Why is everyone a bank?
medium.com
medium.com
So if you're doing something involving moving a lot of money around, you may need to be your own bank to make the whole system work well.
If your business has a high turnover month-to-month, that money used to pay your bills can accumulate interest.
If interest rate mattered to folks, more would move to providers offering higher rates (you see this sprouting up with Credit Karma, Personal Capital, and other fintech startups offering cash management accounts because they're making a fee for getting deposits to underlying banks hungry for them). But that doesn't seem to be the case. Which is unfortunate, because it should be not too difficult to offer a checking account with check access, ATM access, unlimited transactions, P2P payments, mobile deposits, and interest bearing (brokerages do it living off the float [1]).
Sidenote: This focuses on personal accounts. Brex's Cash Management account seems to be a great biz banking option for those who qualify. No affiliation. Banking infra in the US sucks, which is why everyone has to be a bank.
[1] https://www.kalzumeus.com/2019/6/26/how-brokerages-make-mone...
Financial services users should be able to have access to and be able to move their funds through financial plumbing inexpensively and rapidly. Fix the plumbing, raise the bar with regulations on financial services providers to commodify the offerings.
That seems like a perfect use case for using a credit card to cover the expense and then pay yourself back when your money moves out of the savings account.
I have trouble imagining a case outside of a hostage situation where you would need access to your emergency fund same day.
Fundamentally, I should not have to explain why I would desire immediate access to my own cash reserves at a moment's notice to excuse broken financial infrastructure.
> Fundamentally, I should not have to explain why I would desire immediate access to my own cash reserves at a moment's notice to excuse broken financial infrastructure.
Yes, if you are investing in less-liquid assets to get a better RoI then you absolutely do. If you don't like the terms then you are free to keep your cash in your checking account.
If the settlement isn’t rapid, you can’t guarantee the funds will actually settle (checks). Lots of situations where someone wants the same guarantee as cash or a wire.
Back in the 90s, I tried to pay for a computer with a certified check and CompUSA treated it as a likely counterfeit.
Writing a check is instantaneous, but you obviously don't mean that.
If you're talking about wires and the like, then what you're really paying for is the sending institution taking on liability if there turns out to be a cascading problem.
http://www.classic-carauction.com/featured-cars?auctionid=10...
Personally, if I'm expecting to make a large cash purchase I have more than a few days notice.
Much more within reach to bid on a regular used car at the common auctions that regular used car dealers buy from.
Or you could purchase more leisurely from the dealer on his terms.
Either way their offices will often display a tattered old sign: _Cash Talks and BS Walks_.
That you have to go into your specific physical branch to do certain things is ridiculous. I can go into any Chase in the US and do anything I could do at my normal “home” branch.
N26 (a German bank) was vastly superior but even that had limitations, especially with moving money around internationally.
The grass is always greener on the other side.
The only downside is that you don't have a physical branch you can go into but you can do basically anything online without ever interacting with anyone, or at worst you can always call them. Those are real banks btw, not pseudo-bank fintech companies.
I'm sure they do in North America too, and make orders of magnitude more from it than for charging monthly or transaction fees. But if everyone else charges those, why not make that bit extra too?
It just needs some 'disruptor' to do it for free and drive the rest of them down, as is happening both there and here in Europe with trading accounts (where most money is made from order flow, but traditionally, why not make a bit extra from commission too?).
But the improvement in payments was mostly driven by legislation (e.g. the Payment Services Directive from 2007 with most of implementation at 2012) without which banks were quite happy to offer payments as slow and expensive as they could as it was too profitable for the industry to voluntarily agree to disrupt this, especially since most payments are cross-bank and so a single "defecting" institution can't simply offer cheap&fast payments if others don't want to play ball.
So I don't think that there's any way how USA financial industry might get to a similar point if gov't doesn't decide to force them (which might be taboo for many USA politicians) - I'm certainly convinced that European financial institutions would not have reached this point currently if they weren't forced to do so despite all the lobbying.
They sell insurance and offer consumer investment accounts -- which are not permitted for us citizens!
