5 ms·

Traditional banks have literally decades of legacy to deal with which drags them down. Many neobanks have shown that it's possible to provide a better and cheap

by sofixa 4y ago

Traditional banks have literally decades of legacy to deal with which drags them down. Many neobanks have shown that it's possible to provide a better and cheaper service when you start from scratch. A few examples of features neobanks i use provide that traditional banks don't have - virtual cards on the fly, for free; SEPA Instant for free; Open API; smart dynamic budgeting and expense sharing.

bob1029 4y ago
> legacy to deal with which drags them down A non-zero amount of that legacy is due to regulations and compliance. Most of what a bank does is totally invisible to the end customer. A "neobank" is almost always just a shiny consumer-oriented facade in front of a grumpy old bank. Someone still has to follow all of those laws.
- sefrost 4y ago
  What about Monzo or Starling in the UK? What is the grumpy old bank behind them?
  - deleted 4y ago
    [deleted]
  - 0x457 4y ago
    Literally on index page: This website is operated by Monzo Inc. Monzo reserves the right to restrict or revoke any and all offers at any time. The Monzo mobile banking app facilitates access to banking services through *Sutton Bank*, Member FDIC. The Monzo Mastercard Debit Card is issued by Sutton Bank, pursuant to a license from Mastercard International Incorporated. Monzo accounts are FDIC insured up to $250,000. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated. That's for the US branch. Monzo in the UK is a real bank. > Starling Bank That one is an actual bank. In the UK, it's easier to open a real bank, than in the US. Bank of England has a special division dedicated to guiding "small" companies in becoming a real bank.
- delusional 4y ago
  > A non-zero amount of that legacy is due to regulations and compliance. Although there's a kernel of truth there, it's far from accurate. Most of the legacy is due to the assumption of regulations and compliance. The truth is that most of the systems are in fact out of compliance, but as long as you don't touch them the likelihood of a serious audit is small. The complexity is more about erecting an impenetrable wall to make the auditor assume it's probably compliant. It's essentially about overwhelming auditors with details to fatigue them. Not to dissimilar to when lawyers flood each other with documents in tv shows.
- searchableguy 4y ago
  Plaid founder's new startup column is building a bank from scratch for developers. https://column.com/ https://column.com/
  - bob1029 4y ago
    This is still just a fancy rebranding of an old bank: https://www.norcalbank.com/ https://www.norcalbank.com/ Their FDIC charter was issued in 2006.
    - searchableguy 4y ago
      I think they actually bought the bank this time around to use the license. I may be wrong though.
- sofixa 4y ago
  I should have specified that I'm talking about EU-based neobanks, which are all real banks as far as I am aware (some are entities of bigger banking groups, some are standalone startups). US banking being largely obsolete as a whole (checks? paid wire transfers that take days to arrive?) probably explains why there are no real neobanks in the US and they're all just a UI in front of a legacy bank. I doubt it has much to do with regulations, because I really doubt US banks are more heavily regulated than EU banks, who also have country differences to deal with if they operate in multiple countries (Revolut, N26), and they also have to check if the customers are American tax residents and handle that case too (or simply refuse them to become customers as some banks do).
  - iLoveOncall 4y ago
    Most of EU-based neobanks are NOT real banks. 90% of them are just a frontend. Even Revolut that you cite was just a frontend until January 2021 where it became a bank, but just in the UK: https://en.wikipedia.org/wiki/Revolut#History https://en.wikipedia.org/wiki/Revolut#History
    - sofixa 4y ago
      > In December 2018, Revolut secured a Challenger bank licence from the European Central Bank, facilitated by the Bank of Lithuania, authorising it to accept deposits and offer consumer credits, but not to provide investment services. At the same time, an Electronic Money Institution licence was also issued by the Bank of Lithuania. What are you talking about? Revolut is a real bank, same as Monzo, N26, Aumax (part of a larger banking group so it hardly counts), Kard. Specifically regarding Revolut, they are a real bank in multiple countries now - UK, Lithuania, US and a bunch of other European countries.
      - Reason077 4y ago
        Revolut does not have a bank license in the UK. They've applied, but it has not yet been granted.
    - arohner 4y ago
arghwhat 4y ago
Conventional banks provide all of the above (including open banking API) except instant virtual cards here in Scandinavia, so nothing to do with building from scratch. Just a matter of priorities and healthy competition. The neobanks are all very incremental improvements, and is largely just packaging. E.g., Lunar being app-only obviously has a somewhat more modern app than the average bank.
- delusional 4y ago
  I happen to work in a bank in Scandinavia, and you're both sort of right. We did at one point provide "open banking APIs" although we only ever approved one partner to use it, and have since shuttered it. The truth of the matter is that banking is horribly entrenched. Actual business decisions are mostly driven by arbitrary considerations of which laws to follow that day. Although we provide a ton of functionality and business capability, we are still woefully behind on any sort of compliance measure, not because compliance is hard or impossible, but because nobody is actually critically examining the systems. The problem for the "neobank" is not one of building technology to catch up. It's in cultivating an image where they are seen as systemically critical such that they will be afforded the same leniency in policing that the established sector already has.
  - Reason077 4y ago
    Open banking is really something that needs to be mandated by regulators. That's what happened in the UK, and now you have a wide choice of financial apps that can access accounts at any bank that implements the standard UK Open Banking APIs: https://www.openbanking.org.uk https://www.openbanking.org.uk
    - azureel 4y ago
      Open Banking is a great concept. Also Turkey has an own local version of it and improving. It's in Turkish but translate will help you get the idea: https://ohvps.github.io/v1.0.2/contents/odeme-emri-baslatma-hizmeti.html#_6-1-adim-0-odeme-emri-baslatma-istegi https://ohvps.github.io/v1.0.2/contents/odeme-emri-baslatma-...
0x457 4y ago
Except "neobanks" legally not allowed to call themselves banks because they aren't banks. They are white-label service on top of someone who provides a banking API, and those usually sit on top of someone who provides them with some other API. There are like 3.5 real banks with "public" API that have bank chapter, if not less. Like this Increase, "build your own bank", but themselves it isn't a bank. It's just an API to their partner banks.
meltedcapacitor 4y ago
LOL I had to change bank accounts because of a neobank that managed to get clumsy barely working IT taped together systems and pathetic app worse than any "traditional" bank. They achieved in 2 years the same crap it took the incumbent 2 centuries to do.
hahajk 4y ago
I learned (almost) the hard way how important legacy features are. For me it was buying a house and realizing that you must be able to wire money. When the stakes were high, Varo failed me (they promised they could do it, but on the day I needed it they refused) and I had to scramble at my traditional bank to make the payment in time to avoid $20k on penalties. Other than the most important transaction of my life, though, they've been great!
- Jugurtha 4y ago
  >Other than the most important transaction of my life, though, they've been great! I don't know Varo but would you imagine continuing using them for other transactions and using the traditional bank for traditional purchases (house, etc.) After all, people don't go through the most important transaction of their life frequently.
throwaway742 4y ago
Bank of America has had virtual cards for a long time now.
2rsf 4y ago
A better, cheaper and much more limited service. For many people and businesses, most of the time this is indeed enough but this legacy is being used and needed. As others have mentioned legacy banks here in Scandinavia are slowly catching up, the main reason being the slow trickle of custeos to neobanks.

