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To start, my Bank 2.0 would do a lot to change the way credit/debit cards are authorized. clawrencewenham had some great ideas about this here: http://news.ycom

To start, my Bank 2.0 would do a lot to change the way credit/debit cards are authorized. clawrencewenham had some great ideas about this here: http://news.ycombinator.com/item?id=948965 http://news.ycombinator.com/item?id=948965 Basically the owner of the card would have final control over charges on it. The bank could automatically call or text you and ask for a code before authorizing a transaction, and the cardholder would have white and blacklists with custom rules about when/how much a particular merchant could charge. In my bank, I would probably stay away from mortgages and credit cards (I could offer them through a 3rd part supplier, but I wouldn't carry any of the balances). This is to make reserves more manageable. Today's banks have massive departments dedicated to managing reserves and working with overnight and discount loans. By eliminating/outsourcing these functions, I think more could be dedicated to serving the customer. Most of the money for the bank would be made through an agreement with someone like Visa or Mastercard, so that whenever someone charges their card, part of the fee that merchants pay goes back to my bank as the card issuer.

jakarta 17y ago
I don't see why you would not offer mortgages. The point of a bank is to have a healthy net interest margin on the funds that they are borrowing and the funds they are loaning out. Mortgages are like having a long term contract where that margin is secured. Also, think about it. If you are not making mortgages, you're going to be looking at more consumer-focused later credit stage loans. Commercial real estate, construction, small business loans. All of these are loans that are more difficult to write and typically carry higher loss rates. When I look for banks to invest in, I am typically looking for banks that write mostly single family mortgages because they are more secure than those lending to local businesses/developments. Also, I think you are confusing most banks with the dealer broker model - Bear/Lehman/Merrill/Goldman/Morgan Stanley. Those banks had massive amounts of overnight lending. Commercial banks like JPM, Wells, and BoA did not. That's why they are able to thrive and consolidate during the crisis. A great bank will have sticky deposits -- low yield Savings accounts, checking accounts. Not high yield CDs.
- dkokelley 17y ago
  I was thinking about mortgages in terms of a bank in my home town. Being a smaller bank, I'm not sure I would like to be carrying a lot of loans, but I could create them for other's to carry in return for a commission. You are right, I might be confusing banks and brokers.
  - jakarta 17y ago
    You would be pretty surprised. The loan books on most tiny banks are mostly comprised of single family mortgages.
philwelch 17y ago
Having to authorize every damn transaction (even with whitelisting) by phone would make me want to just give up and use cash most of the time. Can you imagine the user experience? -You can't dare forget your phone wherever you go. -You close your tab at the bar and you have to text your authorization code in (drunk) while everyone else is waiting in line behind you (because it's closing time and everyone's closing their tab at the same time). -The authorization time is 60-120 seconds, long enough for you to authorize on the spot before you get your receipt. Your ISP tries charging your internet bill while you're driving, and because you're a safe and reasonable person who doesn't text while driving, the authorization times out. -Or maybe the authorization time is like 3 hours, which is long enough for you to just plain not pay your bar tab, restaurant bill, or grocery bill, which means bars, restaurants, and grocery stores won't accept your card. When it comes to recurring bills, here's an easier idea: on your banking history, right where it says "Verizon" or "Comcast" or "Obfuscated Porn Site Billing" or whatever, you can click a button that says "stop authorizing payments to this merchant". As the bank, if you recognized the merchant you'd send them some sort of automated message that said "Our customer, John Doe, the owner of philwelchbankcard account 51431070970963941, has cancelled future payments to you. Please consider this as notice that Mr. Doe has cancelled any and all subscription to your service. You may contact a philwelchbank representative at 1-888-4-PW-BANK to discuss any outstanding charges or early termination fees." So the merchant would have to either send John Doe a bill in the mail or call the bank and say "John owes us $175 termination fee." And then the bank would call John Doe to authorize any final charges regarding termination fees. (The intended effect is to make it more difficult to charge termination fees. It's important that the bank remain on the customer's side, not the merchant's side.)
- dkokelley 17y ago
  You bring up a lot of good points. In my mind I was thinking of text (or email, or phone) confirmation for online transactions and merchant-initiated transactions. Basically anywhere you don't physically present the card. Having the card present is a pretty good indication you intended to make the payment. Online orders are done through payment gateways, or going back a bit, manually keyed at a terminal. Those transactions should be confirmed manually or white-listed before they are authorized.