Current 3m euribor is -0.4% so 1.6% interest rate means 2% margin. Assuming that your initial costs of selling/assessing/processing the mortgage are covered with fees, something like 0.5% would be enough to cover the main (non-systemic) risks and expenses for decent quality mortgages, so you get 1.5% of pure profit; for every billion in your portfolio you'd get 15 million profit each year; Dutch banks have 500B of housing loans so that's a capacity of something like 7-8 billion of profit per year from housing loans alone.
And various short-term loans have lower volumes, but much higher interest rates and room for profitability.
Looking at the stats in https://www.statista.com/topics/3442/the-banking-sector-in-t... it's clear that the net interest income dominates, it's something like 5x the fee income.
Can you share a "good" bank account?
I've moved after 36 years in the states -- and was shocked at the quality of ING Bank.
Another thing is that these neobanks have withdrawal amount limits and ATM limits, and so they aren't a great choice for storing emergency funds.
Every French bank has these limits. I once had a French bank account that limited my debit card to €2500 in purchases in a month — for no good reason other than trying to limit access to my own money. Cash purchases over €1000 are also illegal in France. For the most ridiculous banking rules and limits, France is the place. My chase account in the other hand, I could withdrawal $100k in cash if I wanted. Still have a (high) debit card limit, but I can call them and immediately get it lifted for a specific transaction (such as buying a car.)
Do you think Google is going to do any better at this? They already have no customer support, close accounts without notice....etc... The article is right, this is about engagement.
For the rest of us, I agree with your view.
Google's new checking account isn't really Google. They don't currently have the licenses needed to act as a bank. It's basically a Google branded checking account from Stanford Federal Credit Union.
From what I've read, Google's checking account will be similar to Uber's credit card in that you will sign up and get some benefits through Google/Uber, but pretty much all maintenance will be handled by the issuing bank.
Source: https://www.fool.com/investing/2019/11/17/why-is-google-abou...
I’ve often thought of launching a credit card company solely for access to people’s transaction data. That provides tremendous insight into many companies turnovers allowing to anticipate earnings.
Shockingly enough, people don't care enough to shred all their credit cards! Even people who tend to get outraged on the internet about these sorts of things still have, and use at least one.
(And before someone brings up that EU is not heavy on credit cards - the function of European debit cards in this space is not one whit different from that of a credit card.)
Absolutely. I say this as someone who is still angry with them over Reader. I don't trust Google, but I trust them a hell of a lot more than Wells Fargo, Bank of America, et al.
Not that they would ever do such a thing.
Perhaps that analogy had got away from me a little, but the point is: I like having a bank with branches where I can go in and talk to a person if I ever really have a serious problem. I feel confident that the bank isn’t going to accidentally swallow all my money and then become uncontactable, whereas I tend to worry that about big tech companies.
With Google, it's up to Google whether the answer is 'screw you' (unless you're spending tens of millions, it is).
Like you say, the banks ignore the regulators, shortcut the recourse and the alternatives, really, are all equally awful.
I have a number of friends working in finance. Lovely people. Absolutely arrogant, though, when it comes to the question of whether their industry will face non-trivial disuption.
Maybe Google and other current tech giants will not be the ones, but someone is going to come along, take a chunk out of financial services, and start the ball rolling on a non-trivial amount of disruption in that space.
I often see people questioning why others would want a new finance/banking system. Yes, the traditional one has some negatives, but how could you want something almost completely new?
I think this line of questioning misses the phenomenon underway. The banking system works for well for me, so it can seem counterintuitive to see people pushing for quite major changes. But, clearly enough people are fed up that things are starting to move in that direction. At what point do I just say, "does it matter whether these people can provide a litany of reasons?"
Either traditional players sack up and satisfy current and potential customers, or someone else will.
It’s hard to visualize how much money these big tech cos are actually taking in investment. If you have a $B you can lose $10mm a year for one hundred years.
Local transportation violations aren't enforced in quite the same way.
I am not certain that it serves a smaller segment of society than ever, I suspect it's always served a small segment of society. Would want to see some data.
So your friends are right, for now.
It's awful. Rather than having to figure out the regulatory details of each jurisdiction so that we can be compliant, we instead have to figure out the regulatory details of each jurisdiction so that we can trick whichever middleman into being compliant on our behalf.
