5 ms·

Because running a bank isn't easy, especially in post-2008 USA. For example, you have to maintain a fraction of your total deposits in a cash account. That mea

Because running a bank isn't easy, especially in post-2008 USA. For example, you have to maintain a fraction of your total deposits in a cash account. That means that if RH becomes a wild success story, they may have to keep millions or even billions worth of cash stack. I believe there are many other requirements that are not easy to satisfy when you're a small nimble startup. Personally I hope the banking industry in the US gets disrupted, right now it's a dinosaur and consumers suffer. However, with the current legal framework that doesn't seem easy. Seems like RobinHood was trying to disrupt banks and then the big boys (SIPC) shut them down fast.

denimnerd42 8y ago
I work at a top 3 bank. The amount of regulators a bank deals with on a regular basis is insane. we have several $200 million applications just in my department to satisfy them.
- CJKinni 8y ago
  Sorry, I'm very interested in how this all works. What does an application mean in this context?
  - bridanp 8y ago
    I'm not at a top 3, only a large regional. But I'm going to guess software packages and services from companies like Wolters Kluwer Financial Services (http://www.wolterskluwerfs.com http://www.wolterskluwerfs.com for those interested).
    - denimnerd42 8y ago
      I'm sure we buy tons of products like that. Some of my coworkers worked on Black Knight's MSP before. The costs over there are even more insane. But in my department (a risk department) everything is custom ETL, custom web apps, and custom or off the shelf reporting.
      - shostack 8y ago
        How much of the costs are from the bloat of things like custom web apps and custom reporting? Are newer online-only banks saving substantial amounts of overhead by getting by with the basics and doing their own API integrations?
        denimnerd42 8y ago
        regulations depend on what tier of bank you are. a smaller bank has less complicated products and requirements. Also of course less legacy.
  - denimnerd42 8y ago
    For us we have giant database like applications that consume data across the entire bank to calculate risk indicators. There are all kinds of risk at a bank so it gets pretty complicated with all the products we have. They either generate views for downstream business partners or directly generate reports. The views are frequently over 1000 columns wide and are at an account level (the data is initially transaction level). We also have some web apps to provide a user interface or off the shelf customizable reporting like tableau or microstrategy.
al_chemist 8y ago
> Because running a bank isn't easy (...) For example, you have to maintain a fraction of your total deposits in a cash account. What is hard keeping a fraction of not-your-money in a cash account?
- duqd_ 8y ago
  Paying people to understand exactly what form that regulatory capital should take. Determining where it should be held. Proving to your regulators that you or someone you retain followed the proper procedure in determining how much and what kind of capital should be held. Demonstrating that the proper changes to those balances were made at the proper times and that an internal framework exists for making modifications as risk exposures shift. (And more and more and more.) Here's the simplest summary I could find of one of the many required compliance frameworks: https://www.bis.org/bcbs/basel3/b3_bank_sup_reforms.pdf https://www.bis.org/bcbs/basel3/b3_bank_sup_reforms.pdf
- clairity 8y ago
  the problem is not in keeping the cash stashed away, but in the opportunity cost of doing so. startups are first and foremost expected to grow quickly and setting money aside dampens their growth rate (along with the hefty regulatory requirements of running a bank). if banking is needed, most startups will partner with a bank instead, so it has access to all of its cash, even if it has to pay a bit more to do so. flexibility has value (which is the same reason options have value beyond the underlying asset).
  - harryh 8y ago
    "maintain a fraction of your total deposits in a cash account" != setting operating capital aside. Those are two different piles of money.
krn 8y ago
Notably, major fintech startups in Europe got their banking licenses relatively quickly: N26 (Germany), Monzo (UK), Bunq (Netherlands), Revolut (Lithuania). Also, Freetrade, a British answer to Robinhood, became a member of the London Stock Exchange before even launching publicly.
simplecomplex 8y ago
Disrupted... how? Consumers suffer... how? Is depositing money hard or something? Is spending money using a debit card online difficult? Because those two things are the primary purpose of consumer banking.
- dunpeal 8y ago
  > Consumers suffer... how? Looked at bank fees recently? Why should it cost $50 to change some values in a database?
  - simplecomplex 8y ago
    No, because there are no consumer bank fees for depositing and spending money. That’s what I and most consumers use a bank for. In the US, consumer banking is free. Most checking accounts have no cost and neither do the debit/credit cards. What $50 fees are you talking about? I’m assuming you mean interbank transfers ?
    - greycol 8y ago
      I'll say that the typical consumer in my country uses intra and inter bank transfers (nationally) for quick payments between other consumers(instead of say handing a mate a 20 dollar bill you'd just transfer it). Now personally I wouldn't be doing that if it cost $50 dollars (or even $5) instead of being free. On a side note I now understand the popularity of apps like venmo considering the environment they are in.
    - deleted 8y ago
      [deleted]
- PeterisP 8y ago
  Yes, compared to the rest of the first world, USA consumer banking sucks and consumers suffer. Fees are higher than in other rich countries, there's lots of unbanked people who aren't able to get free or near-free bank accounts, there is a lack of fast&cheap wire (account-to-account) transfers, the identity theft problems of USA consumer banking are like almost nowhere else, USA seems to be way behind on contactless card payments, and automatic electronic payment of all (or almost all) household bills also isn't a thing yet there as far as I understand. Those all are a major parts of consumer banking experience, and there is a lot of aspects that can be improved and disrupted in USA.

