Banks beware, Amazon and Walmart are cracking the code for finance
reuters.com
reuters.com
- Sears: had Allstate for insurance and Discover Card for credit. Unlike most "branded" credit-cards, Sears did its own underwriting for the Discover Card i.e. they owned the Greentrust bank behind that card. (That is unlike Amazon Prime card being underwritten by Chase Bank.)
- G.E. General Electric: financial services GE Capital like loans and leases
I remember finding out that many music stores use GE Capital to finance the inventory of all their guitars hanging on the wall. (Industry lingo of "floor planning".[1]) Sort of strange to realize that a lightbulb company has a bigger subsidiary that sells financial services. It's more profitable to make money by selling money than by manufacturing lightbulbs.
[1] https://www.google.com/search?q=ge+capital+floorplan+financi...
Now the segment that makes the most is games: https://www.statista.com/statistics/297533/sony-sales-worldw... which shows a beautiful graph showing just how variably some of their business segments generate profits/losses per year - notice how segments disappear from, or appear on, the graph.
Edit: Disclaimer: I am not a financial expert, but your fact seemed a little odd to be true. Financial services at Sony do look reliably profitable (perhaps mostly recurring revenue and use reinsurance so predictable profits?)
The typical consumer doesn't like paying $290.00 plus hr., the minute the warranty ends. I hope they don't like being fleeced? I see them sipping Starbucks in the lounge, and wonder sometimes.
GE sells a lot more than lightbulbs and financial products.
:-)
With a "lightbulb company", I was just using a rhetorical device of describing something in banal and obvious adjectives to the average consumer to contrast it with something non-obvious.
E.g. The "hamburger company" McDonald's is actually one of the largest real estate holders that makes more money from land rent than food. Adding later clarifications of "McDonalds sells more than just hamburgers such as salads and eggs in English muffins" isn't necessary for most readers.
Why they can't revoke the franchise agreement?
Play by Mc D's rules or no happy meal for you....
“Welcome to Totally A Different Hot Dog Joint! The menu is 99% the same!”
They designed the GAU 8 Avenger that's used on the A-10 "Warthog" along with a bunch of other modern Gatling guns.
https://www.npr.org/2020/05/27/863378300/general-electric-ma...
No.
You have no idea whatsoever. The financial services industry might as well be a surveillance mechanism for the U.S. government at this point. Compliance/AML/KYC is huge, complex, and a giant pain in the arse.
Because having an "OnlyFans Bank" to underwrite the "OnlyFans Mastercard" wouldn't accomplish anything because the credit-card _network_[1] was also getting more restrictive about the adult content rules.
The major separate entities in the chain of making credit cards work:
- processors, gateways: e.g. early PayPal, Stripe,
- payment networks: e.g. Mastercard, Visa
- merchant banks: e.g. Wells Fargo Merchant Services, Worldpay
Getting transactions rejected by any of those 3 middlemen would be a showstopper for many businesses. If heightened fears about child pornography and sex trafficking causes all 3 financial layers to crack down with stricter rules, it would be impossible for most businesses like OnlyFans to overcome it.
So being your own bank to get around Wells Fargo Merchant rules doesn't solve the issue for Mastercard's rules unless you're willing to create a new payment communications network and convince millions of consumers to apply for a new credit-card using that unfamiliar network. It's not impossible as Discover Card and American Express did it but even they don't have the wide acceptance of Mastercard/Visa.
[1] Mastercard _network_ cracking down on adult content: https://www.mastercard.com/news/perspectives/2021/protecting...
People will do a lot for good porn.
In 2021 it’s probably much easier and cheaper to accept cryptocurrency and let the user figure out how to move the money from their bank account to their wallet(s).
Creating an entire cryptocurrency ecosystem as an alternative to taking CCBill would not go well, I agree.
It is conceptually possible for an adult entertainment website to sidestep the payment processors by clearing directly through ACH or an EFT network or something, but this is high risk for the bank offering the service (ODFI) and so access to ACH clearing is generally more difficult to obtain than merchant banking. Banks are not really any more willing to work with adult entertainment than credit card networks, and some of the material problems that make credit card networks hesitant (unusually high levels of chargebacks and use of stolen card information) are even bigger problems for ACH/EFT/etc. which are "less reversible" than credit card payments.
