Scanning the fintech landscape: disruptive models | Hacker News Reader

Scanning the fintech landscape: disruptive models

mckinsey.com

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I didn't see 'cash management accounts' on the list, but I think these are among the best products. They're not too common, but more are appearing now.

There's the classic ones that combine various investment products and slush balance that's insured by a bank sweep in the same interface, and the new ones that abstract completely away from the underlying storage of the money, and provide some familiar features (debit card, bill pay, ACH transfers) and perks (high interest rate, no fees).

The latter kind is a great, low-risk, low-effort store of spending money for people with unpredictable income and/or spending who have little time or cushion to invest in products with higher returns and need the liquidity. It's a compelling alternative to a traditional US checking account at a large bank, where most of this demographic has their money.

Is this disruptive? Fidelity and Schwab both have great, free, cash management accounts that refund all ATM fees domestically (Schwab even refunds international ATM fees, making it great for nomads).

It's disruptive as this kind of product moves downmarket, at least in the sense of mindshare and marketing, if not always in terms of customer segment. These accounts may be common knowledge among people who invest online and interface with brokerage firms, but others might not know about them.

The recent marketing tactic by newer firms is to convince people to migrate from checking and savings accounts, to catch the demographic that has (for whatever reason, presumably related to cashflow, lack of info, or generational anxiety) already decided that online investing may not be for them. Perhaps they'll change their mind once they're past your acquisition funnel.

Can you give some examples by name? I'd like to know more. Thanks

"Classic" ones: Schwab [1], Fidelity [2]. Vanguard recently announced they're discontinuing theirs [3].

New ones: Square Cash [4], PayPal Cash Plus [5], SoFi Money [6], Aspiration [7], Simple [8], unreleased and cancelled Robinhood product [9].

These couldn't be more different: one is ripoff-tier, one is so-so, while the rest are pretty good.

[1] https://www.schwab.com/public/schwab/investing/accounts_prod... [2] https://www.fidelity.com/cash-management/fidelity-cash-manag... [3] https://www.investmentnews.com/article/20190304/FREE/1903099... [4] https://squareup.com/us/en/legal/cash-ua [5] https://www.paypal.com/us/webapps/mpp/ua/legalhub-full [6] https://www.sofi.com/faq/#money [7] https://www.aspiration.com/get-account [8] https://www.simple.com/help/articles/goals/protected-goals [9] https://www.marketwatch.com/story/robinhood-quietly-stops-us...

Which ones are the rip-off and so-so platforms, in your opinion? Thanks

I'm a SoFi Money customer.

PayPal Cash Plus has a ton of features, but there's lots of fees [1][2]. You earn no interest. It's not a good deal, other than it being familiar.

Square Cash, now known as the 'Cash' app, is a strange hybrid of a P2P payment network and a spendable balance that gives a debit card and you can direct deposit into. You earn no interest. It's odd. It targets a hip young consumer who wants ease and convenience and doesn't know any better. It has... some... virtues? Just not ones that make it worthwhile to use it instead of some rival that earns interest.

Depending on your exact use-case, it will vary which one of these is ripoff-tier and which one is so-so. I have a low opinion on nickel-and-diming fees for convenience features, so I find the PayPal Cash Plus offering the most grievous. Square Cash just has a weird use-case that isn't my use-case.

[1] https://www.paypalobjects.com/digitalassets/c/website/ua/pdf... [2] https://www.paypalobjects.com/digitalassets/c/website/ua/pdf...

Thanks. I use Square Cash to pay the cleaning lady on occasion, so I guess that's one use case. I suppose if I kept more of a balance I would look into interest rates and all of that

I can throw in my 2 cents here as a Schwab customer.

Schwab will let you buy CDs at any bank via a brokerage account linked to your checking or savings. Basically, they'll transfer the money to whatever bank has the CD you want, and transfer it back to you with the interest at expiration. Ditto for T bills. It's an excellent product to increase yield without taking on default risk

I use Schwab investor checking. I love the free ATMs and saving on international fees. BUT it does not give any meaningful interest on balance and it's hard to get cash.