The waste is incredible. It's all promises of "we'll handle that" but never any actual contact with somebody who can code and you know... handle it. I'm beginning to think it's just parasites all the way down. And if that's how it's gonna be, why not cut out the middlemen and be the only parasite in the loop?
It once started out with someone asking the exact same question and evolved into this.
I talk to several Fintech startups a month complaining about this sort of thing. Forgive me if I can't quite gin up any sympathy. It's a business with centuries of baggage, massive inertia, vast resources, but what I typically hear is "I'm gonna Uber/Tesla/Bird this financial industry thing in 6/12/18/24 months, ignore the rules because 'disruption' and find someone else to push all the risk, compliance and governance issues off onto. I'm going to pretend it's not a cost of doing business and hope no one catches on before we find an exit and get rich". And now you're finding those 'others' aren't the suckers you wanted them to be, and that complying with regulations, especially across the world, actually costs money. Tons of it.
And most of all...real disruption is incredibly hard, no matter the SV mythmaking. The Fintechs that are going to be unicorns aren't complaining that the people they tried to outsource the hard parts of the business to aren't making all the hard problems magically disappear.
I work in finanance and a huge chunk of my work is generating reports for regulators. Specifically in derivatives (swaps and such), which was fairly wild west before the financial crisis.
There's a lot of catching up and a lot of interest into the trades by regulators, which were basically off-exchange and which are a big part of structured products. Those are financial products, which Warren Buffet deigned "Financial Products of Mass Destruction"
And you know what? I agree with those regulations despite the fact that it can be a real pain.
And if anybody really believes such regulation is crap and just there to support entrenched market players. Well; essentially banks self regulated before the financial crisis.
And what could ever go wrong with that?
Observation: this is precisely what cryptocurrencies do. No middleman. Users transact directly with each other.
except for a handful of giant server farms in china
We spend a lot of time trying to achieve consensus with our neighbor parasites about the status of a transaction (slice the pie n ways, perhaps your database says that m of those n got paid, but mine says that m-1 got paid...), but if it were on a public blockchain there would be nothing to dispute.
I am sure there are exceptions, but my point is if you talk to someone who understand what is going on in a bank, you would be extremely lucky that this person also can code.
This is slowly changing as I see an increasing number of junior bankers who are also interested in picking up coding skills. They won’t be developers per se but will certainly become technically literate interlocutors. But it will take some time.
There's several reasons for this, but at the end of the day people don't take kindly for your making them redundent and there's a lot of fiefdoms going around.
Why would any developer who wants a deeper look stick around?
There are lots of things wrong with technology in large banks but the business knowledge of developers is pretty low on the list.
I left banking a few months ago, so I am no apologist for the sector.
But if you say:
> we want to encrypt this field with your public key before sending it to you
and they respond:
> yeah, we can handle that
and then contracts with deadlines and penalties are signed... Wouldn't you expect there to be somebody on the other end that is willing/capable to generate a GPG keypair?
At what point is it worth holding their hand through the technical bits, and at which point would it be better to replace them?
America has the downsides of being the first-mover and of being dominant. A lot of our system was built before modern computerization and then retrofitted for the bank's convenience (not the customer's), and because the U.S. economy & military is so dominant, the rest of the world has to deal with the U.S. financial system as it exists now. That means that there's very little pressure on existing U.S. retail financial institutions to improve, and a lot of regulations and institutional inertia keeping out new entrants.
It's much the same situation with Internet access (where our consumer Internet speeds are often 2 orders of magnitude slower than in much of the rest of the world) and in health care (where we spend the most but have one of the worst life expectancies of developed nations).
Moving to the US is like stepping back into the 70's, and then discovering that everyone around you think that everything is fine, their banks are fine, that US banks are somehow modern and cool.
Anecdote: I wired some money from my Chase bank account to my Swedish bank account, in USD. I made the transfer through the internet bank, but since it was "after hours" New York time, it was scheduled to transfer the next morning.
Early next morning I checked my Swedish bank account, they had received the money, exchanged it to SEK at a decent rate, and the money was immediately available for me to spend there.
