7 ms·

Community Banking and Fintech

120 points by Ozzie_osman 5y ago

bob1029 5y ago
> Community banks mostly don’t have programmers on staff, and are reliant on the so-called “core processors” like Fiserv, Jack Henry & Associates and Fidelity National Information Services. These companies specialize in extremely expensive SaaS that their customers literally can't operate without. The complexity in this space is difficult to overstate. We've been working on building solutions that integrate all of the disparate legacy banking technology into 1 logical application the bankers can use. Been going at this for almost a decade now. Success in this space is extremely unlikely. We failed ~4 times but were encouraged by how close we got on that 4th try to give it a final go. Seems we have some traction this time. Watching other vendors (with far more resources than us) try to break into this space is quite amusing at this point. The key to winning in banking with technology is to listen to the business. There is a LOT of contradictory bullshit in banking, and if you just use your developer intuition to build the domain model in isolation, you will fail as soon as the business gets involved. Outsourcing development of these integration products to a 3rd party is a guaranteed fail when working with these kinds of customers. Expert mode is building a product that can work at 3+ banks at the same time. Darksouls mode is building one that can handle more than 5 jurisdictions.
- jjeaff 5y ago
  Are you building a product that competes with these core processors? Or are you building a complimentary product? As a software developer with a degree in finance, I'm always interested in the new projects out there.
  - bob1029 5y ago
    We are starting with the 2nd thing - a complementary product that wraps the core (among other things) with a better UI/UX. We have sarcastically remarked about writing our own core after struggling with the APIs for the existing vendors. This is becoming a more serious proposition with each passing week.
    - Terretta 5y ago
      You mention Fiserv, Jack Henry, Fidelity, but not Thought Machine. Care to share why? https://thoughtmachine.net/building-a-bank https://thoughtmachine.net/building-a-bank
  - landemva 5y ago
    Yes, would like to hear more details from bob1029.
- zzleeper 5y ago
  Is there a way to know which CBs or CUs use which processors?
  - bob1029 5y ago
    We have been accumulating a database of this information since the 90s. Not aware of any public sources out there. We are looking to eventually cover all the core processors.
    - zzleeper 5y ago
      Let me know if there's any way to contact you about this! I'm quite curious from an academic perspective and would love to hear your thoughts (even if it's just a brief phone call or email)!
skybrian 5y ago
I’m wondering if postal banking in other countries serves a similar role to community banking in the US, at least as far as having local branches in rural areas is concerned? The US Post Office is starting a pilot program, but it’s unclear if it will get anywhere.
- rsj_hn 5y ago
  They will need to significantly lower fees and expand services if their ambition is greater than competing with check-cashing outfits.
- aspenmayer 5y ago
  You have more info about the pilot program?
  - aaronbrethorst 5y ago
    https://prospect.org/economy/usps-begins-postal-banking-pilot-program/ https://prospect.org/economy/usps-begins-postal-banking-pilo...
- tjmc 5y ago
  Australia Post (which is owned by the Australian government but operated mostly independently) does this. https://auspost.com.au/money-insurance/banking-and-payments/bank-at-post https://auspost.com.au/money-insurance/banking-and-payments/...
- asdff 5y ago
  Historically the US Post office used to do this too
- noisy_boy 5y ago
  Indian Postal Service provides a variety of financial savings schemes. https://www.indiapost.gov.in/Financial/pages/content/post-office-saving-schemes.aspx https://www.indiapost.gov.in/Financial/pages/content/post-of...
patio11 5y ago
If HN has any requests for future topics in intersection of tech and finance, let me know. (I just kicked off this newsletter last Friday.)
- hayksaakian 5y ago
  would be interesting to hear about the 'big unsolved problems' in fintech as of 2021.
- Ozzie_osman 5y ago
  Just going to say this was a great read (I'm working on something in the fintech space). I originally submitted it and was surprised it didn't make the HN front page, but happy to see it got a chance from the second-chance pool!
- neolander 5y ago
  This was a super interesting and digestible read. I especially liked the angle of how public policy influences trends in fintech. I'd love to learn more from examples over the past few decades.
- dan-robertson 5y ago
  My interest in the large companies could be summarised by saying that it seems that after the GFC, Goldman had their balls cut off by the US government, and the question is what they do to work around the regulations and how other companies filled the gaps (and what those gaps were/are). It seems to me that Goldman’s push to retail is less motivated by magic massively large edge and more by the fact that they can’t do the trades they used to do (though maybe Goldman is a particularly bad example here and a more traditional IB+retail bank would be better to talk about). I’m sure there are lots of quirky things going on in the US financial infra but I think I just don’t know what they are. A simple question is what actually happens when money is wired (internationally) and how does that line up with the legal and intuitive concepts of owning the money, but I don’t know if that is actually an interesting question.