by sofixa 4y ago

bob1029 4y ago

> legacy to deal with which drags them down A non-zero amount of that legacy is due to regulations and compliance. Most of what a bank does is totally invisible to the end customer. A "neobank" is almost always just a shiny consumer-oriented facade in front of a grumpy old bank. Someone still has to follow all of those laws.

sefrost 4y ago
What about Monzo or Starling in the UK? What is the grumpy old bank behind them?
- deleted 4y ago
  [deleted]
- 0x457 4y ago
  Literally on index page: This website is operated by Monzo Inc. Monzo reserves the right to restrict or revoke any and all offers at any time. The Monzo mobile banking app facilitates access to banking services through *Sutton Bank*, Member FDIC. The Monzo Mastercard Debit Card is issued by Sutton Bank, pursuant to a license from Mastercard International Incorporated. Monzo accounts are FDIC insured up to $250,000. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated. That's for the US branch. Monzo in the UK is a real bank. > Starling Bank That one is an actual bank. In the UK, it's easier to open a real bank, than in the US. Bank of England has a special division dedicated to guiding "small" companies in becoming a real bank.
delusional 4y ago
> A non-zero amount of that legacy is due to regulations and compliance. Although there's a kernel of truth there, it's far from accurate. Most of the legacy is due to the assumption of regulations and compliance. The truth is that most of the systems are in fact out of compliance, but as long as you don't touch them the likelihood of a serious audit is small. The complexity is more about erecting an impenetrable wall to make the auditor assume it's probably compliant. It's essentially about overwhelming auditors with details to fatigue them. Not to dissimilar to when lawyers flood each other with documents in tv shows.
searchableguy 4y ago
Plaid founder's new startup column is building a bank from scratch for developers. https://column.com/ https://column.com/
- bob1029 4y ago
  This is still just a fancy rebranding of an old bank: https://www.norcalbank.com/ https://www.norcalbank.com/ Their FDIC charter was issued in 2006.
  - searchableguy 4y ago
    I think they actually bought the bank this time around to use the license. I may be wrong though.
sofixa 4y ago
I should have specified that I'm talking about EU-based neobanks, which are all real banks as far as I am aware (some are entities of bigger banking groups, some are standalone startups). US banking being largely obsolete as a whole (checks? paid wire transfers that take days to arrive?) probably explains why there are no real neobanks in the US and they're all just a UI in front of a legacy bank. I doubt it has much to do with regulations, because I really doubt US banks are more heavily regulated than EU banks, who also have country differences to deal with if they operate in multiple countries (Revolut, N26), and they also have to check if the customers are American tax residents and handle that case too (or simply refuse them to become customers as some banks do).
- iLoveOncall 4y ago
  Most of EU-based neobanks are NOT real banks. 90% of them are just a frontend. Even Revolut that you cite was just a frontend until January 2021 where it became a bank, but just in the UK: https://en.wikipedia.org/wiki/Revolut#History https://en.wikipedia.org/wiki/Revolut#History
  - sofixa 4y ago
    > In December 2018, Revolut secured a Challenger bank licence from the European Central Bank, facilitated by the Bank of Lithuania, authorising it to accept deposits and offer consumer credits, but not to provide investment services. At the same time, an Electronic Money Institution licence was also issued by the Bank of Lithuania. What are you talking about? Revolut is a real bank, same as Monzo, N26, Aumax (part of a larger banking group so it hardly counts), Kard. Specifically regarding Revolut, they are a real bank in multiple countries now - UK, Lithuania, US and a bunch of other European countries.
    - Reason077 4y ago
      Revolut does not have a bank license in the UK. They've applied, but it has not yet been granted.
  - arohner 4y ago