A couple of hours later I receive an email from Chase, where they're telling me that they've now sent the money, and that I should expect to see the money in my Swedish bank account about three days later.
American banks suck.
I need to call my bank to temporarily unlock it if I ever go to the US. Payments with PIN code are allowed by default though even in the US. So the problems seem to be with the swipe system.
Isn't one of the requirements for being a "bank" that you can't do stuff like that?
https://money.cnn.com/2014/05/07/pf/bank-account-closing/
I once had a bank account closed for "suspicious behavior." The suspicious behavior was making too many transfers to one of my other bank accounts.
If you open a new bank account and deposit a lot of money, say over $10,000, then they almost certainly will freeze your account and you'll have to call up to unfreeze it. Sometimes you even have to go to a branch to unfreeze it.
Chase, specifically, is really bad when you're trying to transfer to/from new accounts
https://www.doctorofcredit.com/psa-dont-use-ach-pull-for-cha...
I open (and close) a lot of bank accounts to collect those signup bonuses. If you read forums dedicated to this then you hear stories of people getting their bank accounts terminated suddenly for opaque reasons all the time.
I have done this multiple times with zero issues whatsoever. With larger sums than $10k, and with global-sized banks. Sorry to hear about your issues but you're over-extrapolating.
> I open (and close) a lot of bank accounts to collect those signup bonuses
This, I think, may be your issue. For one thing, as the recent NYT piece on customer scores shows, these companies do exchange information on their customers- you may come up flagged or even blacklisted specifically because of this
US law requires banks to file a suspicious activity report if they see unusual activity in your account that may be associated with money laundering or criminal activity. What qualifies as suspicious activity is not well-defined, but can be as simple as large unexpected transfers into or out of the account.
The law also requires banks not to tell you about it. They don't necessarily have to close your account, but most will, especially after several reports, because of the risk of failing to comply in the future. And since they're not allowed to tell you why they closed the account, you end up with opaque reasons.
I've had my debit card skimmed at gas stations twice and my wife has been defrauded by shady online merchants a couple times. Chase always handles it well and reverses the charges.
I have Private Client status which (granted requires a certain level of deposits) gets you a real human on the phone instantly.
I couldn't imagine getting that from Google or Robinhood.
I generally am 'ok' with modern (US) banks and global, partly because I know their rules and set my expectations accordingly, but unlike what one of the sub-commenters said: "Chase" completely fucked up my world with no recompense for a while. No rhyme. No reason. Ultimately it was because I had connections to executives of the bank at the CEO level that I was able to get it sorted out, but until then, I was literally "without any money" for about 60 days. That, to put it mildly, if you don't have a reason or a recovery time-line (hard to tell your friends: trust me - I'll pay you in 15 days) if you literally don't know.
EDIT: It was /u/callmeed below. I can't say 'no' to his/her experience - but while I still work with Chase - I feel "on edge" all the time because I never know what they are going to do to me without notice.
Hours on the phone with no resolution. They told us we had to get the insurance company to contact them and verify that the check was valid. Like wtf is that. That’s not how checks work. And we’re not talking about a large sum of money. I think it was around $4k. Not particularly abnormal.
We finally walked into a branch with our 4 month old daughter, plopped ourselves in the manager’s office and told him we weren’t leaving until it was resolved. A few hours later we were told that the account was permanently closed and could not be reopened. But that we would receive a check in the mail for the funds that they quite literally stole from us.
As soon as that check cleared we closed all our accounts with Chase. Fuck them.
If Google had money that belonged to me, I have no idea where to even begin trying to get it back. Do they have offices that you can stage a sit-in in?
Google is not a bank. If they start to offer banking services it will be through a partnership with an actual bank. Your money will not be “with Google”, unless they enter the multi year, very expensive process of applying for a banking license which they’re not doing.
Not that I don’t disagree with your point, in general. But google can’t just take your money like that. At least not in the US
If the upside is taking a chunk of Mastercard/Visa's 600bn market-cap, the $0.01bn effort of a "very expensive" banking licence is peanuts.
It’s a huge undertaking to do. You have to prove to the US government that you’re capable of handling people’s money safely and that you’re providing a benefit to your customers. Years of internal systems audits with nebulous requirements. How do you do that without handling people’s money? You partner with a bank. It’s easy and relatively cheap.
