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Starting your own bank is laborious but profitable (2009)
- resumeparser 8y agoYes, it is quite hard but may make lots of bucks with the proper plan.
- deleted 8y ago[deleted]
- quirkot 8y agoThe word on the street in the credit union industry is that you need $500 million in assets to be long term viable. It could be lower for a bank, but you'd need a laser focused niche. [edit] source: I sit on the board of a credit union. This is a concern driven by the regulatory burden and cost to maintain a competitive IT infrastructure
- azhenley 8y agoIs there added risk for a credit union to be in a specific niche? Say, for tech workers.
- ldayley 8y agoPerhaps, but serving a specific niche is exactly the origin and general mission of credit unions in the US. Most CUs now try to have as broad a membership as possible but this is a recent trend.
- karambahh 8y agoI'd guess that being in a niche brings you a better understanding of the environment but the downside is that if that niche tanks, you're toast. Credit unions (or their closest form) in Europe, (co-op banks and various incarnations such as Sparkasses or Caisses d'Epargne) are now spreading their risks, and to alleviate the geographical niche issue merged together (several dozens Caisses d'Epargne in France 15 years ago, about ten now for instance). Other forms of pseudo co-op banks such as Credit Agricole (which started as a network of farmers credit unions) or Caja Rural are now banking behemoths doing everything from retail banking to investment, HFT: Credit Agricole is now probably in the top 10 largest banks worldwide.
- karambahh 8y agoCredit Agricole recently entered the top 10, as per their own PR: http://credit-agricole.ro/en/2018/05/23/credit-agricole-enters-the-top-10-largest-banks-worldwide-by-assets/ http://credit-agricole.ro/en/2018/05/23/credit-agricole-ente...
- cbnotfromthere 8y agoThis is incredibly sad. I've used CA in France and it was a very miserable experience, even by French banking standards (which on themselves are surprisingly low). I'm using them in Egypt and it's a shitty experience too. Better than French CA, better than most government-owned banks in Egypt, but still shitty.
- karambahh 8y agoI've heard many horror stories about CA personal banking in France (bank transfer taking ages, random charges appearing/disappearing etc). Their offer towards startups "Le Village By CA" seems, however, interesting.
- quirkot 8y agoWhen I mentioned a laser focused niche, I meant that by being niche focused (like Venmo or Paypal) you can avoid a lot of the overhead needed for having a wider selection of banking services. The common example here is no physical locations, no tellers, less overhead. But it also applies that if you don't do mortgage lending you don't need mortgage specialists and you have less interest rate risk to manage [edit] re: ldayley comment, I'm referring to vertical niches of service rather than horizontal market niches
- joaomacp 8y agoIf I had $500M the least fun thing I could do is start a bank.
- alexpotato 8y agoThere is a company I spoke to while looking for a job during my garden leave that is trying to build a "web banking platform as a service" You should check them out: https://www.narmitech.com/ https://www.narmitech.com/ I found them on the "Who's hiring page" here on HN and they seemed very on the ball (speaking as someone with lots of big bank tech operations experience).
- karambahh 8y agoGreat find! Would love to find a similar company on the european market!
- daanlo 8y agoCheck Out Solaris Bank. AFAIK they provide some someehat similar Services.
- karambahh 8y agoThanks for this, very nice find!! (ninja edit, found their pricing) Their pricing seems decent https://www.solarisbank.com/content/partner/preis-_und_leistungsverzeichnis_v2.3_english.pdf https://www.solarisbank.com/content/partner/preis-_und_leist...
- venantius 8y agoAlso check out Griffin: https://griffin.sh https://griffin.sh
- BLanen 8y agoNow that's interesting. I presume this is focused at retail banking? And focusses on the customer-facing system? Looking at the api, it's seems very UK-focussed. I had this as an idea a couple days ago, ha.