arghwhat 4y ago

Conventional banks provide all of the above (including open banking API) except instant virtual cards here in Scandinavia, so nothing to do with building from scratch. Just a matter of priorities and healthy competition. The neobanks are all very incremental improvements, and is largely just packaging. E.g., Lunar being app-only obviously has a somewhat more modern app than the average bank.

delusional 4y ago
I happen to work in a bank in Scandinavia, and you're both sort of right. We did at one point provide "open banking APIs" although we only ever approved one partner to use it, and have since shuttered it. The truth of the matter is that banking is horribly entrenched. Actual business decisions are mostly driven by arbitrary considerations of which laws to follow that day. Although we provide a ton of functionality and business capability, we are still woefully behind on any sort of compliance measure, not because compliance is hard or impossible, but because nobody is actually critically examining the systems. The problem for the "neobank" is not one of building technology to catch up. It's in cultivating an image where they are seen as systemically critical such that they will be afforded the same leniency in policing that the established sector already has.
- Reason077 4y ago
  Open banking is really something that needs to be mandated by regulators. That's what happened in the UK, and now you have a wide choice of financial apps that can access accounts at any bank that implements the standard UK Open Banking APIs: https://www.openbanking.org.uk https://www.openbanking.org.uk
  - azureel 4y ago
    Open Banking is a great concept. Also Turkey has an own local version of it and improving. It's in Turkish but translate will help you get the idea: https://ohvps.github.io/v1.0.2/contents/odeme-emri-baslatma-hizmeti.html#_6-1-adim-0-odeme-emri-baslatma-istegi https://ohvps.github.io/v1.0.2/contents/odeme-emri-baslatma-...

0x457 4y ago

Except "neobanks" legally not allowed to call themselves banks because they aren't banks. They are white-label service on top of someone who provides a banking API, and those usually sit on top of someone who provides them with some other API. There are like 3.5 real banks with "public" API that have bank chapter, if not less. Like this Increase, "build your own bank", but themselves it isn't a bank. It's just an API to their partner banks.

meltedcapacitor 4y ago

LOL I had to change bank accounts because of a neobank that managed to get clumsy barely working IT taped together systems and pathetic app worse than any "traditional" bank. They achieved in 2 years the same crap it took the incumbent 2 centuries to do.

hahajk 4y ago

I learned (almost) the hard way how important legacy features are. For me it was buying a house and realizing that you must be able to wire money. When the stakes were high, Varo failed me (they promised they could do it, but on the day I needed it they refused) and I had to scramble at my traditional bank to make the payment in time to avoid $20k on penalties. Other than the most important transaction of my life, though, they've been great!

Jugurtha 4y ago
>Other than the most important transaction of my life, though, they've been great! I don't know Varo but would you imagine continuing using them for other transactions and using the traditional bank for traditional purchases (house, etc.) After all, people don't go through the most important transaction of their life frequently.

throwaway742 4y ago

Bank of America has had virtual cards for a long time now.

2rsf 4y ago

A better, cheaper and much more limited service. For many people and businesses, most of the time this is indeed enough but this legacy is being used and needed. As others have mentioned legacy banks here in Scandinavia are slowly catching up, the main reason being the slow trickle of custeos to neobanks.