But regardless of your ignorance on the subject, the original point still stands that Google is not gonna just “take your money”. Your money will always be in the custody of an actual bank.
Best case scenario for me with Google's bank would be an 8-hour drive to Germany, just to run into not only a language barrier, but a buerocratic one as my ID would not mean shit to them and their regulatory bodies would not even consider hearing me out without going through the EU first (== more buerocracy). All of this I would of course have to accomplish while not having access to my bank account.
Banks are one of the few decentralized services that have survived the modern economy and while I would switch banks immediately to have access to even something as simple as a balance check API, I would rather continue to fight the reverse-engineering arms race with my current bank than hand over my finances to a faceless, poorly regulated, foreign corporation and risk any one of a million possible small mistakes leave me penniless.
When I called to figure out what was going on I was advised the account was closed and that a check would be mailed with remaining funds within 60-90 days. I asked about the other accounts and they are all fine and open. BUT, because the fraud closure was related to an online banking transaction I would no longer have access to online banking. Pretty much rendered the remaining accounts useless at this point. So while they didn't close all my accounts themselves, they pretty much forced my hand to close my remaining accounts.
I can write checks easily and even manually set up recurring ACH transfers, so why can't I automate that with an API? There are a couple companies that do it, but it's too expensive for doing lots of small transactions, yet it's free through ACH and writing checks...
I guess regulation and the technology being fairly hard to iterate on since a lot of systems are running the same software as they were 20-30 years ago when everything was moved over.
Any illegal activity requires a financial crime at some point to launder the spoils. Therefore, financial institutions are the perfect place for law enforcement to hook into to try to crack down on the more widespread and organized forms of crime. The financial system is so much of a force multiplier for criminal activity that LE can't really ignore it.
To hook in, they need you to do KYC, they need you to check with OFAC, they need you to do you to do SAR's and report any attempts to structure financial activity. Basically, actors in the financial services industry, as a prereq to being able to do so, have to agree to act as a modern day Stasi.
Thank the criminals and reactionary Congressfolk of the last fifty or so years.
Back in 2016 I wrote a blog post about accounting being still a strangely manual process: https://bjoernkw.com/2016/04/03/accounting-in-2016/
Ultimately, I came to the conclusion that in order to solve these problems I would have to start my own bank.
Unfortunately, not much has changed since then. At least I now use this useful tool for converting CSV exports of my account statements to MT940 files: https://github.com/msc01/soacsv2mt940
It’s still a semi-automatic and somewhat error-prone process, though.
My bank doesn't have a history of locking people's accounts when they post "the wrong" political opinions online.
My bank doesn't have a plan to monetize access to my account, or to limit use of the account to only those activities of which the bank's army of woke employees approve.
I think I'll stick with a real bank, thanks.
(I also would never do business with Bank of America, because they're awful and they hate their customers even more than Wells does)
But even BofA doesn't do things like read your Twitter posts and YouTube comments so they can blackhole your account if you have have the wrong politics.
The tech giants, on the other hand, will seize your stuff in a heartbeat if you step out of Silicon Valley's definition of acceptable beliefs and opinions.
My credit card works at any merchant -- and the fees are the same. I don't get hit with a temporary ban if I buy a Chick-fil-A sandwich, for example.
Yet.
I am vastly in favor of states rights and the 10th Amendment, however states seem to only care about those things when it supports what they want to do.
Also none of these fintechs are actually banks. They just partnered with a small bank(s) and are still beholden to these banks compliance team. There are strict rules about monitoring bank transfers and reporting suspicious transfers. If your funneling cash through your fintech bank, you'll probably get shutdown with no explanation.
Regulators state that they want more competition but in reality they don’t. Those regulations create massive barriers to entry. And regulators are wary about smaller players who will not have the scale to be financially robust, will be more likely to be a dodgy operation, and not to have all the established procedures of a large player.
This happens more often with "bank" startups than with old, boring, regular ones.
