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Why is everyone a bank?

232 points by kaushikktiwari 7y ago

majormjr 7y ago
This article seems to just be an advertisement for the authors new bank account?
- kaushikktiwari 7y ago
  its not an advertisement my friend. Just explaining how I see the world as someone who is working in it. Tried to be as unobtrusive as possible!
  - perspective1 7y ago
    I'm with you. You're contributing a thought piece and unobtrusively include a link to your bank at the bottom. It's not overtly biased, and it's neat you're getting attention for your banking app by, instead of describing it, simply saying you're doing something "interesting." 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?
    - kaushikktiwari 7y ago
      thanks perspective1! I find overt self-promotion to be distasteful, so glad it came across well. We are using the interchange fees to pay for the $5000 emergency fund, they have to move their direct deposit over to switch "ON" the safety net. We do break even based on our current estimates of annual spend and claims, but looking at a few different ways, upselling insurance is the big one! Will write about it and make sure to post on this comment thread!
tlb 7y ago
Another answer: because regular banks are awful to deal with. They don't have nice APIs to just move money around. They apply velocity limits at surprising times. They can terminate your account suddenly for opaque reasons. They charge high regular fees and even higher "gotcha" fees if you make a mistake. They can take back money sent to you for up to 90 days, but often can't get back money you sent to crooks even if you discover your error the next day. And 100 other complaints. 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.
- kaushikktiwari 7y ago
  Def, you are right. Everyone is building on top of legacy banks but you hope that slowly the customer orientation will change to positive largely by better tech and more competition! Thanks for reading and appreciate the comment!
- theturtletalks 7y ago
  Another reason is the horrible interest rates. Wealthfront and Robinhood are offering "bank" accounts that have 1.8% APY that is FDIC insured. If your business has a high turnover month-to-month, that money used to pay your bills can accumulate interest.
  - toomuchtodo 7y ago
    I bank with a shitty national bank (long story, need access to Zelle/P2P transfers). My emergency fund is 6 months expenses, low 5 figures. 150-200 basis points of interest annually is trivial when 1 or 2 wire fees ($20) to get access to those funds same day blows away all of interest gains over 6-12 months. 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-money/ https://www.kalzumeus.com/2019/6/26/how-brokerages-make-mone...
AllanHoustonSt 7y ago
Is the overwhelming debit spending vs credit spending an emotionally charged and risk averse rationale decision by the general populace or just unfortunate financial illiteracy?
- kaushikktiwari 7y ago
  Access is the big one, risk-averse because of being burned in the past. Even missing a single payment means 25% APR+late fees, so likely to not put everyday expenses on credit. Use it more for planned stuff, like travel etc. The biggest irony is credit card rewards are a tax on the poor for the rich---merchants jack up prices for all but the rich spend and benefit!
- fenwick67 7y ago
  Anecdotal reasoning: every middle-class and lower-class person in america probably knows someone with a tragic financial story that ends with piles of credit card debt.
Osiris 7y ago
Some cryptocurrency communities push the idea of "Be your own bank", especially with hardware wallets specifically because of this problem of having to trust / rely on custodians. 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.
- asjw 7y ago
  Hardware wallets can protect your assets, but they can't protect you from bad rep. People won't make transactions with you if transactions are monitored or at risk (every business with someone having problems with the law are hinerently risky) 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.
_bxg1 7y ago
The points make well enough sense, but the author is also the professed founder of this: https://betterbank.app/ https://betterbank.app/
- kaushikktiwari 7y ago
  does that make the points less valid? I felt it added to the credibility of the piece? Looking forward to your criticism on that
  - scott_s 7y ago
    No, it does not make your points less valid, if they are valid. But it is reasonable to assume that the arguments of this piece form the foundational assumptions of the product you are selling. People will want to take this into account when considering your arguments.
    - kaushikktiwari 7y ago
      You are right! This one is more of a general overview of the space. I will write one about the assumptions we are making wrt to betterbank.app
  - _bxg1 7y ago
    It makes the points worthy of scrutiny.
- kevindong 7y ago
  I'm genuinely curious to see how they could possibly make money given this FAQ question [0]: > 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. [0]: https://betterbank.app/faq https://betterbank.app/faq
  - rauchp 7y ago
    According to their site, they make the necessary money for that safety net by splitting the profit from the interchange fee they get from big banks. That statement reminds me of Martin Shkreli telling the media he was profiting by overcharging insurance companies. There's no way loudly telling the world how you're screwing over the big players doesn't result in you getting squished at some point. Sure, now I understand their business model. But if they ever get traction these big banks will put an end to their medical bill subsidy real quick.
useful 7y ago
Reminds me of a great talk my a16z about the holy grail is the bank account. https://www.youtube.com/watch?v=gK9owf0PSZU https://www.youtube.com/watch?v=gK9owf0PSZU
- brooklyntribe 7y ago
  EVERYONE should watch this one. thanks:-)
manishsharan 7y ago
I work at a bank -- it wants to be a tech company. In fact a lot of banks aspire to be a tech company merely selling financial products.
aj7 7y ago
“It’s the dominant payment method when it comes to everyday expenses — think milk and diapers at the supermarket or a quick bite at the corner deli.” For financial ninkompoops.