- dnomad 8y agoYou don't even need $500m to start a "real" bank. The problem is that banking is a business for suckers. Banks only make money because, theoretically, they have low capital costs. But these days there are many, many entities flush with capital and eager to lend and they certainly don't care about actual cash flows or hard assets. In a world with 100B VC funds and SBICs and sovereign funds all desperate for any kind of real growth only suckers actually go to the bank for loans. And actually loaning real money to such people won't move the needle. This makes banking an inherently risky, and very boring commodity business. In the UK everybody's constantly asking why banks won't lend to anybody but real-estate developers and real-estate investors. What else are they supposed to do to pay their rent? Finance another kebab shop? China, frankly, has done the right thing and fully embraced shadow banking. Having the economy held hostage by a bunch of golfers is insane. Extend the special privileges enjoyed by banks to a wide array of institutions and you will see capital find its way to the best allocators. This isn't about deregulating banks. This is about recognizing there are wide array of lenders out there who are ready to invest. Bring the shadow banks in from the cold.
- Retric 8y agoUS Banking makes ~175 Billion in profits per year. There are few industries that even approach that.
- modells 8y agoBanking is the true oldest profession. It might be that the barriers-to-entry and minimum viable customer base are sufficient to keep out most ventures without serious subject matter expertise and deep pockets backing.
- ouid 8y ago>banking is the oldest profession. I hope you're not serious about that.
- quirkot 8y agoThat's really more of a comment on market size than anything else, though. Everytime money moves it's an opportunity to profit.
- bunderbunder 8y agoHas there been any talk of credit unions pooling resources on some of the IT stuff? Everyone expects a mobile app nowadays, but it doesn't make much economic sense for every single credit union to build their own.
- pram 8y agoA lot of credit unions use Symitar Episys and there are vendors which sell apps and websites for the platform.
- theodorewiles 8y agoLook into CUSOs. There are players that cater to that niche.
- quirkot 8y agoThere is an active market for vendor software, as indicated by the other replies. The real expense driver isn't necessarily that "you need an app" but that "you need an app that is either very hardened or safely quarantined from your core infrastructure". And more generally, yeah the front-end stuff is kinda crappy, but it's because the back-end has to connect to a bunch of different systems with weird proprietary protocols and it has to work 100%. Every. single. penny. And if you're a $100-$200 million in assets credit union, you may have an IT team of 2-3 people (that's a swag, but it wouldn't be > 5)
- Bekwnn 8y agoTwo separate Canadian credit unions I use have the exact same app layout, (island savings, vancity) so I imagine that's already happening to some extent.
- tananaev 8y agoThe company I work for develops software, including mobile apps, for smaller banks and credit unions that can't afford their own development team. We have more than a thousand clients and all of their apps are basically built on the same codebase with small branding customisations (colours, images etc). Company is called Fiserv, if anyone is interested.
- jackpeterfletch 8y ago> and cost to maintain a competitive IT infrastructure I would actually counter this with the point that many of the historic banks are so steeped in technical debt that newcomers are at massive advantage in terms of iteration speed and IT cost. This comes from a lack of competition (until very recently), and cultural problems at the executive level that stop them from considering themselves technology oriented firms. Look at Monzo in the UK, recently given full banking license, been on the scene for 3 years now. No bank in the UK has been able to come close on ease of use/access, onboarding speed, settlement speed, customer service, clarity and feature set of their current account. From the outside, it looks like they aren't even trying...
- ikeboy 8y agoWhat if you don’t raise money from ordinary depositors? I really liked the Beal Bank model when I read about it, they raised from CDs, money market funds, etc which had a low funding cost but not much IT needs. The guy who started it is worth 10B+ now
- quirkot 8y agoI think you may have it backwards. CDs and money market funds are actually liabilities for the financial institution. They're ways of paying customers more in the hopes of attracting deposits. There are non-depository financial institutions, but you'd be more familiar with them by other names: investment banks, insurance companies, pension funds, mutual funds
- ikeboy 8y agoYes, they're liabilities just like deposits. But if you offer them and not regular deposits (like the bank I mentioned) you don't need to built out a whole infrastructure for payments, checks, etc, just for the much more limited set of actions you need to support those.