When you have no vision as a company or no visionary in your team, you get served by the countless consultants and ex-bankers who went to big-tech because of its the new Wallstreet. Of course, they have no idea what Tech does and is and of course no clue how to provide something of significant value. Instead, they steer the companies into direction where is familiar to them through their finance classes and/or their Private Equity, Venture Capital backgrounds.
The fact that everyone wants to become a bank is not engagement, is not profits. Its a sign of a failing economy where capital decided that the best thing it can do is to invest in itself.
Hats off to FB though, I think their perspective is the only innovative one out there.
Where I'm from (Norway), we've seen an explosion in these offshoot banks - i.e consumer loans / credit card providers. Airlines, big box electronic stores, etc.
Ans surprise, surprise, many of these banks are raking in cash. And triple surprise, defaults in credit cards / consumer loans have also exploded.
It should also be mentioned we have some of the most creditor-friendly laws / system in the world. It's almost impossible to get rid of debt, because there's an automated pipeline from banks to debt-collectors to government instances that will do the final debt collection via wage and welfare garnishments.
These banks will foreclose your house, repo your car, and whatnot on defaulted / outstanding debt as little as equivalent to $10 (but of course, by the time many have noticed this, that measly $10 has grown in to thousands, through a battery of fees and compounding interest of said fees).
I've been calling it for some time now: Our next global recession will come from consumer debt and credit cards. Banks are handing out credit to anyone with a pulse
https://www.quora.com/In-Norway-what-caused-224-of-household...
However there is someone who says if you need a new car, only pay cash so if you only have 500 bucks, get one off of Craigslist to get to point A to point B but in a way I feel like that's bad advice as wouldn't be reliable and you'd end up spending a bunch on repairs.
So I feel like credit is good, but in a way people use it for too much instead of saving. My favorite idea is to just use credit cards no differently than a debit card, don't spend anything you know you won't be able to pay off. Then instead of paying banks, they pay you! Sounds like cashback is worthless with interest. So I guess a different mindset than the majority of people, but the credit card companies are probably hoping you slip up at some point.
Then as for credit in business, I feel like the best way to use credit is to scale up something that is already working out for you... Maybe you need more inventory because you are selling fast but still waiting on your supplies to pay you, so throwing in a bit of credit you know you can for sure pay back would help keep up with the demand.
I know some people hate credit, but having a good score might help you when you get a job, auto insurance premiums, apartment but laws vary by states too in what companies can use your score for. For example I know California doesn't allow them to use it for auto insurance, and I think credit checks for job applicants is limited too but Ohio doesn't care really what companies use your credit score for.
So if you are 18, get a credit card just to treat yourself to some McDonalds once a month, then pay it off fully when you get your statement you'd be better off credit wise than someone who didn't have any credit at all. A lot of stuff they don't teach in school, you can get a better financial education on YouTube.
Here's the thing. The stickiness of a bank is only a mental illusion. If you actually rationally calculate the time it takes to switch a bank, it's not that bad. Changing where the next paycheck is deposited takes five minutes. Changing where each credit card autopay draws money from takes five minutes. Once you have resolved to leave a bank, it probably takes about an hour to actually do it. (And for typical Americans that one overdraft fee is well more than an hour's worth of salary.)
I find this interesting because it illustrates the difference between the mental workload and the actual workload can be great. Coming up with a checklist of a dozen places to change the routing and account number seems overwhelming. It is actually not.
This, in addition to how easy our PBS (DK version of ACH) is to use means switching banks is something that can be done easily. I know of people who will regularly contact 5-10 banks with their current mortgage details and ask for a better deal, and then go back to their current bank and tell them "match this offer or I'm switching".
We also have a simple interest on overdraft (usually 8-15% annually on any amount over draft), though excessive overdraft will get your account locked. But beyond that, no fees for hitting negative $0.05. Is there any US bank that offer a similar fee structure? I imagine people would migrate in droves if that was already the case.
That's common in the US and has nothing to do with ACH in any way. That's a transaction where you likely would not use ACH at all and would use a wire transfer.
> Is there any US bank that offer a similar fee structure?
Yes, there are many. One of my banks, Capital One, calls this "Overdraft Line of Credit" and the current interest rate is 12.75%. They also offer "Next Day Grace" where you have a day to cover the overdraft and "Free Savings Transfer" where they just transfer money from your savings account as options as well to avoid overdraft fees.