- kaushikktiwari 7y ago
  too harsh brother, I agree it makes way more sense to use a credit card and pay it off immediately. It's just not that easy for a lot of people.
buboard 7y ago
Because there is so much free cash it's easy to build one just to pass your cash to your grandkids? 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
aj7 7y ago
There are only two uses cases left for money center banks. (1) You might be able to get a branch safe deposit box. (2) Same day payment on credit cards, that bank. Fidelity, and perhaps other zero fee brokerage accounts handle everything else.
- kccqzy 7y ago
  Does Fidelity allow you to deposit cash?
  - patio11 7y ago
    "Integrated cash management" (a debit card, etc) is abundantly available from discount brokerages, and is systemically important to their businesses. Fidelity legally can't call it a checking account so they call it a Cash Management Account; brokerages that own banks (Schwab, etc) just call it checking.
    - kccqzy 7y ago
      You did not answer my question. As far as I can see, the Fidelity CMA allows you to withdraw cash using their debit card, but I see no way to deposit cash. Nor does it provide features like cashier's check.
40acres 7y ago
Traditional banks have a consumer tech problem. This has led to the rise of Robinhood, Venmo, etc. Partnering with tech players like Apple and Google allows them access to their customers. Big tech wants access to financial services for a few reasons laid out in the article in addition to FOMO and bypassing regulation.
superkuh 7y ago
When you're a bank you get rent from many economic transactions without providing anything of value except being rich to start. And even better, if you're a real bank, then you can create money out of thin air as debt on your balance sheet via fractional reserve banking. There's effectively a universal basic income for banks. What company wouldn't want to get in on that?
- whatshisface 7y ago
  Thin air? What are all the employees doing then?
  - brenden2 7y ago
    Most of them are sales people. The OP is correct, banks increase the monetary supply through fractional reserve.
  - matheusmoreira 7y ago
    Yup, thin air. When people borrow money, the bank just creates the money out of nowhere. That money doesn't actually exist until the debt is paid. Banks are ultimately responsible for the extreme inflation of virtually all currencies currently in use.
    - Kye 7y ago
      What do you consider extreme inflation?
    - briatx 7y ago
      That is not at all how the money multiplier works. https://en.m.wikipedia.org/wiki/Money_multiplier https://en.m.wikipedia.org/wiki/Money_multiplier
  - Dylan16807 7y ago
    They do a lot! But it's not part of where the money comes from. 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.
vernie 7y ago
Because that's where the money is.
rb808 7y ago
Because it looks easy. And in an age where VC money doesn't care about profits its easy to create a bank. When the fraud, regulatory compliance and low interest rate horsemen come knocking most of these efforts wont last.
AnimalMuppet 7y ago
Because that's where the money is. -- Willie Sutton
lordnacho 7y ago
The thing you tend to hear about banking services is that everyone is dissatisfied with them. This is probably why a lot of startups think they can jump in and disrupt. 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.
v4dok 7y ago
Another asnswer: Because the people making the business decisions in these companies is the only thing they can do. 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.
- FailMore 7y ago
  I think this is true. Since mobile every company has been praying for and betting on the next paradigm (voice, watch, glasses, VR, AR) but nothing has moved the needle in a major way. I think there is a lot of visionless drift right now, and banking is another most likely fruitless direction tech will drift into. Lots of media hype, mediocre traction (as with all the alternative paradigms listed above). Hats off to FB though, I think their perspective is the only innovative one out there.
- TrackerFF 7y ago
  Also: Debt is cheap these days, and regular people are in desperate need of cash - so it's a sellers market. 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
henron 7y ago
The problem is that no direct to consumer fintech company has found a legal way to make money other than 1) processing transactions 2) holding savings. The examples of struggling companies in the article underscores this point.
fuzzfactor 7y ago
>Why is everyone a bank? 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.
Apocryphon 7y ago
You know what also provides most of the services of a bank? A credit union. Why aren't companies launching those?
- rolltiide 7y ago
  Because they don't want to. Why would you want your members to be a part of it, just sticks with the super low interest rates, fractional reserve, rampant speculation and all of the profits
Apocryphon 7y ago
Is this going to be the sort of phenomenon that we will eventually look back as a signifier of the dumb money economic bubble we're in, similar to past trends like the wild access to credit in the Roaring Twenties, the run up to the S&L crisis in the '80s, the worthless tech IPOs of the Dot-Com Bubble, the liar's loans of the 2000s, and another examples of rampant finacialization? 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?
- delfinom 7y ago
  The tech companies aren't even underwriting the accounts. They are just resellers of accounts from actual banks, throwing on a fancy web interface and then data mining your transactions.
  - Apocryphon 7y ago
    I'm not exactly claiming that Robinhood checking accounts or the Apple Card will blow up Goldman Sachs and kick off the next recession, but it does feel like that if we're at the point where companies unrelated to finance are jumping into it just because it's easy to, we're in a time of irrational exuberance. Extravagantly so.
    - rootsudo 7y ago
      The barrier to entry has been reduced and now we're seeing a buffet .
    - derp_dee_derp 7y ago
      Can you explain why you think Robinhood is unrelated to finance and is jumping into it just because it's easy to?