- deleted 8y ago[deleted]
- kilroy123 8y agoMaybe a little off topic, but I'm curious, how did you get on the board?
- quirkot 8y agoThere is a vote every year and I looked at the candidates and thought "wait a minute! these are just normal people like me!" so the next year I ran. I highly recommend it. Most CU boards are in desperate need of younger members (younger here being <50), you learn a TON about governance vs management vs doing the work, and it looks good on a resume too
- rc_bhg 8y agoI'll join you if anyone is starting a bank.
- mcon147 8y agoMe too
- yalph 8y agoSame here.
- cryoshon 8y agookay, let's start one. we just need to find a few hundred million. any takers?
- byebyetech 8y agocount me in!
- venantius 8y agoI can't tell if this comment is in jest or not, but we actually are starting a bank in the UK to be a platform bank for fintechs across Europe and beyond. Happy to chat.
- dkimerling 8y agoHe's real
- immad 8y agoWe are working on a new bank and raised a $6m seed round. My email on my HN profile if you are interested in learning more.
- askl56 8y agoCount me in
- thinkingkong 8y agoSeeing as this comes up every so often, what in your opinion are the elements missing in todays current banking system - either as a consumer or a developer - that you would like to see?
- newman8r 8y agoCryptocurrency support would be nice. I understand why that's not going to happen, but if a local bank supported crypto, I might be tempted to open an account.
- karambahh 8y agoIn Europe, Revolut do support crypto I guess N26 already does it or will soon as they and Revolut copy each other on features as fast as possible (to such minute details as the card design itself)
- newman8r 8y agoI'm signing up for Revolut - they're offering a beta program in the United States, looks interesting.
- Foivos 8y agoAs far as I know, revolut does not offer full support for cryptocurrencies. When you buy a cryptocurrency from revolut, you get an IOU. In other words, you can use revolut to invest in a cryptocurrency, but you can not actually use the cryptocurrency you have in your wallet to buy something. Also, the exchange rate is a tiny bit worse than the major exchanges. The real service revolut offers here is an incredibly easy way to invest in cryptocurrencies, for people who do not want to deal with the friction of getting real cryptos.
- jstandard 8y agoI've often heard that problems with banks and private , centralized control of wealth is one of the fundamental reasons for cryptocurrency. I'm genuinely curious, what cryptocurrency related services would you want a bank to provide? And, related, what do you expect or hope to be using that cryptocurrency for?
- deleted 8y ago[deleted]
- smelendez 8y agoIt feels like there's a growing split between what borrowers and depositors want from banks. Conventional wisdom says small businesses benefit from a personal relationship with local bankers who know market conditions and can sign off on loans and lines of credit that a national bank might see as too risky or too small to deal with. But as a depositor, I don't want a personal relationship with my bank at all. I want a reliable IT system with low costs and great tech support if something goes wrong, which is something the scale of a national operation can best deliver.
- mey 8y agoThings I value in a bank as a consumer. Loans that are serviced by a single entity for the life of the loan. Not ordering transactions in an attempt to drive the balance below zero in a day. Ease of ATM access. Customer service. I have all of these at the CU I use. I don't keep large liquid in my CU, instead that is in higher yeild accounts, but that was true with Chase or BoA as well. The reliable IT system has to be there, but you might be horrified about the beast of systems (human and computer) that make our banks/ach/transactions/etc function. I don't worry much about loosing money in the bank due to FDIC/ NCUSIF. I can't audit their internal process so I instead depend on insurance. It kinda removes worry about their IT infra from my mind. If you are above FDIC value, you should be banking with multiple banks and putting your money to better uses.