denimnerd42 8y ago

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

CJKinni 8y ago
Sorry, I'm very interested in how this all works. What does an application mean in this context?
- bridanp 8y ago
  I'm not at a top 3, only a large regional. But I'm going to guess software packages and services from companies like Wolters Kluwer Financial Services (http://www.wolterskluwerfs.com http://www.wolterskluwerfs.com for those interested).
  - denimnerd42 8y ago
    I'm sure we buy tons of products like that. Some of my coworkers worked on Black Knight's MSP before. The costs over there are even more insane. But in my department (a risk department) everything is custom ETL, custom web apps, and custom or off the shelf reporting.
    - shostack 8y ago
      How much of the costs are from the bloat of things like custom web apps and custom reporting? Are newer online-only banks saving substantial amounts of overhead by getting by with the basics and doing their own API integrations?
      - denimnerd42 8y ago
        regulations depend on what tier of bank you are. a smaller bank has less complicated products and requirements. Also of course less legacy.
- denimnerd42 8y ago
  For us we have giant database like applications that consume data across the entire bank to calculate risk indicators. There are all kinds of risk at a bank so it gets pretty complicated with all the products we have. They either generate views for downstream business partners or directly generate reports. The views are frequently over 1000 columns wide and are at an account level (the data is initially transaction level). We also have some web apps to provide a user interface or off the shelf customizable reporting like tableau or microstrategy.

al_chemist 8y ago

> Because running a bank isn't easy (...) For example, you have to maintain a fraction of your total deposits in a cash account. What is hard keeping a fraction of not-your-money in a cash account?

duqd_ 8y ago
Paying people to understand exactly what form that regulatory capital should take. Determining where it should be held. Proving to your regulators that you or someone you retain followed the proper procedure in determining how much and what kind of capital should be held. Demonstrating that the proper changes to those balances were made at the proper times and that an internal framework exists for making modifications as risk exposures shift. (And more and more and more.) Here's the simplest summary I could find of one of the many required compliance frameworks: https://www.bis.org/bcbs/basel3/b3_bank_sup_reforms.pdf https://www.bis.org/bcbs/basel3/b3_bank_sup_reforms.pdf
clairity 8y ago
the problem is not in keeping the cash stashed away, but in the opportunity cost of doing so. startups are first and foremost expected to grow quickly and setting money aside dampens their growth rate (along with the hefty regulatory requirements of running a bank). if banking is needed, most startups will partner with a bank instead, so it has access to all of its cash, even if it has to pay a bit more to do so. flexibility has value (which is the same reason options have value beyond the underlying asset).
- harryh 8y ago
  "maintain a fraction of your total deposits in a cash account" != setting operating capital aside. Those are two different piles of money.

krn 8y ago

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

simplecomplex 8y ago

Disrupted... how? Consumers suffer... how? Is depositing money hard or something? Is spending money using a debit card online difficult? Because those two things are the primary purpose of consumer banking.

dunpeal 8y ago
> Consumers suffer... how? Looked at bank fees recently? Why should it cost $50 to change some values in a database?
- simplecomplex 8y ago
  No, because there are no consumer bank fees for depositing and spending money. That’s what I and most consumers use a bank for. In the US, consumer banking is free. Most checking accounts have no cost and neither do the debit/credit cards. What $50 fees are you talking about? I’m assuming you mean interbank transfers ?
  - greycol 8y ago
    I'll say that the typical consumer in my country uses intra and inter bank transfers (nationally) for quick payments between other consumers(instead of say handing a mate a 20 dollar bill you'd just transfer it). Now personally I wouldn't be doing that if it cost $50 dollars (or even $5) instead of being free. On a side note I now understand the popularity of apps like venmo considering the environment they are in.
  - deleted 8y ago
    [deleted]
PeterisP 8y ago
Yes, compared to the rest of the first world, USA consumer banking sucks and consumers suffer. Fees are higher than in other rich countries, there's lots of unbanked people who aren't able to get free or near-free bank accounts, there is a lack of fast&cheap wire (account-to-account) transfers, the identity theft problems of USA consumer banking are like almost nowhere else, USA seems to be way behind on contactless card payments, and automatic electronic payment of all (or almost all) household bills also isn't a thing yet there as far as I understand. Those all are a major parts of consumer banking experience, and there is a lot of aspects that can be improved and disrupted in USA.