      - Apocryphon 7y ago
        Not the best example, perhaps, but a stock brokerage app getting into banking (especially with shady marketing [0]) feels like feature creep. [0] https://news.ycombinator.com/item?id=18699995 https://news.ycombinator.com/item?id=18699995
lol768 7y ago
> Think of the last time you saw an overdraft charge on your statement and swore to yourself that this was the last straw — you are taking your business elsewhere only to be confronted with the downstream effects of moving your “financial address” — telling HR where to send the next paycheck, calling up each utility company, changing autopay for each credit card bill and so forth Isn't this what CASS is for? Is there really no US equivalent?
rkapurbh 7y ago
Existing banks' customer service totally sucks. These tech-focused banks have an enormous opportunity to just provided better customer service. Insightful article, I never thought about interchange as a business model.
otakucode 7y ago
It has never, at any point since the introduction of electronic transfers, made the slightest bit of sense for 'payment processing' services to charge a fee which scales based upon the amount being transacted. Yet, every means of transferring money has always come with a percentage-based fee. This isn't just a simple matter of rent-seeking on the part of the financial class. It's outright dangerous, and really shouldn't be tolerated by any government. The cost to transfer money does not scale based upon the size of the numbers involved. And as the vast majority of transactions overall in our economy are now electronic, this puts payment processors essentially in the role of taxing authorities. They have the power to counteract the monetary policies of the government should they feel like doing so. Imagine if the Federal Reserve decided to print more money in order to encourage lending or something like that, but the CEOs of the largest payment processors disagreed. They could simply raise their processing fees, making it more expensive for money to be used, compensating and making the actions of the Fed ineffective. There is no law preventing them from doing this, as far as I know, and it would have immediate monumental impact on the economy. 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.
- Turing_Machine 7y ago
  Hmm... it seems to me that the service is exposed to more risk for higher transaction amounts (say, something is crooked, or just goes wrong and the service winds up holding the bag). 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.
- dalyons 7y ago
  Fees and interchange are regulated / capped by the government
hcarvalhoalves 7y ago
Everyone is a bank today for the same reason everyone was a social network in the 00's. 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.
- Apocryphon 7y ago
  As the engineer and writer Alex Payne put it, these startups represent “the field offices of a large distributed workforce assembled by venture capitalists and their associate institutions,” doing low-overhead, low-risk R&D for five corporate giants. In such a system, the real disillusionment isn’t the discovery that you’re unlikely to become a billionaire; it’s the realization that your feeling of autonomy is a fantasy, and that the vast majority of you have been set up to fail by design. - No Exit: Struggling to Survive a Modern Gold Rush (2014)
  - thundergolfer 7y ago
    That’s an interesting perspective. Related to it, I often feel like entrepreneurs in tech don’t realise how much their innovation is restricted by capital markets. 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.
    - kaushikktiwari 7y ago
      That's a very good point! I agree!
NN88 7y ago
sounds like we need more taxes cause these balance sheets are way too high
TurkishPoptart 7y ago
I am very grateful for my local credit union. Six years and they haven't fucked me over once.
belorn 7y ago
Looking at the situation in Sweden, I would say the cause is the bank themselves. Banks here are currently trying to remove every aspect of the banking industry that is not a digital service. Offices are a cost center. Physical money are a cost center. Talking with customers is a cost center. By shedding all those cost centers the bank can focus on the parts that make most money and raise stock value. 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.
- LudwigNagasena 7y ago
  Cost/profit center is such a bogus concept. I can’t believe almost all big companies use it.
bsenftner 7y ago
I've encountered several startups that have founded banks through American Indian Reservations, instantly creating an international money laundering vehicle, which they use as a tax haven for wealthy people while also being able to create money directly by loaning it to separate corporate shells. This may be "smart" but I steer away from anyone with this type of "strategic thinking" because they are playing with fire.
galkk 7y ago
I was always wondering why Microsoft sunsetted MS Money and Google didn't built something like that. This is a treasure of information
deleted 7y ago
[deleted]
jimbru 7y ago
It's easy (and fun) to complain about the bad (or just weird) product experiences that banks regularly churn out. Believe it or not, most banks are trying their best. But as other commenters have noted, banks aren't staffed by technologists, so their choices for how to solve these problems begin and end with buying one of the available off-the-shelf software products. Spoiler alert, these products generally are both expensive and not very good. 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/ 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.
- acjohnson55 7y ago
  I have to imagine that you get used a bunch in the backends of FinTech products, but any chance better IT starts to reach consumers? My inability to know exactly what's going on with my money on my own terms is endless frustrating. The aggregators help, but are still quite limited.
zhte415 7y ago
The article doesn't touch this, US-centric, but I feel worth mentioning is the EU's PSD2 (Payment Services Directive 2) which is driving a lot of consumer banking Fintech/Regtech. 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-changes https://www.finextra.com/blogposting/12668/psd2---what-chang...