- jkhdigital 5y ago
  I think it would be fascinating to take a deep dive into transaction settlement, especially in securities markets.
mark_l_watson 5y ago
Good article. My wife and I use two local credit union banks. It feels good to do so and also diversifying is a good idea. I applied to be a director in one of them, but didn’t get the position. Someone wise once said to know your local banker, your county sheriff, and if possible local food growers. Maybe I take diversification and preferring local businesses too far, but it just seems like the right thing to do.
Ericson2314 5y ago
Time to stop pandering to the exurb-barfing petit bougieoisie and do Fed Reserve accounts at the Post Office. Lending can still be franchised out, but there's nothing interesting about running a big RMDBS that it shouldn't be a state monopoly. As far as analytics go, there is no reason we can't simply have interfaces to plug your fed account data into whatever 3rd party service one likes.
- toomuchtodo 5y ago
  The Biden administration’s OCC nominee agrees with you, so hopefully they’ll get some traction.
  - Ericson2314 5y ago
    Yeah, quite stoked about her. She's not being nominated to a position to make it happen, but it's a great reason for excitement nonetheless.
- _-david-_ 5y ago
  >Lending can still be franchised out, but there's nothing interesting about running a big RMDBS that it shouldn't be a state monopoly I don't want the government to own all banking. The government would know even more about our transactions. They already have a massive amount of information when it comes to banking, let's not give them everything.
  - lmm 5y ago
    The government at least has some accountability - FOIA, anti-discrimination laws, and the like. Better them than the likes of Experian.
  - Ericson2314 5y ago
    Then you should look up https://mronline.org/2021/07/01/digital-money-beyond-blockchain-with-rohan-grey/ https://mronline.org/2021/07/01/digital-money-beyond-blockch.... Putting our transaction data in a gazillion different RMDBs run by private companies looking to curry favor with law enforcement is no solution. In fact, State accounts are better because the Federal Reserve has far less reason to give a fuck what the goons in the FBI think. But if you really want privacy, than any sort of money as persistent-account-balances is a red flag, and you want something like that instead.
HoyaSaxa 5y ago
While Patrick is right that community banks have provided an important role in the explosion of fintech in the United States over the last 10 years, that role is unique to a small subset (~100) of community banks that have become heavily involved in Banking-as-a-Service (BaaS). The other 9,900 community banks and credit unions largely continue to operate with vanilla retail and/or business banking models. I'm biased, but the importance of these financial institutions cannot be understated to the success of the American economy. Obviously a homogenous credit underwriting and decisioning process is a negative for society. While some do heavily rely upon the traditional credit bureaus in their decisioning, many do not. Access to responsible credit is one of the best ways to lift a group of individuals and/or businesses up. There is no surprise then that these organizations receive bi-partisan support. As @patio11 points out this long tail often best serves their communities. There are a lot of reasons, but these are not purely because they happen to serve a specific geographic area or because they use different underwriting methods. Credit unions especially tend to be extremely diverse. For example, the majority of credit union CEOs are women[0]. I highly recommend supporting these community banks and credit unions by moving your loans and deposits to them. If you need a recommendation for one that has better digital experiences, please feel free to reach out to me. [0] https://news.cuna.org/articles/119415-cuna-study-finds-51-of-credit-union-ceos-are-women https://news.cuna.org/articles/119415-cuna-study-finds-51-of...
- lmm 5y ago
  > Obviously a homogenous credit underwriting and decisioning process is a negative for society. No, this is not obvious at all. Given a fixed risk tolerance (or risk/payoff curve), you can only do certain amount of lending, so either you lend to the best prospects ("fairly", in some abstract sense), or you lend less efficiently and give less overall social benefit (but direct the social benefit to some particular subgroup). Having a bunch of different ways of assessing credit just ends up as a time tax that forces people on the margin to apply a bunch of different times, which ultimately benefits no-one. Where I live there's a single standard formula that every lender uses, which seems a lot more efficient.
  - zorpner 5y ago

