use it this way, and our entries are based on evidence of use. Furthermore, the fact that so many people are writing angry letters serves as a sort of secondhand evidence, as they would hardly be complaining about this usage if it had not become common.
[0] http://www.econtalk.org/john-mcwhorter-on-the-evolution-of-l...