The ease of processing credit cards today is sort of a newer invention - you used to have to fill out an application and usually meet with a banker for an interview to get approval to open a merchant account, because the bank that offers the account is taking on risk on your behalf. Newer processors like Square and Stripe have gotten rid of these requirements, but presumably incur more expense and use more automation in managing the risk than conventional banks (as a result they often charge higher fees than a merchant account at a good low-cost commercial bank).
A somewhat related example was the Federal Reserve's decision several years ago to not grant a master account to a Colorado-based credit union formed specifically for the cannabis industry---if memory serves, the primary concern the FRB identified was that the low diversification of such a financial institution would make it especially fragile in response to economic or regulatory changes, creating a very high risk of the credit union going insolvent if there was some shift in the cannabis industry. I imagine an FRB would raise the same concern in relation to adult entertainment, which is also in a complex and often unclear regulatory environment due to the history of US obscenity laws, the often cash-based nature of the industry, and much of the industry being overseas.
Design the onlyfans credit card bank to be unusually secure (e.g. non-phone 2factor auth) and unusually profitable for processors (higher commissions to processors, higher value clients a la Amex).
>How are people going to find out? It could be an online only thing.
Ok, I guess you're asking about the creating a non-Visa non-Mastercard credit-card? If you're avoiding all mainstream payment networks of Visa/Mastercard/Amex then your problem really reduces to an internal OnlyFans ledger accounts. Sort of like the old days before credit-cards where each grocery store had their own "ledger accounts" for each customer.
If so, to simplify it, you really don't need the complexity of creating a "OnlyFans credit-card" as the problem reduces down to establishing direct payments to OnlyFans (e.g. bank-to-bank electronic funds transfer). This might be an option. E.g. Amazon has a way for customers to enter bank account numbers and routing info for ACH payments from a customer's checking account: https://www.amazon.com/gp/help/customer/display.html?nodeId=...
I'm guessing that OnlyFans entertained that idea for a few minutes and concluded less than 1% of customers would willingly enter direct bank account info so that OnlyFans can bypass Visa/Mastercard. Whatever the tiny percentage is, it's a drastic enough reduction in customers to make it unviable financially for both the content creators and OnlyFans.
If we're not talking about direct payments but back to the idea "credit-cards" as in an "OnlyFans credit-card"... we're strongly implying transactions on the mainstream networks Visa/Mastercard. Otherwise, there's no reason for the extra layer of complexity of "credit" and issuing a "card" to go with it that can only be used at one service.
They can set up their own credit card network, sure. If they want to issue their own credit card with existing network like visa or mastercard, they need permission from visa or mastercard.
These payment networks have huge network effects. I can't imagine anyone really entering that market.
It’s also worth pointing out that this financial wing almost killed GE in 2008. Obviously consumer spending (e.g. washing machines) was going to drop during that time, but the financial wing of the company almost bankrupted them and ended up getting them removed from the Dow Jones Industrial Average.
In GDP or GVA calculations any region on the planet that gets prosperous by building goods, food, mining, whatever, sees a jump in real estate activity that sooner or later grows as large or larger than the sector that produced the growth. After that people coast whether in a company or in a county or a district or a state. Until competion either pushes them out of their comfort zone or crushes them.
Source: https://global.toyota/pages/global_toyota/ir/financial-resul... (See Supplement 2)
I was talking to a customer, a tax policy guru about some of the challenges with corporate taxation. My suggestion to him was to implement an excise tax on O365 and GSuite, as those products are probably more reliable metrics of business activity than payroll and other measures. Plus, Microsoft is better at compliance than most tax authorities.
It makes it a hell of a lot easier for the admins too, just buy a license for each user and it works. No worrying about license, needing to update to latest version etc in big jumps. Plus many people were paying for additional 'support' anyway.
As a non enterprise end user, it's the worst thing in the world. Like Adobe stuff for example. I'm sure the model works fine for businesses, but it's horrific as an average user. I just want Photoshop on my pc. I dont care if its the latest version. I just need a version of it that I can buy and use and not have to budget in forever.
Give me an option for monthly updates and save the daily updates for product testers and people who aren't happy if they aren't running their PC on software's bleeding edge.