- madeofpalk 8y ago> It kinda removes worry about their IT infra from my mind. For me, 'good IT infrastructure' isnt for reliability (though that's important!), but got good digital products. I want an iPhone app for my bank that's made my actual humans that know how to make apps. In my eyes, the most successful banks have realised that there's actually very little differentiation between financial products between banks, and where you can set yourself apart is with your internet banking and mobile apps. I use Monzo in the UK and really enjoy it.
- lifeisstillgood 8y ago
- SippinLean 8y ago>The events that literally shook the foundations of the financial system Was there an earthquake at the NYSE?
- dullgiulio 8y agoIt seems that the word literally is literally never used in its literal sense.
- aaomidi 8y agoLiterally has never really been used in the actual definition. Writers have used to it show how important and foundational some event was. Or just to create some excitement in the readers.
- tschwimmer 8y agocheck out definition 2: https://www.merriam-webster.com/dictionary/literally https://www.merriam-webster.com/dictionary/literally
- troydavis 8y agoWhile some uses are certainly a misunderstanding of one definition, the historical uses and accepted definitions are far broader than many people realize: https://www.merriam-webster.com/words-at-play/misuse-of-literally https://www.merriam-webster.com/words-at-play/misuse-of-lite... The gist: > The use of literally in a fashion that is hyperbolic or metaphoric is not new—evidence of this use dates back to 1769. Its inclusion in a dictionary isn't new either; the entry for literally in our 1909 unabridged dictionary states that the word is “often used hyperbolically; as, he literally flew.” We (and all the other “craven dictionary editors”) have included this definition for a very simple reason: a lot of people use it this way, and our entries are based on evidence of use. Furthermore, the fact that so many people are writing angry letters serves as a sort of secondhand evidence, as they would hardly be complaining about this usage if it had not become common.
- emiliobumachar 8y agoObligatory XKCD: https://www.xkcd.com/1108/ https://www.xkcd.com/1108/
- cryoshon 8y agoi'd start a bank with the following principles: 0. don't tell the customers that we can do anything we can't do 1. cap profits at a low percentage of the capital base to discourage being irresponsible with customer money; enforce corporate austerity to keep costs very low 2. any profits over the cap are returned to customers that's it, i think. the idea is to have a bank that is rock solid (even when compared to other banks) and profitable for customers. maybe only offer one type of account, and have no minimum deposit. no fees, and offer ATM cost refunds. no personal loans. no credit cards. maybe offer a mortgage package, but probably not. no branches, obviously. customer service would be top priority. the corporate side of the bank would ride on austerity. no advertising beyond what is necessary to start the bank in motion. no luxuries for the c-suite. maybe enforce a max disparity in pay between the lowest rung and highest rung of employees to something outrageously constrained like 10 or 20k. maybe only have five or six job titles in total, if possible. fill those jobs on a first (somewhat qualified) come first serve basis and a 20 minute interview. advertise the jobs only as necessary. is this idea crazy? maybe in the banking sector it might be, but you can't trust them. they're drunk on chasing money, and they're reliably unreliable in the long term-- the article even mentions how many banks have gone under. but there are a lot of great examples of other kinds of companies (i am specifically thinking of the food wholesaler called aldi) which make their money by offering what the customer needs and nothing more. you don't need to go crazy profiteering to make robust profits...
- cschneid 8y agoNo Fees, No Loans, No Credit Cards - how exactly does this bank make any money?
- gcbw2 8y agoYou do realize all those things COST banks money in the past right? some 30+ years ago, when banks were on COBOL mostly, the system analysts would try to lower costs because you couldn't charge a fee, and if you didn't provide services that cost the bank money, the clients would move to your competition. In that time, banks had the concept of Client Acquisition Cost. Today banks uses fee for everything and everyone is ok with that, so they now have the concept of Recurring Fee Profit Per Customer. If you don't pay many fees, they treat you like garbage. So yes, it is very possible to make a profit by not only having those things but having that without fees. You will just have a harder time getting institutional investors because now they will only ever invest in predatory banks because they provide a return much faster.