120 points by Ozzie_osman 5y ago

> Community banks mostly don’t have programmers on staff, and are reliant on the so-called “core processors” like Fiserv, Jack Henry & Associates and Fidelity National Information Services. These companies specialize in extremely expensive SaaS that their customers literally can't operate without. The complexity in this space is difficult to overstate. We've been working on building solutions that integrate all of the disparate legacy banking technology into 1 logical application the bankers can use. Been going at this for almost a decade now. Success in this space is extremely unlikely. We failed ~4 times but were encouraged by how close we got on that 4th try to give it a final go. Seems we have some traction this time. Watching other vendors (with far more resources than us) try to break into this space is quite amusing at this point. The key to winning in banking with technology is to listen to the business. There is a LOT of contradictory bullshit in banking, and if you just use your developer intuition to build the domain model in isolation, you will fail as soon as the business gets involved. Outsourcing development of these integration products to a 3rd party is a guaranteed fail when working with these kinds of customers. Expert mode is building a product that can work at 3+ banks at the same time. Darksouls mode is building one that can handle more than 5 jurisdictions.

jjeaff 5y ago
Are you building a product that competes with these core processors? Or are you building a complimentary product? As a software developer with a degree in finance, I'm always interested in the new projects out there.
- bob1029 5y ago
  We are starting with the 2nd thing - a complementary product that wraps the core (among other things) with a better UI/UX. We have sarcastically remarked about writing our own core after struggling with the APIs for the existing vendors. This is becoming a more serious proposition with each passing week.
  - Terretta 5y ago
    You mention Fiserv, Jack Henry, Fidelity, but not Thought Machine. Care to share why? https://thoughtmachine.net/building-a-bank https://thoughtmachine.net/building-a-bank
- landemva 5y ago
  Yes, would like to hear more details from bob1029.
zzleeper 5y ago
Is there a way to know which CBs or CUs use which processors?
- bob1029 5y ago
  We have been accumulating a database of this information since the 90s. Not aware of any public sources out there. We are looking to eventually cover all the core processors.
  - zzleeper 5y ago
    Let me know if there's any way to contact you about this! I'm quite curious from an academic perspective and would love to hear your thoughts (even if it's just a brief phone call or email)!

skybrian 5y ago

I’m wondering if postal banking in other countries serves a similar role to community banking in the US, at least as far as having local branches in rural areas is concerned? The US Post Office is starting a pilot program, but it’s unclear if it will get anywhere.

rsj_hn 5y ago
They will need to significantly lower fees and expand services if their ambition is greater than competing with check-cashing outfits.
aspenmayer 5y ago
You have more info about the pilot program?
- aaronbrethorst 5y ago
  https://prospect.org/economy/usps-begins-postal-banking-pilot-program/ https://prospect.org/economy/usps-begins-postal-banking-pilo...
tjmc 5y ago
Australia Post (which is owned by the Australian government but operated mostly independently) does this. https://auspost.com.au/money-insurance/banking-and-payments/bank-at-post https://auspost.com.au/money-insurance/banking-and-payments/...
asdff 5y ago
Historically the US Post office used to do this too
noisy_boy 5y ago
Indian Postal Service provides a variety of financial savings schemes. https://www.indiapost.gov.in/Financial/pages/content/post-office-saving-schemes.aspx https://www.indiapost.gov.in/Financial/pages/content/post-of...

patio11 5y ago

If HN has any requests for future topics in intersection of tech and finance, let me know. (I just kicked off this newsletter last Friday.)

hayksaakian 5y ago
would be interesting to hear about the 'big unsolved problems' in fintech as of 2021.
Ozzie_osman 5y ago
Just going to say this was a great read (I'm working on something in the fintech space). I originally submitted it and was surprised it didn't make the HN front page, but happy to see it got a chance from the second-chance pool!
neolander 5y ago
This was a super interesting and digestible read. I especially liked the angle of how public policy influences trends in fintech. I'd love to learn more from examples over the past few decades.
dan-robertson 5y ago
My interest in the large companies could be summarised by saying that it seems that after the GFC, Goldman had their balls cut off by the US government, and the question is what they do to work around the regulations and how other companies filled the gaps (and what those gaps were/are). It seems to me that Goldman’s push to retail is less motivated by magic massively large edge and more by the fact that they can’t do the trades they used to do (though maybe Goldman is a particularly bad example here and a more traditional IB+retail bank would be better to talk about). I’m sure there are lots of quirky things going on in the US financial infra but I think I just don’t know what they are. A simple question is what actually happens when money is wired (internationally) and how does that line up with the legal and intuitive concepts of owning the money, but I don’t know if that is actually an interesting question.
jkhdigital 5y ago
I think it would be fascinating to take a deep dive into transaction settlement, especially in securities markets.