Also, I as an individual shouldn't be expected to pay monthly for using the software that is already paid for and installed on my machine. That process should be for corporate licensing, and individuals should be able to pay once and be done with it.
If they make all of banking more convenient and streamlined like they do with shopping, a lot of people will jump on board.
I would prefer not to because I don't want to contribute to their domination of every market under the sun, but I'd pick Amazon over some traditional banks (namely Wells Fargo or BoA) if I were forced to make that decision.
I hear people complain about being a customer of other online retailers, but I can't recall any conversations where someone complained about their experience with Amazon.
You order it, it ships, it's the thing you ordered. Otherwise they refund you, or they ship you a new one and you keep the item they sent you be mistake.
One of my parents recently got a gray market laptop was advertised as new from Dell, but the laptop that showed up had specs different from its service tag.
It’s shady crap like this that has made me happy to shop at specialty retailers. Sure, Amazon makes it easy to return, but I’ve found it easier to buy things from specialty retailers instead of processing returns. Especially now that many retailers have competitive pricing, quick shipping, and store pickup.
2 were not the right product (in the right packaging), 1 was obviously opened but not marked as opened when I bought it. I've never received something as obviously wrong as "a rock instead of a camera".
My experiences may have been exceptional but they are my own. Now I just buy from Best Buy instead.
Sure if it is just some plastic widget maybe its not so bad but at the end of the day the money is going not to the innovator but to some third party who had no business inserting themselves into this transaction.
Just the idea that what I receive is not what I expected to order is enough to doubt whatever arrives at my door.
Trust in a brand isn't based on what I got, it's based on what I think I got.
I was surprised to read this assertion, because I don't know because anyone who trusts Amazon as a brand, even those who use it heavily.
But perhaps my selection bias misled me here.
If Amazon was so terrible as a brand, then there wouldn't be so many Prime users and Bezos wouldn't be making a billion every few days.
https://www.businessinsider.com/amazon-is-us-most-loved-bran...
Yet again, outspoken privacy critics on the internet (read: HN, reddit, and Twitter) don't necessarily represent reality
Even "cash" accounts at things like trade businesses, where the account is more about convenience and workflow (and the professional getting paid only after the work is done) than it is credit or financing, are taking on some risk of non-payment at the end of the month in order to make business flow much faster and more smoothly, than it otherwise would.
It's just a matter of what industries or businesses have the capital and the will, as well as the right risk models and opportunity costs to try and implement it all "in-house" or as a subsidiary.
This was a fairly common thing to do, as you point out, for department stores. As far as I'm aware, Target was the last holdout department store owning its own bank, Retailers (then Target) National Bank, through which it issued the RedCard and RedCard Visa, and sold to TDBank. Macy's had Department Stores National Bank, which it sold to Citi, and so on.
It's why companies like Revolut and Bunq always end up doing what ordinary banks are doing: upselling. Shitty insurance and expensive creditcards is where the money is. Also transaction fees up the wazoo. Looking into it made me realize traditional banks aren't really evil- they are kept under tight government regulations that forces them to take any customer. Even the ones that make them no money. No I'll be sticking with €15 per year account.
Are banks really required to take all customers?
The levels of regulation is huge, and basically culture changing.
Coinbase is basically trying to avoid becoming a bank. If it finds it have to then, hey great more competition, but really I think the idea that "startup attitude" will be allowed by regulators or (because regulators basically follow what society has decided it wants from its banks over decades of scandals and abuse) what the market actually wants
As an example, there are loads of (US) fintech startups that let you store some money and pay at a shop. Because these are not banks and debit cards, they charge the customer nothing but can scalp the merchant who can do nothing. The fintechs are just playing regulatory arbitrage. It might end soon in which case dozens will drop out and the biggest get bought by real banks for their brand name and cool factor.
Down the road, though, I think you'll see some big fintechs buy up one of the many small, regional banks just to get their bank charter. Most of the underlying tech at a bank runs on a "Core Banking" system from one of a couple of players (FIS, Fiserv, etc), but down the road I could easily see more modern core banking tech come out from a fintech so they could then control everything from backend to frontend experience and take all of the profits.
However, balances held by PayPal or Venmo? Yeah those are backed by a bank.