brooklyntribe 7y ago
Sounds crazy --- I don't want to start a billion (trillion $$$) bank. What happens if "my bank" has never more than $10,000 in total assets. Our loans never go above $100. Do want to offer ATM cards, just we're nano-sized. 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?
themark 7y ago
Isn’t it just data mining? I assume the big credit card companies aggregate spending by vendor for their customer base and make projections about each vendor’s quarterly revenues then sell metrics to hedge funds.
Sophistifunk 7y ago
Is that a trick question? it's because banks get to make money without doing any work. It's a wonderful position to be in, the middle-man who just takes a cut of everybody else's transactions.
- Gibbon1 7y ago
  In 2009 the Fed tore down the wall between retail and investment banks. Which allowed the Fed to pump the latter full of cash. Stands to reason that every other large non-finance corporation wants to get in on that.
kccqzy 7y ago
> It also happens to be an incredibly sticky product. Think of the last time you saw an overdraft charge on your statement and swore to yourself that this was the last straw — you are taking your business elsewhere only to be confronted with the downstream effects of moving your “financial address” — telling HR where to send the next paycheck, calling up each utility company, changing autopay for each credit card bill and so forth! 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.
- qzw 7y ago
  Yes, but it’s an hour of painfully boring work that demands care and correctness. And at the end of it, you’re just with another bank that may or may not be better.
- baron816 7y ago
  I switched from Chase to SoFi a few months back (kept my Chase CCs). Totally worth it. Didn't take that much time, although still more than an hour, plus had to be careful not to pull money out of Chase just before a payment was processed. But it's been great. SoFi Money currently yields 1.6% (not the best, but still better than any CDs or savings accounts Chase could give me). Having a high interest yielding checking account has allowed me to better optimize my investing/saving habits. Plus, when I traveled to Europe recently, SoFi was giving me the spot exchange rate at ATMs.
- tikkabhuna 7y ago
  In the UK we have the "Switch Guarantee"[1]. It was setup when there was stickiness in current accounts (English term for checking accounts). Now when you sign up for a current account you can opt-in to this service and they do payment redirection. So if someone tries to transfer your old account money, it'll get forwarded onto your new bank. That's on top of them organising the migration of payments. 1. https://www.currentaccountswitch.co.uk/Pages/Home.aspx https://www.currentaccountswitch.co.uk/Pages/Home.aspx
Lucadg 7y ago
Fintech only provides better UX on the same old system of banking. The real issue with banks is the staggering amount of regulation which acts both as an innovation killer and as a high barrier to entry, which in turn stifles innovation even more. 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.
cies 7y ago
Not "everyone" is a bank. Some big companies can afford to be a bank. 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.
ivanhoe 7y ago
Because banks are where the money is. (yeah, lame pun, but I had to write it :))
- ggambetta 7y ago
  I can't see a pun there. Am I missing something?
wheybags 7y ago
> for a large credit scarred portion of the populace, it's their primary spending account! As a European, this sentence seemed weird. Why wouldn't it be? Do people not use debit cards in the us?
netcan 7y ago
I think the article more or less nailed it, but the topic probably deserves journalistic attention of the kind journalists complain no longer exists. 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.
biolurker1 7y ago
Literally everyone could be a bank with Bitcoin
znpy 7y ago
> Why is everyone a bank? Banks usually make a shitload of money, I guess.
lotus_kk 7y ago
it is just like p2p,but more regular.my point the future is g2g a few years ago.
StuffedParrot 7y ago
Interest is profitable. You take cash, you make interest. It's just a step away from the oldest game in the book—loan sharking.
doppel 7y ago
Related: In Denmark (where I live), we have an officially designated "NemKonto" (translates to "EasyAccount"), which is where most employers, public institutions, etc. put paychecks, payouts, etc. automatically. So if you change banks, you can simply designate the new account your official NemKonto, and the money will automatically be routed there - no need to contact anyone. 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.
- cowsandmilk 7y ago
  > 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". 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.
venantius 7y ago
If you're interested in this space, we're building a fully-regulated platform bank to essentially power all of these consumer/business facing banking applications. This is us: https://griffinbank.com https://griffinbank.com
known 7y ago
"Heads I Win; Tails You Lose" --Banks
ecopoesis 7y ago
Because in capitalism there are really only two things that make money: real estate and finance. Everything else is just combining real estate and finance in interesting ways. McDonalds is a real estate company that happens to make burgers. The traditional car manufacturers are banks that happen to build cars.
christkv 7y ago
I dread the raise of the tech company banks. I think we need EU level regulation to ensure you are not orphaned by companies that decide they don't want you legal business because you offended some third party that is applying political pressure to the bank. A digital and financial rights charter.
soapboxrocket 7y ago
But they aren't banks, they are just partnering with banks and putting a smooth veneer on top of old/greedy banks. The current trend seems very similar to when retailers all launched their "own" credit cards.
zeerev 7y ago
It would be nice to have a system where you can avoid getting put on the credit bureaus at all. Be your own bank? No agreement to have your credit monitored by those toads.