- vpmpaul 8y agoYou legally need something like $10 Million in reserve capital to start a bank. Pretty much any business is profitable if you can afford to start with 10 million in savings plus have enough money to run the business.
- tasuki 8y ago> Pretty much any business is profitable if you can afford to start with 10 million in savings plus have enough money to run the business. This is non-obvious to me. Care to elaborate?
- vinceguidry 8y agoI think the idea is that there aren't any problems in business that cash in the bank can't solve. It's just a question of whether you have enough money to throw at the problem to make it go away. $10 million is enough to make any problem go away. Basically you just hire a consultant and they get it done. Finance is high wizardry, treating literally every single problem you have in dollar terms, but it built the modern world. Us software developers exist in what's basically the frontier of business. $10 million is just getting started for a software company. But it's enough to push through to profitability in every single other sector.
- __blockcipher__ 8y agoBullshit. Hire a bunch of consultants without any ability to judge which are worth the ticket, and you’ll spend a measly $10 mil in no time.
- vinceguidry 8y agoKnowing which consultants to hire and when is presumably the domain of the finance guys. You can buy competence, it's just expensive. $10 million is enough to hire a full turnaround team. The key is you have to have it as cash in the bank. You can't finance a turnaround, the better move at that point from a financial perspective is to just fold up the business, but if you have it, you can use it as collateral for a more aggressive expansion. That way if you run into enough problems, the money guys can 'foreclose' and use the reserve capital to enact a turnaround plan, and eventually earn their money back. It's an extra form of security.
- shashanoid 8y agoBobby Axelrod paid wags pretty well.
- scrumption 8y agoJust imagine if that labor went to something that created wealth instead of leeched it.
- rdtsc 8y agoWhen most people were busy with startups in the early 2000's I knew a group of people who started a bank. Boring as it gets, lots of red tape, but once it got going it was profitable.
- venantius 8y agoFundamentally, banks are scale businesses (much like most technology companies). Expensive to start, but once you've got the product / regulatory infrastructure in place your marginal revenue is really low-cost.
- moorhosj 8y agoIt seems there is a huge opportunity for someone to “disrupt” our banking system beyond saving fractional dollars and cheap trading. A simple, online only (or mostly, like Schwab) credit union could find a big audience. It could be marketed as low fee, community-centered banking. Offer no ATM fees and low mortgage rates without the typical profit motive.
- jkaplowitz 8y agoThere already are such. One example is Alliant Credit Union, which is where my main US account lives.
- moorhosj 8y agoWow, this is right in my town and I had no idea! Kind of re-enforces my point as I am their prime market and not familiar with them at all. On second glance, it looks like I don't qualify, which is probably a barrier for larger market share.
- jkaplowitz 8y agoAnyone can join them - like many credit unions these days, they've hacked the statutory rules restricting credit union membership, and one of the ways to join them is to allow them to pay $5 to a charity once on your behalf: https://www.alliantcreditunion.org/help/who-is-eligible-to-join-alliant https://www.alliantcreditunion.org/help/who-is-eligible-to-j... I'm not sure about who their primary market is now, though - they grew out of United Airlines as their primary employer group, and now have many others (I joined through Google). I think they're among the largest credit unions in the US. Regardless of the primary market question, they meet the needs you outlined.
- noumenon 8y agoThere are some banks doing this as well. Check out Radius bank for example - online only and unlimited ATM fee rebates
- frankcort 8y agoMaybe Stripe will surprise us with a product that makes this easy to do.
- venantius 8y agoCertainly possible now that the OCC has opened the door to a "fintech banking charter". In the past I'd have said this was impossible as Stripe has little interest in finding itself regulated as a bank or in becoming a bank holding company.
- dkimerling 8y agoThe lack of the ability to take deposits kills the FinTech Charter DOA
- venantius 8y agoAh I hadn’t heard that. If that’s the case then I agree 100%
- nlh 8y agoSince this article is 9 years old, I was curious about follow-up. Checked LinkedIn and looks like this guy is still with the firm he was with in 2009: https://www.linkedin.com/in/michael-wagner-60a65b116/ https://www.linkedin.com/in/michael-wagner-60a65b116/ So I guess you...can't open a bank?