On the other hand, there are "universal gift cards" that work as a debit card and can be used anywhere (that supports that type of debit card). These would require a bank to hold the balance; when the card is used the money would go from that bank to the merchant's bank.
It likely would remain its own entity, similar to how banking and credit services are provided by different subsidiaries at places like Capital One.
For example, let's say you're a fintech like Chime, which partners with The Bancorp Bank and Stride Bank to actually store deposits. When you open an account at Chime, Chime is responsible for just as much required KYC (Know Your Customer regulations) for account holders as if you opened directly with a bank. The partner banks demand periodic audits of the KYC processes because if anything is deficient, it's the bank's charter that is on the line.
Interestingly, all BHCs are regulated by the Federal Reserve (which is not true of banks proper, which may "choose" their regulator within certain limits from the FRS, OCC, and FDIC, occasionally others). There are some advantages that come from the FRS's approach to BHCs, including better access to FRS lending. As a result, many "banks" today, in terms of consumer branding, are actually BHCs that do all of their actual banking (depository financial institution/DFI) within a subsidiary.
"Bancorp" is a somewhat informal term for BHCs, so "banks" with bancorp in the name are often (but not always, the term has older uses) actually BHCs.
I was initially going to cite an interview I did with a high level executive of a regional bank, whose entire view on the matter could be paraphrased as 'apps may be cool for kids, but when you want a full service, you want a bank'. I personally felt it was a little.. arrogant, but I understand where he was coming from.
The compliance burden alone itself can be painful for new players.
Then again, Amazon already has experience and they are clearly doing relatively well ( their OFAC settlement was minimal - https://home.treasury.gov/policy-issues/financial-sanctions/... ).
The executives should take note.
edit: added 'alone' the burden sentence.
This is an area where big tech actually has a built-in advantage.
If nothing else, being enormous and focused entirely on getting more in to redirect to productive investments is the main "secret" to crack.
All fintech companies miss this point: they can get sexy, get a bit of retail, but when you want to buy a supermarket or expand a business you already have, you dont need software. You need capital.
AWS and Walmart may have some, and could convince clients to switch to them, but they re not going to be anything else than one more big pool of money to lend and collect.
There was a time when banks and the work they did actually provided added value, historically:
- keeping your physical money safe
- providing safe and regulated accounting
- giving out loans based on existing deposits
- giving their customer financial advice
- almost all money is digital
- any accounting need an individual will ever need can be provided by the combo of a phone and a $50 computer sleeping in a data center
- AFAIU retail banks don't really need deposits to give out loans these days: loans usually gets resold on the open market almost as soon as they are granted.
- there are *way* better places to get financial advice than going to me Henry H Banker at the local BofA desk.When i have money to save, or i need to borrow, i don't go to my bank. I go to whoever gives me the best rate.
I'd be interested to know what fraction of bank customers are like me.
For the features i use, the web interface is probably fairly easy, but all the rest involves integrations with payment networks, which are not entirely trivial [1]. Money may all be digital, but as anyone who has ever worked with computers knows, that doesn't mean it's easy. So for me, the purpose of a retail bank is mostly to provide reliable implementations of a bunch of API clients.
[1] although i led a team which build a large chunk of a system for making transfers, and if i can do it it can't be that hard
That's a very important benefit that is independent of whether or not the money is digital.
Makes sense though, why not be a lender as well? Then people can get their groceries before they get their monthly paycheck.
Also on the payments side, why pay the card company when you can make your own card?
These aren't new observations though, anyone looking at a supermarket would think of these things.
Big issue is regulatory. There's a heck of a lot of hoops to jump through to get a bank license.
I used to have the Tesco credit card which was useful for the reward points but after trying to report a rogue transaction I found the customer service quite awful and left.
Dunno if that was always the case of if they have just gone down hill of late?
"And that means they'll be further away from the mountains of data others are hoovering up about the preferences and behaviours of their customers - data that could be crucial in giving them an edge over banks in financial services."
"Embedded financial services takes the cross-sell concept to new heights. It's predicated on a deep software-based ongoing data relationship with the consumer and business," said Matt Harris, a partner at investor Bain Capital Ventures."
This is how you build a dystopian panopticon, isn't it?
My reaction to the trend is that while I'm forced into an intimate relationship with an established bank in order to function in society, there's no way that I'm willing to take on additional intimate relationships with the likes of FAANGs and Walmarts.