This article seems to just be an advertisement for the authors new bank account?

kaushikktiwari 7y ago
its not an advertisement my friend. Just explaining how I see the world as someone who is working in it. Tried to be as unobtrusive as possible!
- perspective1 7y ago
  I'm with you. You're contributing a thought piece and unobtrusively include a link to your bank at the bottom. It's not overtly biased, and it's neat you're getting attention for your banking app by, instead of describing it, simply saying you're doing something "interesting." 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?
  - kaushikktiwari 7y ago
    thanks perspective1! I find overt self-promotion to be distasteful, so glad it came across well. We are using the interchange fees to pay for the $5000 emergency fund, they have to move their direct deposit over to switch "ON" the safety net. We do break even based on our current estimates of annual spend and claims, but looking at a few different ways, upselling insurance is the big one! Will write about it and make sure to post on this comment thread!

tlb 7y ago

Another answer: because regular banks are awful to deal with. They don't have nice APIs to just move money around. They apply velocity limits at surprising times. They can terminate your account suddenly for opaque reasons. They charge high regular fees and even higher "gotcha" fees if you make a mistake. They can take back money sent to you for up to 90 days, but often can't get back money you sent to crooks even if you discover your error the next day. And 100 other complaints. 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.

kaushikktiwari 7y ago
Def, you are right. Everyone is building on top of legacy banks but you hope that slowly the customer orientation will change to positive largely by better tech and more competition! Thanks for reading and appreciate the comment!
theturtletalks 7y ago
Another reason is the horrible interest rates. Wealthfront and Robinhood are offering "bank" accounts that have 1.8% APY that is FDIC insured. If your business has a high turnover month-to-month, that money used to pay your bills can accumulate interest.
- toomuchtodo 7y ago
  I bank with a shitty national bank (long story, need access to Zelle/P2P transfers). My emergency fund is 6 months expenses, low 5 figures. 150-200 basis points of interest annually is trivial when 1 or 2 wire fees ($20) to get access to those funds same day blows away all of interest gains over 6-12 months. 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-money/ https://www.kalzumeus.com/2019/6/26/how-brokerages-make-mone...

AllanHoustonSt 7y ago

Is the overwhelming debit spending vs credit spending an emotionally charged and risk averse rationale decision by the general populace or just unfortunate financial illiteracy?

kaushikktiwari 7y ago
Access is the big one, risk-averse because of being burned in the past. Even missing a single payment means 25% APR+late fees, so likely to not put everyday expenses on credit. Use it more for planned stuff, like travel etc. The biggest irony is credit card rewards are a tax on the poor for the rich---merchants jack up prices for all but the rich spend and benefit!
fenwick67 7y ago
Anecdotal reasoning: every middle-class and lower-class person in america probably knows someone with a tragic financial story that ends with piles of credit card debt.

Osiris 7y ago

Some cryptocurrency communities push the idea of "Be your own bank", especially with hardware wallets specifically because of this problem of having to trust / rely on custodians. 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.

asjw 7y ago
Hardware wallets can protect your assets, but they can't protect you from bad rep. People won't make transactions with you if transactions are monitored or at risk (every business with someone having problems with the law are hinerently risky) 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.

_bxg1 7y ago

The points make well enough sense, but the author is also the professed founder of this: https://betterbank.app/ https://betterbank.app/

kaushikktiwari 7y ago
does that make the points less valid? I felt it added to the credibility of the piece? Looking forward to your criticism on that
- scott_s 7y ago
  No, it does not make your points less valid, if they are valid. But it is reasonable to assume that the arguments of this piece form the foundational assumptions of the product you are selling. People will want to take this into account when considering your arguments.
  - kaushikktiwari 7y ago
    You are right! This one is more of a general overview of the space. I will write one about the assumptions we are making wrt to betterbank.app
- _bxg1 7y ago
  It makes the points worthy of scrutiny.
kevindong 7y ago
I'm genuinely curious to see how they could possibly make money given this FAQ question [0]: > 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. [0]: https://betterbank.app/faq https://betterbank.app/faq
- rauchp 7y ago
  According to their site, they make the necessary money for that safety net by splitting the profit from the interchange fee they get from big banks. That statement reminds me of Martin Shkreli telling the media he was profiting by overcharging insurance companies. There's no way loudly telling the world how you're screwing over the big players doesn't result in you getting squished at some point. Sure, now I understand their business model. But if they ever get traction these big banks will put an end to their medical bill subsidy real quick.

useful 7y ago

Reminds me of a great talk my a16z about the holy grail is the bank account. https://www.youtube.com/watch?v=gK9owf0PSZU https://www.youtube.com/watch?v=gK9owf0PSZU

brooklyntribe 7y ago
EVERYONE should watch this one. thanks:-)

manishsharan 7y ago

I work at a bank -- it wants to be a tech company. In fact a lot of banks aspire to be a tech company merely selling financial products.