mark_l_watson 5y ago

Good article. My wife and I use two local credit union banks. It feels good to do so and also diversifying is a good idea. I applied to be a director in one of them, but didn’t get the position. Someone wise once said to know your local banker, your county sheriff, and if possible local food growers. Maybe I take diversification and preferring local businesses too far, but it just seems like the right thing to do.

Ericson2314 5y ago

Time to stop pandering to the exurb-barfing petit bougieoisie and do Fed Reserve accounts at the Post Office. Lending can still be franchised out, but there's nothing interesting about running a big RMDBS that it shouldn't be a state monopoly. As far as analytics go, there is no reason we can't simply have interfaces to plug your fed account data into whatever 3rd party service one likes.

toomuchtodo 5y ago
The Biden administration’s OCC nominee agrees with you, so hopefully they’ll get some traction.
- Ericson2314 5y ago
  Yeah, quite stoked about her. She's not being nominated to a position to make it happen, but it's a great reason for excitement nonetheless.
_-david-_ 5y ago
>Lending can still be franchised out, but there's nothing interesting about running a big RMDBS that it shouldn't be a state monopoly I don't want the government to own all banking. The government would know even more about our transactions. They already have a massive amount of information when it comes to banking, let's not give them everything.
- lmm 5y ago
  The government at least has some accountability - FOIA, anti-discrimination laws, and the like. Better them than the likes of Experian.
- Ericson2314 5y ago
  Then you should look up https://mronline.org/2021/07/01/digital-money-beyond-blockchain-with-rohan-grey/ https://mronline.org/2021/07/01/digital-money-beyond-blockch.... Putting our transaction data in a gazillion different RMDBs run by private companies looking to curry favor with law enforcement is no solution. In fact, State accounts are better because the Federal Reserve has far less reason to give a fuck what the goons in the FBI think. But if you really want privacy, than any sort of money as persistent-account-balances is a red flag, and you want something like that instead.

HoyaSaxa 5y ago

While Patrick is right that community banks have provided an important role in the explosion of fintech in the United States over the last 10 years, that role is unique to a small subset (~100) of community banks that have become heavily involved in Banking-as-a-Service (BaaS). The other 9,900 community banks and credit unions largely continue to operate with vanilla retail and/or business banking models. I'm biased, but the importance of these financial institutions cannot be understated to the success of the American economy. Obviously a homogenous credit underwriting and decisioning process is a negative for society. While some do heavily rely upon the traditional credit bureaus in their decisioning, many do not. Access to responsible credit is one of the best ways to lift a group of individuals and/or businesses up. There is no surprise then that these organizations receive bi-partisan support. As @patio11 points out this long tail often best serves their communities. There are a lot of reasons, but these are not purely because they happen to serve a specific geographic area or because they use different underwriting methods. Credit unions especially tend to be extremely diverse. For example, the majority of credit union CEOs are women[0]. I highly recommend supporting these community banks and credit unions by moving your loans and deposits to them. If you need a recommendation for one that has better digital experiences, please feel free to reach out to me. [0] https://news.cuna.org/articles/119415-cuna-study-finds-51-of-credit-union-ceos-are-women https://news.cuna.org/articles/119415-cuna-study-finds-51-of...

lmm 5y ago
> Obviously a homogenous credit underwriting and decisioning process is a negative for society. No, this is not obvious at all. Given a fixed risk tolerance (or risk/payoff curve), you can only do certain amount of lending, so either you lend to the best prospects ("fairly", in some abstract sense), or you lend less efficiently and give less overall social benefit (but direct the social benefit to some particular subgroup). Having a bunch of different ways of assessing credit just ends up as a time tax that forces people on the margin to apply a bunch of different times, which ultimately benefits no-one. Where I live there's a single standard formula that every lender uses, which seems a lot more efficient.
- zorpner 5y ago