But I also know that most people don't have the same reservation.
Business banking (esp. loans) is where I see virtually zero competition emerging any time soon. The complexity and value proposition around managing these kinds of customers is extremely nasty compared to the consumer side of the shop.
This whole thing is a fairly complex equation, but I would boil the barrier-to-entry down to a 50/50 between regulations & customer needs.
From a customer standpoint, the most meaningful specific deposits are going to come from your most painful customers. Our clients are not looking for victory in numbers with razor-thin margins. They prefer to find whales obtained by way of exceptional customer service.
When it comes to money, customer service matters a fuck load when you approach a certain level of stakes. I don't think Amazon and Walmart are prepared the engage their customers in a way that will distinguish them from the incumbents. Walmart is already host to Woodforest National Bank (their largest retail partner), who is only able to serve a very narrow band of the consumer banking market. I can see a potential partnership emerging here. I don't see Walmart doing it on their own, and I certainly don't see it taking the market by storm. Amazon, even more so.
Ant's business model involved payments, insurance and lending and was fantastically profitable because Ant leveraged its data about user payments to make efficient risk decisions. If the CCP hadn't decided Ant was too big (and violating data rules) then it would probably be continuing to grow.
I don't think any of this is obscure so I don't understand why the article doesn't point out that Amazon and Walmart aren't trying something that hasn't been done before.
[1]https://dealbreaker.com/2018/09/hank-paulson-killed-lehman-b...
[2]https://wallstreetonparade.com/2021/08/meet-the-two-congress...
The financial landscape is significantly changing as entities realize the power of owning and controlling the process and data end to end. Many comments about credit cards and banks but if one has the foresight to see over the horizon the "store of value" "unearned income model" implemented by one very large U.S. coffee company is the future. This model is morphing with the existing gift card industry and the crypto push as the large card brands position to be able to handle and process such 'legitimate' activity. Extremely interesting times once more as the excitement continues to climb and the heat some feel is approaching dotcom bubble temperatures.
https://www.efinancialcareers.com/news/2021/02/jpmorgan-stil...
They mostly talk about being tech companies but don't take the time to put in the required investments.
The SOP seems to be to find some dinky bank with an established license and acquire it to get a seat at the big-boy table. I suppose, then, it inevitably leads to a culture clash as the "Bank people" can say to the "Tech people" that the moment they stop playing ball, the whole thing crashes down.
Does anyone know more about this? Is this for EVs only? Or is there a standard of some sorts or is it a custom agreement/implementation between car manufacturer and gas stations?
Just like the Amazon BNPL scheme is just Layaway or a store credit card gussied up in Tech speak.
The whole article is just asking a bunch of fintech venture capitalists where they want the market to go; and throwing in a quick blurb from a JP Morgan/Chase exec to make it feel well rounded. Most banks and credit unions aren't JP Morgan, BoA, and Wells Fargo.
It’s a bit sad that everyone is so hung onto full-auto driving and car subscription models, that no one is trying to make current things more practical.
I’m not even talking about gas cars, is there an EV car that can park itself at charger and charge without human being involved?
"Few products escape the Amazon touch," the Duke said.
"Books, the cloud, foodstuffs, servers, credit cards,
insurance, tv, music - the most prosaic and the most exotic
. . . even our poor handmade products from local mom and pop
stores.
Anything Amazon will transport [...]. But all fades before
our personal data.
Amazon the company offers a lot of services. Soon you'll be living in your Amazon Home [1], ordering food from Amazon Groceries and household items from Amazon Basics. You'll be working at some Amazon owned company [2][3], drive an Amazon vehicle [4] and pay for your Amazon insurance[5] with your Amazon issued credit card.
I find it harrowing that antitrust laws have been neutered so much in current times, where a breakup of the few well known Megacorps would have been necessary a decade ago. Amazon, Apple, Microsoft, etc. are slowly creeping their way into every aspect of life where there's a chance for monetary gain. Currently, a few select ventures are so large they can either outprice any meaningful competition for years until they fold, by just eating temporary monetary losses; or swallow them and incorporating their spectrum of products into their own lines. Even worse, some control the one and only marketplace on which competition can spawn, giving them the ability to shut down their opposition for inane reasons. Look at the FlickType keyboard on the Apple Watch for an example.
