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Comment by lordnacho | Hacker News Reader

So why don't they get a banking license? Aren't they stuffed full of VC money? Either get a licence for RH, or buy a small bank that has a license.

A guy was telling me I could do that with just $10m a few years ago, just go and buy some small bank and there would be deposit capital to invest.

Surely the thought must have crossed their minds to become a bank?

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From what I understand, it's so expensive and takes so long to form a bank in the US that it's generally better to acquire a bank than start one. The capital requirements are the easy part.

On the other hand if you're able to get the money and time together to start a bank, it is literally the least likely business to fail. In fact, in growing areas it is not uncommon for local businesses to throw in together to do just this.

Starting a restaurant? You've got a 21% chance of failure in the first year.

You've started a bank? Congratulations, you can now lend money you don't even have and earn interest on it. You have joined the club of 7,053 FDIC insured institutions of which about 0.25% fail per year.

Starting a bank isn't just an issue of money and time, it's also about doing the hard work to obtain the necessary licenses, insurance and meet regulatory compliance requirements in every state you operate in.

The 0.25% failure rate sounds like an under-estimate. I would guess that most banks are simply acquired by bigger ones before they're formally declared "insolvent".

> doing the hard work to obtain the necessary licenses, insurance and meet regulatory compliance requirements in every state you operate in

Which, I presume, is only done by paying lawyers to work for a decent length of time. Hence the money+time.

Because running a bank isn't easy, especially in post-2008 USA.

For example, you have to maintain a fraction of your total deposits in a cash account. That means that if RH becomes a wild success story, they may have to keep millions or even billions worth of cash stack.

I believe there are many other requirements that are not easy to satisfy when you're a small nimble startup.

Personally I hope the banking industry in the US gets disrupted, right now it's a dinosaur and consumers suffer.

However, with the current legal framework that doesn't seem easy.

Seems like RobinHood was trying to disrupt banks and then the big boys (SIPC) shut them down fast.

I work at a top 3 bank. The amount of regulators a bank deals with on a regular basis is insane. we have several $200 million applications just in my department to satisfy them.

Sorry, I'm very interested in how this all works. What does an application mean in this context?

I'm not at a top 3, only a large regional. But I'm going to guess software packages and services from companies like Wolters Kluwer Financial Services (http://www.wolterskluwerfs.com for those interested).

I'm sure we buy tons of products like that. Some of my coworkers worked on Black Knight's MSP before. The costs over there are even more insane. But in my department (a risk department) everything is custom ETL, custom web apps, and custom or off the shelf reporting.

How much of the costs are from the bloat of things like custom web apps and custom reporting? Are newer online-only banks saving substantial amounts of overhead by getting by with the basics and doing their own API integrations?

regulations depend on what tier of bank you are.

a smaller bank has less complicated products and requirements. Also of course less legacy.

For us we have giant database like applications that consume data across the entire bank to calculate risk indicators. There are all kinds of risk at a bank so it gets pretty complicated with all the products we have. They either generate views for downstream business partners or directly generate reports. The views are frequently over 1000 columns wide and are at an account level (the data is initially transaction level). We also have some web apps to provide a user interface or off the shelf customizable reporting like tableau or microstrategy.

> Because running a bank isn't easy (...) For example, you have to maintain a fraction of your total deposits in a cash account.

What is hard keeping a fraction of not-your-money in a cash account?

Paying people to understand exactly what form that regulatory capital should take. Determining where it should be held. Proving to your regulators that you or someone you retain followed the proper procedure in determining how much and what kind of capital should be held. Demonstrating that the proper changes to those balances were made at the proper times and that an internal framework exists for making modifications as risk exposures shift. (And more and more and more.) Here's the simplest summary I could find of one of the many required compliance frameworks: https://www.bis.org/bcbs/basel3/b3_bank_sup_reforms.pdf

the problem is not in keeping the cash stashed away, but in the opportunity cost of doing so. startups are first and foremost expected to grow quickly and setting money aside dampens their growth rate (along with the hefty regulatory requirements of running a bank).

if banking is needed, most startups will partner with a bank instead, so it has access to all of its cash, even if it has to pay a bit more to do so. flexibility has value (which is the same reason options have value beyond the underlying asset).

"maintain a fraction of your total deposits in a cash account" != setting operating capital aside. Those are two different piles of money.

Notably, major fintech startups in Europe got their banking licenses relatively quickly: N26 (Germany), Monzo (UK), Bunq (Netherlands), Revolut (Lithuania). Also, Freetrade, a British answer to Robinhood, became a member of the London Stock Exchange before even launching publicly.

Disrupted... how? Consumers suffer... how?

Is depositing money hard or something? Is spending money using a debit card online difficult?

Because those two things are the primary purpose of consumer banking.

> Consumers suffer... how?

Looked at bank fees recently?

Why should it cost $50 to change some values in a database?

No, because there are no consumer bank fees for depositing and spending money. That’s what I and most consumers use a bank for. In the US, consumer banking is free. Most checking accounts have no cost and neither do the debit/credit cards.

What $50 fees are you talking about? I’m assuming you mean interbank transfers ?

I'll say that the typical consumer in my country uses intra and inter bank transfers (nationally) for quick payments between other consumers(instead of say handing a mate a 20 dollar bill you'd just transfer it). Now personally I wouldn't be doing that if it cost $50 dollars (or even $5) instead of being free.

On a side note I now understand the popularity of apps like venmo considering the environment they are in.

Yes, compared to the rest of the first world, USA consumer banking sucks and consumers suffer. Fees are higher than in other rich countries, there's lots of unbanked people who aren't able to get free or near-free bank accounts, there is a lack of fast&cheap wire (account-to-account) transfers, the identity theft problems of USA consumer banking are like almost nowhere else, USA seems to be way behind on contactless card payments, and automatic electronic payment of all (or almost all) household bills also isn't a thing yet there as far as I understand. Those all are a major parts of consumer banking experience, and there is a lot of aspects that can be improved and disrupted in USA.

What fees? Depositing and spending money at all the major consumer banks in USA is free.

Some (maybe most or even all?) banks will charge a fee if you don't maintain a minimum balance in your savings or even checking accounts. Some banks will waive this fee (and related ones like inactivity fees) if you have direct deposit set up, which isn't always an option for people. Banks will also do things like reordering transactions to maximize overdraft fees.

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