I do LOVE the support. Compared to my other bank's Visa card it's completely different support and Schwab is hands down way better. It feels like 'wealthy important person' support lol

I also use Wealthfront and Robinhood and recently put a small amount of cash into Wealthfront's high interest cash account. The problem is there is no card or similar spending functionality, and Treasuries seem to pay slightly more and similar time to 'liquid usable cash'

We [https://griffin.sh] are building a bank-as-a-platform in the UK due to the friendlier regulatory environment compared to the US. We see a huge opportunity in this space and most of the existing incumbent institutions have stumbled into the space rather than building a purpose-built company to solve the issues that a platform bank can solve.

Your pricing models from what I have found are truly awesome. I've been quoted anywhere from £1 an account a month but needing £150k for setup fees to £250 for an account setup, and more monthly and other setup fees. In other words, very costly!

The only problem is that it's UK/EU only. It would probably be better if you can start adding ibans much like Iban First [0].

If Griffin can do something like:

1) Onboard anyone in the world, using e-kyc.

2) Have the ability to handle 50 other currencies.

3) Remittence funds using either Ripple (XRP) or IBM World Wire.

You would definitely have something special.

I know other companies such as getbabb [1] and railsbank [2] are trying to do something similar. But they are years behind.

[0]: https://www.ibanfirst.com

[1]: https://getbabb.com

[2]: https://www.railsbank.com

Thanks! Those are the goals, among others (we also want to make it trivial for companies to issue card products or launch online lenders).

I suspect Getbabb may have difficulty with the crypto angle. Not clear. Railsbank does not intend on becoming a bank and operates with a lighter-weight regulatory framework than we're aiming for.

That sounds like an absolute bargain compared to doing this on your own.

Do you serve (US) money service businesses?

At present we're pre-launch even within the UK, so unfortunately no. We aim to in the long term.

This is brilliant! Just signed up to your beta.

I can't sign up. Clicking the button downloads a .dms file

Unfortunately, this post is very US-specific and completely ignored PSD2 and the concept of Third Party Service Providers (e.g. Payconiq).

The whole authentication scheme based on EIDAS is a shot show, though and really very horrible.

True.

In India UPI (Unified Payment Interface) brought in some sort of revolution in P2P & merchant digital payment transactions. No mention of that.

As of March 2019 there are 142 banks live on UPI with a monthly volume of 799.54 million transactions and a value of ₹1.334 trillion (US$19 billion)... https://en.wikipedia.org/wiki/Unified_Payments_Interface

(I’m the author and the OP)

Agreed! I want to do a much bigger international scan and am working with some colleagues in Europe and Asia.

I know a decent amount about open banking and have been gathering my thoughts (I.e. I keep writing and rewriting without finding the right angle) about it more generally. PSD2 is being perused primarily from a compliance perspective rather than a revenue generating perspective.

Hey! I’m from India and investing in the Fintech sector. Would be good to have a chat. Let me know how I can reach you.

It's not hard to see what are disruptive models in fintech.

I have 5 bank accounts and you can see, based on the login method, how modern a banking software is.

There is a ton of potential just not be used at all.

Even without much change at the original banking software layer, putting a modern analysis tool upfront would make a huge difference. Just imagine having a secured mobile app which has limited permissions but allows you to perform a few basic things like checking your balance or transfering small amounts of money.

Or just a web ui which doesn't suck. If it doesn't suck, how about income analysis?

> Or just a web ui which doesn't suck.

I left Wells Fargo for a credit union. The online banking experience the credit union provides is not as nice.

It doesn't matter. I don't need all those features. The product is commodified.

And I'm happy to be gone from a horrible company that actively victimizes its customer base. I don't have to watch my back, and I don't have to regret that my deposits help Wells to build systems which extract maximum wealth from its most defenseless users and funnel that wealth to its executives and shareholders.

Crazy fintech innovation idea: how about just actually serving the customer's interests?

> Crazy fintech innovation idea: how about just actually serving the customer's interests?