aj7 7y ago

“It’s the dominant payment method when it comes to everyday expenses — think milk and diapers at the supermarket or a quick bite at the corner deli.” For financial ninkompoops.

kaushikktiwari 7y ago
too harsh brother, I agree it makes way more sense to use a credit card and pay it off immediately. It's just not that easy for a lot of people.

buboard 7y ago

Because there is so much free cash it's easy to build one just to pass your cash to your grandkids? 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

aj7 7y ago

There are only two uses cases left for money center banks. (1) You might be able to get a branch safe deposit box. (2) Same day payment on credit cards, that bank. Fidelity, and perhaps other zero fee brokerage accounts handle everything else.

kccqzy 7y ago
Does Fidelity allow you to deposit cash?
- patio11 7y ago
  "Integrated cash management" (a debit card, etc) is abundantly available from discount brokerages, and is systemically important to their businesses. Fidelity legally can't call it a checking account so they call it a Cash Management Account; brokerages that own banks (Schwab, etc) just call it checking.
  - kccqzy 7y ago
    You did not answer my question. As far as I can see, the Fidelity CMA allows you to withdraw cash using their debit card, but I see no way to deposit cash. Nor does it provide features like cashier's check.

40acres 7y ago

Traditional banks have a consumer tech problem. This has led to the rise of Robinhood, Venmo, etc. Partnering with tech players like Apple and Google allows them access to their customers. Big tech wants access to financial services for a few reasons laid out in the article in addition to FOMO and bypassing regulation.

superkuh 7y ago

When you're a bank you get rent from many economic transactions without providing anything of value except being rich to start. And even better, if you're a real bank, then you can create money out of thin air as debt on your balance sheet via fractional reserve banking. There's effectively a universal basic income for banks. What company wouldn't want to get in on that?

whatshisface 7y ago
Thin air? What are all the employees doing then?
- brenden2 7y ago
  Most of them are sales people. The OP is correct, banks increase the monetary supply through fractional reserve.
- matheusmoreira 7y ago
  Yup, thin air. When people borrow money, the bank just creates the money out of nowhere. That money doesn't actually exist until the debt is paid. Banks are ultimately responsible for the extreme inflation of virtually all currencies currently in use.
  - Kye 7y ago
    What do you consider extreme inflation?
  - briatx 7y ago
    That is not at all how the money multiplier works. https://en.m.wikipedia.org/wiki/Money_multiplier https://en.m.wikipedia.org/wiki/Money_multiplier
- Dylan16807 7y ago
  They do a lot! But it's not part of where the money comes from. 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.

vernie 7y ago

Because that's where the money is.

rb808 7y ago

Because it looks easy. And in an age where VC money doesn't care about profits its easy to create a bank. When the fraud, regulatory compliance and low interest rate horsemen come knocking most of these efforts wont last.

AnimalMuppet 7y ago

Because that's where the money is. -- Willie Sutton

lordnacho 7y ago

The thing you tend to hear about banking services is that everyone is dissatisfied with them. This is probably why a lot of startups think they can jump in and disrupt. 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.

v4dok 7y ago

Another asnswer: Because the people making the business decisions in these companies is the only thing they can do. 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.

FailMore 7y ago
I think this is true. Since mobile every company has been praying for and betting on the next paradigm (voice, watch, glasses, VR, AR) but nothing has moved the needle in a major way. I think there is a lot of visionless drift right now, and banking is another most likely fruitless direction tech will drift into. Lots of media hype, mediocre traction (as with all the alternative paradigms listed above). Hats off to FB though, I think their perspective is the only innovative one out there.
TrackerFF 7y ago
Also: Debt is cheap these days, and regular people are in desperate need of cash - so it's a sellers market. 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

henron 7y ago

The problem is that no direct to consumer fintech company has found a legal way to make money other than 1) processing transactions 2) holding savings. The examples of struggling companies in the article underscores this point.

fuzzfactor 7y ago

>Why is everyone a bank? 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.

Apocryphon 7y ago

You know what also provides most of the services of a bank? A credit union. Why aren't companies launching those?

rolltiide 7y ago
Because they don't want to. Why would you want your members to be a part of it, just sticks with the super low interest rates, fractional reserve, rampant speculation and all of the profits

Apocryphon 7y ago

Is this going to be the sort of phenomenon that we will eventually look back as a signifier of the dumb money economic bubble we're in, similar to past trends like the wild access to credit in the Roaring Twenties, the run up to the S&L crisis in the '80s, the worthless tech IPOs of the Dot-Com Bubble, the liar's loans of the 2000s, and another examples of rampant finacialization? 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?