- venantius 8y agoIn fairness to him, the OCC (the national banking regulator in the US) has had a practical moratorium on new national bank licenses for most of the past 10 years. You can get a new state bank charter, but not a national one. I can't blame him for not wanting to start a bank in the US lately.
- nlh 8y agoI was mostly being snarky -- totally agree: starting a bank is insanely complex & difficult, and it's not getting any easier. Kudos for even trying. No blame from here either.
- miketery 8y agoCan you expand on why one wouldn't want to start with a state bank?
- cbnotfromthere 8y agoThe problem is not the start with a state license, but expanding to a federal license.
- noumenon 8y agoI think its interesting to see fintechs trying to bypass the traditional banking model entirely. They are trying to move up the chain with a UX advantage while larger players are trying to defend themselves. Square and Venmo both offer debit cards which covers the majority of banking needs for an average person.
- venantius 8y agoWe've actually started a new bank explicitly to provide the banking infrastructure to companies like this that are good at owning the UX advantage. Our conviction is that in the long term banks will be disintermediated from most of their customers and there will be a general unbundling of banking services - you won't get your mortgage / small business loan / checking account all at the same bank.
- nedwin 8y agoHeads up your beta signup form is broken
- venantius 8y agoBroken how? I got a bunch of signup pings off this thread - Bug report welcome founders@griffin.sh
- nedwin 8y agoOn submission of my email it redirected me to an error page. Can't remember what it said, only that it was an unstyled html page with one line of error text. Just tried again and works now.
- Aspos 8y agoWho is "we"? Please, tell us more.
- venantius 8y ago
- tim333 8y agoMonzo started the first new bank in the UK for a while. It appeared laborious and they are losing £30m/year but I think they will be profitable.
- eb0la 8y agoSome companies (not just car financing) did this i. The past as a cost savings feature. Think big retail stores or insurance companies with high cash flow coming every month through the bank.
- ikeboy 8y agoI got interested in this after reading about Andrew Beal. He opened one with around $10 million decades ago and now has a net worth over 10 billion. It’s a super cheap source of funding if you have a good use for funding.
- modells 8y agoIIRC, a guy at a hackerspace bought a charter from a failing/ed local bank to complete some transaction that would otherwise been impossible/ridiculously expensive.
- godelmachine 8y agoThere was a prominent builder in India called DS Kulkarni. He just tried doing that. Collected almost 1250 crore INR from almost 2000 investors as FD’s promising returns. Then demonization was implemented in late 2016 and all his investors were duped by him. Now, both he and his wife is in prison.
- jpatokal 8y agoYou can open a bank, and then this might happen to you: https://en.wikipedia.org/wiki/Abacus_Federal_Savings_Bank https://en.wikipedia.org/wiki/Abacus_Federal_Savings_Bank https://en.wikipedia.org/wiki/Abacus:_Small_Enough_to_Jail https://en.wikipedia.org/wiki/Abacus:_Small_Enough_to_Jail (an excellent documentary)
- fma 8y agoThat's messed up. Injustice, and maybe racist? So many other Banks down the street that casued malice...I thought it was bad enough that non of the big banks got in trouble for ruining the global economy...but to prosecute a small bank, which has default rate of 1/10th of other banks is infuriating, which fired the one employee that casued trouble... Though they were cleared of all charges, I'e the stress caused onto the staff of 19 people was great.
- gammateam 8y agoThe only reason they brought the charges on "low hanging fruit" was to be able to point at why it is basically impossible to prove crimes against an individual or corporation in nuanced financial matters to a jury. The point was to show how this is a negligent use of public resources unless the laws changed, which they won't. Maybe it backfired because the jury felt it was unfair by that point, the result is still the same and it solidifies the case law itself raising the bar for prosecution even higher.