If the environment is one in which non-financial institutions can easily create banks, easily find customers for their banks, and not invite regulator scrutiny, does that mean behind the scenes something is going horribly wrong?
Is it common for boutique brokerages to offer banking?
They have over 6 million accounts, which is more than E*TRADE and within a factor of 2 of Charles Schwab or TD Ameritrade. And these brokerages apparently felt enough of a competitive threat that they all adopted Robinhood's commission-free model.
Regardless, even if you don't consider Robinhood to be a major brokerage, they clearly aspire to be one, so offering banking services makes perfect sense.
What's a company worth with a $1b in it that doesn't have to payout any interest on it and people are in no rush to get back (on average) ?
Google, Apple are likely looking on and discovering that digital products is something which they too can do, and their size allow them to jump into the same market. All the parts of the banking industry that would prevent them is exactly the same parts which the banking industry is removing.
> What is the safety net? What does it cover?
> Our community safety net is an in-built accident insurance policy that will provide upto $5000 directly in your betterbank account in case of an accident or medical emergency.
If you want to understand the toolkit bankers have at their disposal, take a look at FIS, Fiserv, and Jack Henry. These three companies represent approximately $170 billion in market cap. Your interactions with your bank, whether it's a click in an app or a conversation with an actual banker, almost certainly bottom out with a call into one of these company's software systems. These systems are (almost) all mainframe software originally designed in the 1980s. Every product the bank delivers is built on this shaky foundation, which results in all sorts of workarounds and weirdness at every layer of the stack.
That all worked fine back in the '80s, but in the decades since, not only have our expectations changed (most bankers don't know what "API" stands for, by the way), but also banks' regulatory reporting requirements have expanded dramatically. Governments wants to know (very reasonably) that a terrorist or money launderer won't be able to make payments. But when you mix in the inertia of old enterprise software and the relative dearth of good alternatives, the result is a broken product experience (like the random velocity controls like @tlb cited above).
Being a bank is big and complex. And since deregulation and the Internet happened, being a bank is no longer about geography (remember branches?), it's about software and product. This seems like a pretty natural fit for a startup: break off a desirable chunk of the bank's customers and deliver a modern, specialized solution that's 10x better. There's ~$12 trillion of bank deposits in the U.S., that's a lot of market to go after.
* * *
Full disclosure, my company, Treasury Prime (https://treasuryprime.com/) sells software to banks so that we can expose developer APIs for banking. If you have a fintech startup and you need a bank partner with good, modern APIs, email me: jimbru@treasuryprime.com.
It's the golden cage dilemma banks find themselves into.
Fintech looks cool until it stops working, then you discover it's the same system, only run by a startup.
A few startups started encroaching into financial services territory, took all the risk (including regulatory), and now that it's clear it's something worth pursuing Big Tech is following, expecting to leverage their existing products/services/ecosystem to lock you in by yet another aspect your life.
- No Exit: Struggling to Survive a Modern Gold Rush (2014)
OP’s startup is actually a great example of this. Medical debt is indeed a troubling problem in the USA, but OP’s solution is yet another financial product, something that can get funded. VCs can’t fund single-payer healthcare policy entrepreneurship even if that’s actually what would solve the medical debt problem.
Ironically, fiat coins and banks are going to become so virtual , that bitcoin will look real in comparison.
also ironically, the author makes another bank
I think, by focusing on the $5000 emergency cash proposition, your customer segment will generate more costs and hassles than their debit card fees and whatever interest spread you eek out in today's world. You'need a way for your customers to generate more value-- what have you thought of? Ads?
The basic "fintech" startup theory is fairly reasonable:
(1) financial services have a lot of fat and/or profit.
(2) financial services is/should be a tech subsector. Debit/credit cards, current accounts & such are nearly commodities, one is as good as another. Apart from customer service, UX is all that differentiates them^, from a meaningful subset of customers. That's software.
(3) The competition is soft. Many banks have terrible consumer facing software, for example. Many have costly legacy structures.