Most retail banking "customers" are more akin to a Facebook user. They're nothing more than an input that can be packaged up and sold to the real customer.

>It doesn't matter. I don't need all those features. The product is commodified.

I've encountered a case when it does matter. I tried applying for a bank online through multiple browsers, OSes, VMs, but never managed to get the form to work. Eventually I called them to apply - there was a valuable perk for me - but most customers just won't bother. A good software team would have spotted the drop in conversions instantly.

I told them about it, using the terrible online form. They weren't interested.

Heh, I was doing an online payment for a government agency. While my credit union’s form asked for my account number for the gov, they really wanted a different sub-account number and kept giving errors.

When I called them to bring it up, they thought I wanted them to change the form just for me. They seemed even more surprised when I said “No, you should make this change for everyone, not just me”.

> “I left Wells Fargo for a credit union.”

congrats! yes, basic banking is a commodity and everyone should switch to credit unions so that the big banks offer competitive, customer-oriented products. the good service provided by credit unions and small banks should be the norm, not the exception. no one should ever pay for banking services (banks already profit on the investment side), especially not their crazy, convoluted fees concocted to extract money from us.

I have had the opposite experience. 5 years ago I moved away from my local area to another state that didn't have a branch and signed up for an account at Wells Fargo. It was painful, the UI sucked and the phone app was terrible compared to my credit union.

I'm still with them today and almost never have to go to a branch. They have a great mint-style money manager, mobile deposit, and bill pay. They obviously spent a lot of time working it out. Plus, you don't have to deal with all the BS you do at for profit Wells, Chase, etc

Note: this is for Mountain America Credit Union in Utah

don't be put off by the breezy, buzzword-heavy tone, this is a useful, quick glance at the landscape.

"Demographic-focused products" or flat out racist products as they are otherwise known. How about we have products for categories that people choose to be part of, like "credit cards for stoner rock fans" rather than "credit cards for people who are Hispanic"! I guess that if that happens it'll only be weeks until someone launches "the card for the everyday Klansman".

Save us all...

I previously worked in the fintech space, on a product that provided remittance services to multiple countries – people in America send money home to India, Mexico, more.

The preferences among customers sending to each country were meaningfully different. These countries have differing economic climates, which means the people on the receive side have needs that are distinct among nations but fairly uniform among people within those nations. Similarly, people on the send-side tended to cluster into a handful of common industries (and therefore income brackets) depending on where they were sending to. Some demographics were, on average, high earners who were more rate sensitive than time sensitive. Others were lower earners who tended to send in emergencies and were time/delivery-sensitive more than rate sensitive.

Those financial products don't look the same. And it would be a mistake to try and build the average of the two and underserve everybody because you don't want to "look racist" by intentionally accommodating the varied needs of your customers.

It is a fact that many financial products have racist origins or overtones. Bank redlining has a dark history in America, and things like payday loans gouge customers who are desperate and unsophisticated.

But that does not make it racist to build financial products that fit a specific customer segment's needs in a way that those same people find constructive and self-select into. I don't know which products you're speaking about specifically, but abstractly, a service that makes it easier and cheaper for hispanic people specifically to save money or provide for their families is a positive force in the world, IMO.

Well, unless said product excludes south asians, africans or, well.. me.. and it's a thin end of a wedge. A pro hispanic app may be a force for good (or not) but the next week you can make a gold plated bet that the best offers would be focused on folks with blue eyes and golden hair.

Offering a product is appropriate; excluding people from using it is wrong.

We (RedCarpet.Cash) are also innovating in India on opening up to unbanked to credit (similar to Tala and Branch in Africa). These are typically customers that are new-to-bureau , so underwriting is particularly tricky.

We now have a regulated lending license from our central bank in India. Talk to us if you want to talk banking and credit in India.

Does anyone know if anything in the space can allow for P2P microtransactions? Maybe in batches: people send each other a few pennies at time and cash out at the end of the month?

From my review it seemed like this is hard to manage with money laundering regulation but I would love to know if a fintech company can make this work.

https://www.stellar.org/?