delfinom 7y ago
The tech companies aren't even underwriting the accounts. They are just resellers of accounts from actual banks, throwing on a fancy web interface and then data mining your transactions.
- Apocryphon 7y ago
  I'm not exactly claiming that Robinhood checking accounts or the Apple Card will blow up Goldman Sachs and kick off the next recession, but it does feel like that if we're at the point where companies unrelated to finance are jumping into it just because it's easy to, we're in a time of irrational exuberance. Extravagantly so.
  - rootsudo 7y ago
    The barrier to entry has been reduced and now we're seeing a buffet .
  - derp_dee_derp 7y ago
    Can you explain why you think Robinhood is unrelated to finance and is jumping into it just because it's easy to?
    - Apocryphon 7y ago
      Not the best example, perhaps, but a stock brokerage app getting into banking (especially with shady marketing [0]) feels like feature creep. [0] https://news.ycombinator.com/item?id=18699995 https://news.ycombinator.com/item?id=18699995

lol768 7y ago

> Think of the last time you saw an overdraft charge on your statement and swore to yourself that this was the last straw — you are taking your business elsewhere only to be confronted with the downstream effects of moving your “financial address” — telling HR where to send the next paycheck, calling up each utility company, changing autopay for each credit card bill and so forth Isn't this what CASS is for? Is there really no US equivalent?

rkapurbh 7y ago

Existing banks' customer service totally sucks. These tech-focused banks have an enormous opportunity to just provided better customer service. Insightful article, I never thought about interchange as a business model.

otakucode 7y ago

It has never, at any point since the introduction of electronic transfers, made the slightest bit of sense for 'payment processing' services to charge a fee which scales based upon the amount being transacted. Yet, every means of transferring money has always come with a percentage-based fee. This isn't just a simple matter of rent-seeking on the part of the financial class. It's outright dangerous, and really shouldn't be tolerated by any government. The cost to transfer money does not scale based upon the size of the numbers involved. And as the vast majority of transactions overall in our economy are now electronic, this puts payment processors essentially in the role of taxing authorities. They have the power to counteract the monetary policies of the government should they feel like doing so. Imagine if the Federal Reserve decided to print more money in order to encourage lending or something like that, but the CEOs of the largest payment processors disagreed. They could simply raise their processing fees, making it more expensive for money to be used, compensating and making the actions of the Fed ineffective. There is no law preventing them from doing this, as far as I know, and it would have immediate monumental impact on the economy. 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.

Turing_Machine 7y ago
Hmm... it seems to me that the service is exposed to more risk for higher transaction amounts (say, something is crooked, or just goes wrong and the service winds up holding the bag). 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.
dalyons 7y ago
Fees and interchange are regulated / capped by the government

hcarvalhoalves 7y ago

Everyone is a bank today for the same reason everyone was a social network in the 00's. 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.

Apocryphon 7y ago
As the engineer and writer Alex Payne put it, these startups represent “the field offices of a large distributed workforce assembled by venture capitalists and their associate institutions,” doing low-overhead, low-risk R&D for five corporate giants. In such a system, the real disillusionment isn’t the discovery that you’re unlikely to become a billionaire; it’s the realization that your feeling of autonomy is a fantasy, and that the vast majority of you have been set up to fail by design. - No Exit: Struggling to Survive a Modern Gold Rush (2014)
- thundergolfer 7y ago
  That’s an interesting perspective. Related to it, I often feel like entrepreneurs in tech don’t realise how much their innovation is restricted by capital markets. 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.
  - kaushikktiwari 7y ago
    That's a very good point! I agree!

NN88 7y ago

sounds like we need more taxes cause these balance sheets are way too high

TurkishPoptart 7y ago

I am very grateful for my local credit union. Six years and they haven't fucked me over once.

belorn 7y ago

Looking at the situation in Sweden, I would say the cause is the bank themselves. Banks here are currently trying to remove every aspect of the banking industry that is not a digital service. Offices are a cost center. Physical money are a cost center. Talking with customers is a cost center. By shedding all those cost centers the bank can focus on the parts that make most money and raise stock value. 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.

LudwigNagasena 7y ago
Cost/profit center is such a bogus concept. I can’t believe almost all big companies use it.

bsenftner 7y ago

I've encountered several startups that have founded banks through American Indian Reservations, instantly creating an international money laundering vehicle, which they use as a tax haven for wealthy people while also being able to create money directly by loaning it to separate corporate shells. This may be "smart" but I steer away from anyone with this type of "strategic thinking" because they are playing with fire.

galkk 7y ago

I was always wondering why Microsoft sunsetted MS Money and Google didn't built something like that. This is a treasure of information

deleted 7y ago

[deleted]

jimbru 7y ago

It's easy (and fun) to complain about the bad (or just weird) product experiences that banks regularly churn out. Believe it or not, most banks are trying their best. But as other commenters have noted, banks aren't staffed by technologists, so their choices for how to solve these problems begin and end with buying one of the available off-the-shelf software products. Spoiler alert, these products generally are both expensive and not very good. 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/ 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.

acjohnson55 7y ago
I have to imagine that you get used a bunch in the backends of FinTech products, but any chance better IT starts to reach consumers? My inability to know exactly what's going on with my money on my own terms is endless frustrating. The aggregators help, but are still quite limited.

zhte415 7y ago

The article doesn't touch this, US-centric, but I feel worth mentioning is the EU's PSD2 (Payment Services Directive 2) which is driving a lot of consumer banking Fintech/Regtech. 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-changes https://www.finextra.com/blogposting/12668/psd2---what-chang...

brooklyntribe 7y ago

Sounds crazy --- I don't want to start a billion (trillion $$$) bank. What happens if "my bank" has never more than $10,000 in total assets. Our loans never go above $100. Do want to offer ATM cards, just we're nano-sized. 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?

themark 7y ago

Isn’t it just data mining? I assume the big credit card companies aggregate spending by vendor for their customer base and make projections about each vendor’s quarterly revenues then sell metrics to hedge funds.