jakarta 17y ago

I don't see why you would not offer mortgages. The point of a bank is to have a healthy net interest margin on the funds that they are borrowing and the funds they are loaning out. Mortgages are like having a long term contract where that margin is secured. Also, think about it. If you are not making mortgages, you're going to be looking at more consumer-focused later credit stage loans. Commercial real estate, construction, small business loans. All of these are loans that are more difficult to write and typically carry higher loss rates. When I look for banks to invest in, I am typically looking for banks that write mostly single family mortgages because they are more secure than those lending to local businesses/developments. Also, I think you are confusing most banks with the dealer broker model - Bear/Lehman/Merrill/Goldman/Morgan Stanley. Those banks had massive amounts of overnight lending. Commercial banks like JPM, Wells, and BoA did not. That's why they are able to thrive and consolidate during the crisis. A great bank will have sticky deposits -- low yield Savings accounts, checking accounts. Not high yield CDs.

dkokelley 17y ago
I was thinking about mortgages in terms of a bank in my home town. Being a smaller bank, I'm not sure I would like to be carrying a lot of loans, but I could create them for other's to carry in return for a commission. You are right, I might be confusing banks and brokers.
- jakarta 17y ago
  You would be pretty surprised. The loan books on most tiny banks are mostly comprised of single family mortgages.

philwelch 17y ago

Having to authorize every damn transaction (even with whitelisting) by phone would make me want to just give up and use cash most of the time. Can you imagine the user experience? -You can't dare forget your phone wherever you go. -You close your tab at the bar and you have to text your authorization code in (drunk) while everyone else is waiting in line behind you (because it's closing time and everyone's closing their tab at the same time). -The authorization time is 60-120 seconds, long enough for you to authorize on the spot before you get your receipt. Your ISP tries charging your internet bill while you're driving, and because you're a safe and reasonable person who doesn't text while driving, the authorization times out. -Or maybe the authorization time is like 3 hours, which is long enough for you to just plain not pay your bar tab, restaurant bill, or grocery bill, which means bars, restaurants, and grocery stores won't accept your card. When it comes to recurring bills, here's an easier idea: on your banking history, right where it says "Verizon" or "Comcast" or "Obfuscated Porn Site Billing" or whatever, you can click a button that says "stop authorizing payments to this merchant". As the bank, if you recognized the merchant you'd send them some sort of automated message that said "Our customer, John Doe, the owner of philwelchbankcard account 51431070970963941, has cancelled future payments to you. Please consider this as notice that Mr. Doe has cancelled any and all subscription to your service. You may contact a philwelchbank representative at 1-888-4-PW-BANK to discuss any outstanding charges or early termination fees." So the merchant would have to either send John Doe a bill in the mail or call the bank and say "John owes us $175 termination fee." And then the bank would call John Doe to authorize any final charges regarding termination fees. (The intended effect is to make it more difficult to charge termination fees. It's important that the bank remain on the customer's side, not the merchant's side.)

dkokelley 17y ago
You bring up a lot of good points. In my mind I was thinking of text (or email, or phone) confirmation for online transactions and merchant-initiated transactions. Basically anywhere you don't physically present the card. Having the card present is a pretty good indication you intended to make the payment. Online orders are done through payment gateways, or going back a bit, manually keyed at a terminal. Those transactions should be confirmed manually or white-listed before they are authorized.