Has very low transaction fees and supports fiat-pegged tokens like https://stronghold.co/stronghold-usd/.

Could you describe a more specific use case? In the US, P2P is much more difficult than consumer to business.

Say i have a platform (like a game) and I would like users to be able to exchange tokens of some kind, like kudos. But i would like those tokens to have actual value. So a user might buy 50 tokens for a dollar, gift them to teammates at end of matches for good team work. At the same time the user is collecting tokens for her good teamwork. At the end of the month the user might have given out 40 tokens but received 200. So she can now withdraw 210 tokens from her account for a value of $4.05. Or maybe those initial 50 tokens cant be withdrawn, only the 200 that were earned are redeemable for cash.

Also, is this possible outside of the US? How would this work for US based users?

Not sure about non-US law. In the US, you would need to register as a federal money service business (MSB), as well as in all 50 states (it costs about $150k in state level fees to do so). In addition to this, it is (from my research) incredibly difficult to find a bank that is willing to touch you with a 10ft pole. When they are, they usually charge high account maintenance fees (one bank told me 10k / month) due to the increased record keeping they need to do.

I agree that there is a massive need in this area. It is total non-sense that every online transaction costs 30 cents + 2.9%. I think it is very much a reason why the whole internet is still ad and tracking supported. It is not possible to bill people near the true cost of computation on an incremental basis.

It very quickly turns into a money launderer's dream. So I understand the regulations, however, they are incredibly burdensome and feel anti-competitive (re: banks). The best thing to build it off of is ACH, so if you go this route you're looking for the cheapest ACH provider you can find. It does make sense though, one ACH charge on the deposit and one on the withdrawal, which enable a lot of (free) transactions in between. It could save a lot in the fixed costs (the 30 cents part).

I'm talking to a lawyer next week about some exemptions to see if a C2B play makes sense in this space. P2P is hard (in terms of regulations) and you're probably best served by cryptocurrency. That too may fall under MSB laws, so it is best to talk to a lawyer.

Yeh, my research had basically dead ended in MSB regulations as well. I get the money laundering concern but also strongly feel that absence of micro-transactions has destroyed the internet and is now doing terrible things to our brains.

I should look more into ACH, i dont remember why i moved away from that direction.

I considered crypto but it seemed like too much of a bucket of worms at the moment.

I was hoping somewhere in the fintech survey someone was doing something to enable p2p microtransation. But it seems like the quest continues.

Maybe I'm missing the whole point but I've never completely understood the concept of fintech. From what I've seen it's just moving banking services online isn't it? There doesn't seem to be much actual innovation in terms of tech

As a client of open banking and an employee of a startup in the fintech space, I'd say that its a little more nuanced than that. Token (my employer) provides a platform that enables PSD2 and RTS compliance, open API's, crypto-based security, identity and programmable money amongst others to enable banks and merchants to rapidly adopt open banking and remain complaint with legislation governing the industry.

Could you provide some insight into how the company was built up (if you know), how it is managed day to day, and how it is growing? Cause I'd imagine it takes a large team from a wide variety of disciplines to get started. Again it comes back to (to me at least) creating a new bank but with a stronger tech offering

I would define fintech as any financial technology. So working at a bank is also fintech. Working at stripe is fintech. Working at disruptive startups for wall street is also fintech.

A couple things I don't see on here:

-Robo-advisory and asset allocation stuff, like Betterment, Wealthfront, and Personal Capital -They mention API companies, but don't have Plaid and Yodlee, which enable a lot of consumer fintech.

Those robo-advisors definitely shook things up, but it seems like the giants (Schwab, Fidelity, etc) have rolled out their own in order to compete. It actually is now a really competitive landscape where the incumbents can offer additional support for a fee which Betterment and Wealthfront aren't able. And a lot of people get comfort from knowing that they can pick up the phone and call someone.

Note: I'm not in that camp, I have multiple Wealthfront accounts (Investment, IRA, and child's accounts) and am really happy with it, but I don't need or want to ask anyone questions about my asset allocation

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