That's a juicy target. Any company willing to clear those regulatory hurdle gets to become not just a company, but effectively a taxing authority.
That's not to say that the current fees are necessarily fair, but it does make sense to me that larger transaction amounts should be charged more.
People should lend directly to each other, or have sensibly priced investments, or people should have simple bank accounts that don't surprise you with charges, or be able to change FX cheaply. Those kinds of ideas are pretty easy to suggest for outsiders, and the answer is always "I'm gonna make a website that's better than the incumbent".
To be fair, startup FS sites have tended to be easier to navigate, and focusing on an area like FX does create a simpler user experience.
The question is whether any money can be made. For instance we now have a load of challenger banks that have a slick app for sending money to people. But how much is the customer actually worth? Do they stick around or open a whole bunch due to it being so easy? Also what are you gonna upsell them on other than the metal card?
What about the lending markets? How come Lending Club has issues making money as the premier business in the direct lending category?
What about the investment businesss? Competing on price is generally something they tell you not to do in business school, but that seems to be the main value proposition as far as I can tell. I reckon Google could jump in here though. They have credibility among the general populace as being pretty smart with ML, and I bet they could morph their bank into a super hedge fund.
The FX niche, I don't know how TransferWise are doing, but it's fairly easily encroached on by the challenger banks. The backend is fully commoditized, it's a question if getting customers. Which is probably why TW are offering bank account like services.
Imagine a normal grocery store. Then imagine it suddenly gets a button that makes more stock magically appear on the loading docks. Almost as much as they've sold since the last button press. It's great for profit margins, but the employees still have to do their jobs, and their jobs are basically unrelated to the magic button.
No. UBI is income (increases assets), while money creation in banks is balance-neutral (increases both assets and liabilities).
While technically during lending banks create both loans (assets) and deposits (liabilities), it is more complicated:
When a loan is taken, it is usually not taken just to sit in a bank account, it is to be spent. When that happens (by cash withdraw or transfer to a different bank), a bank must release/transfer base money, which it can get from cash deposits, incoming transfers or in exchange for some other assets.
Therefore, although banks create M1 money by lending, they are limited in practice by necessity to keep balance of base money. So it is more a distributed/emergent behavior, where each bank ability to create M1 money is limited by its market share and the rate of money production by other banks.
This is us: https://griffinbank.com
My sister-in-law had her accounts frozen for a year for something a business partner did. If she had all her money in her own hardware wallet, she wouldn't have lost access to her funds.
Obviously, being your own bank is hard from a security perspective, which is why most people are happy to outsource their banking to a custodian. Heck, even crypto people outsource to custodial accounts like Coinbase.
Just like sanctions against states they could not freeze your accounts, but they could prevent you from spending your money or collecting payments or making regular business.
Isn't this what CASS is for? Is there really no US equivalent?
Do I somehow slip under all the banking laws? Just as an "experiment?" Is this something that I could do? OR is it just a crazy idea?
Big tech wants access to financial services for a few reasons laid out in the article in addition to FOMO and bypassing regulation.
Seems to me that sensible ones would have more capital than they really need, and it would be so poorly-performing that they can loan it out for better returns than they would get using it for their own growth purposes.
As a European, this sentence seemed weird. Why wouldn't it be? Do people not use debit cards in the us?
Be your own bank? No agreement to have your credit monitored by those toads.
Becoming a bank (or an insurance company) while it is actually not that hard (information mgmt wise) is really expensive due to regulatory bumps. Thus only big money can afford to start up banks (or insure'ers). These rules ensure that you always have capitalists running these shows. Thus making the world even more unfair. I guess the rules that make it so artificially hard to start up in those sectors are prolly lobbied into existence.
An article from 2016 which I think gives the best tl;dr especially highlighting the roles of ccount Information Service Providers (from roboadvisors to replacements of traditional 3rd party transaction layers such as Visa) and Payment Initiation Service Providers (which essentially turn any traditional bank into a whitelabel product) https://www.finextra.com/blogposting/12668/psd2---what-chang...
McDonalds is a real estate company that happens to make burgers.
The traditional car manufacturers are banks that happen to build cars.
Banks usually make a shitload of money, I guess.
For financial ninkompoops.