[1]: They started two years ago by selling tiny houses. More will surely follow: https://www.housingwire.com/articles/49260-you-can-now-buy-y...
[2] Amazon owns more than 100 companies https://www.forex.com/en/market-analysis/latest-research/wha....
[3] Amazon employs 1 Million people - In the US alone. https://www.nbcnews.com/business/business-news/amazon-now-em....
[4] Did you know that Amazon sells and lends cars? https://www.amazon.com/Vehicles/b?ie=UTF8&node=10677469011
[5] https://www.insurancebusinessmag.com/us/news/technology/amaz...
What makes a bank is taking deposits (that's what requires a banking license). And banks are competitive at lending because they can fund cheaply with deposits.
This was my understanding until I read this article[1] which essentially asserts that banks’ primary function is to create money to be lent out. True, banks did start out as deposit taking entities which they still continue. However, banks don't make much profit from deposits. In fact deposits, being liabilities, cost them money to keep them safe. They keep those deposits in short term fixed investment funds, most of the long term loans made by a bank are from money created by itself.
That article is from none other than the Bank of England.
[1] https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...
The original statement about cheaply funding loans with deposits is spot on. Look at any of the big four banks - they all have over a trillion dollars of deposits at 10-15 bps which they then lend at a few %.
They might use them for funding but that doesn't mean they actually need them.
If you don't have deposits, the only three ways a bank can fund are
a) issuing term wholesale funding (i.e. issuing bonds, no liquidity risk but expensive, if not uneconomical),
b) short term wholesale funding (money markets, cheap but dangerous, what happens if the wholesale funding market dries up like in 2008?). Banks are now prevented from taking too much of that risk by the introduction of the LCR ratio (which requires them to keep in liquid asset the equivalent of a 30 days bank run) and the NSFR ratio (which forces banks to maintain as much long term (>1y) liabilities than long term assets),
c) and the "originate and distribute" model, i.e. make some loans and resell almost immediately them through securitisation. Though banks are now required to retain much of the credit risk and are therefore limited in how much they can do that by their capital requirements.
And yes, your deposit has been lent out, at least 70-80% of it. That's because everyone assumes not all retail customers will request their money back the same day (and if they do the bank is dead).
Personally, I think the only significant disruption would be that enterprises, instead of only having to get buy-in from bankers, would have to sell the public on direct investment.
Though I've been known to be an economic stick in the mud.
Of course they need the money to fund loans. The money lent by banks doesn't come out of thin air. The bank has some equity (A) contributed by the shareholders and they borrow money (B). They can lend out A+B. That's it. They borrow it from several places, and the cheapest, stickiest way to borrow it is deposits.
There is no magic in banking. No money comes from the sky. The second you think "money is being created" you are going down the wrong path from an understanding perspective. When people who actually know what they are talking about say "money is created" they have a different definition of "money" than you do.
> the deposit created is taken, sent elsewhere and reduces a loan somewhere.
Sure, but that doesn't imply the converse (i.e., a loan is made from deposit), does it?
> they all have over a trillion dollars of deposits at 10-15 bps which they then lend at a few %.
It is not clear (to me at least) if the money they lent out is indeed from the deposits they took.
[1] https://www.goodreads.com/book/show/56863052-central-banking...
Take a look at the balance sheet of any of the big public banks. The assets on their books (mostly loans) has to add up to the equity on their books + liabilities (mostly deposits). If they didn't have all those deposits, what would they use to plug the hole? They could borrow money from elsewhere, but it would be more expensive and less sticky.
If you made a loan you’d effectively have a 100% reserve requirement to do so, while a bank currently needs 0% backing in deposits. You cannot make new money.
this will go about as well as amazon / jp morgan / berkshire taking over healthcare.
I would argue this might be far easier for Amazon to pull off in the US or Western countries vs. countries like China or India.
1. Help you spend money you have
2. Help you spend money you don’t have
The second is profitable the first is almost money-losing.
But the second attracts undesirables that can be hard to get rid of.
But it brings the risks of those who don’t pay back which they do their best to avoid but regulatory rules come into play
It was right to stop them then, and it is right to stop them now.