Sophistifunk 7y ago

Is that a trick question? it's because banks get to make money without doing any work. It's a wonderful position to be in, the middle-man who just takes a cut of everybody else's transactions.

Gibbon1 7y ago
In 2009 the Fed tore down the wall between retail and investment banks. Which allowed the Fed to pump the latter full of cash. Stands to reason that every other large non-finance corporation wants to get in on that.

kccqzy 7y ago

> It also happens to be an incredibly sticky product. Think of the last time you saw an overdraft charge on your statement and swore to yourself that this was the last straw — you are taking your business elsewhere only to be confronted with the downstream effects of moving your “financial address” — telling HR where to send the next paycheck, calling up each utility company, changing autopay for each credit card bill and so forth! 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.

qzw 7y ago
Yes, but it’s an hour of painfully boring work that demands care and correctness. And at the end of it, you’re just with another bank that may or may not be better.
baron816 7y ago
I switched from Chase to SoFi a few months back (kept my Chase CCs). Totally worth it. Didn't take that much time, although still more than an hour, plus had to be careful not to pull money out of Chase just before a payment was processed. But it's been great. SoFi Money currently yields 1.6% (not the best, but still better than any CDs or savings accounts Chase could give me). Having a high interest yielding checking account has allowed me to better optimize my investing/saving habits. Plus, when I traveled to Europe recently, SoFi was giving me the spot exchange rate at ATMs.
tikkabhuna 7y ago
In the UK we have the "Switch Guarantee"[1]. It was setup when there was stickiness in current accounts (English term for checking accounts). Now when you sign up for a current account you can opt-in to this service and they do payment redirection. So if someone tries to transfer your old account money, it'll get forwarded onto your new bank. That's on top of them organising the migration of payments. 1. https://www.currentaccountswitch.co.uk/Pages/Home.aspx https://www.currentaccountswitch.co.uk/Pages/Home.aspx

Lucadg 7y ago

Fintech only provides better UX on the same old system of banking. The real issue with banks is the staggering amount of regulation which acts both as an innovation killer and as a high barrier to entry, which in turn stifles innovation even more. 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.

cies 7y ago

Not "everyone" is a bank. Some big companies can afford to be a bank. 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.

ivanhoe 7y ago

Because banks are where the money is. (yeah, lame pun, but I had to write it :))

ggambetta 7y ago
I can't see a pun there. Am I missing something?

wheybags 7y ago

> for a large credit scarred portion of the populace, it's their primary spending account! As a European, this sentence seemed weird. Why wouldn't it be? Do people not use debit cards in the us?

netcan 7y ago

I think the article more or less nailed it, but the topic probably deserves journalistic attention of the kind journalists complain no longer exists. 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.

biolurker1 7y ago

Literally everyone could be a bank with Bitcoin

znpy 7y ago

> Why is everyone a bank? Banks usually make a shitload of money, I guess.

lotus_kk 7y ago

it is just like p2p,but more regular.my point the future is g2g a few years ago.

StuffedParrot 7y ago

Interest is profitable. You take cash, you make interest. It's just a step away from the oldest game in the book—loan sharking.

doppel 7y ago

Related: In Denmark (where I live), we have an officially designated "NemKonto" (translates to "EasyAccount"), which is where most employers, public institutions, etc. put paychecks, payouts, etc. automatically. So if you change banks, you can simply designate the new account your official NemKonto, and the money will automatically be routed there - no need to contact anyone. 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.

cowsandmilk 7y ago
> 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". 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.

venantius 7y ago

If you're interested in this space, we're building a fully-regulated platform bank to essentially power all of these consumer/business facing banking applications. This is us: https://griffinbank.com https://griffinbank.com

known 7y ago

"Heads I Win; Tails You Lose" --Banks

ecopoesis 7y ago

Because in capitalism there are really only two things that make money: real estate and finance. Everything else is just combining real estate and finance in interesting ways. McDonalds is a real estate company that happens to make burgers. The traditional car manufacturers are banks that happen to build cars.

christkv 7y ago

I dread the raise of the tech company banks. I think we need EU level regulation to ensure you are not orphaned by companies that decide they don't want you legal business because you offended some third party that is applying political pressure to the bank. A digital and financial rights charter.

soapboxrocket 7y ago

But they aren't banks, they are just partnering with banks and putting a smooth veneer on top of old/greedy banks. The current trend seems very similar to when retailers all launched their "own" credit cards.

zeerev 7y ago

It would be nice to have a system where you can avoid getting put on the credit bureaus at all. Be your own bank? No agreement to have your credit monitored by those toads.