Why is everyone a bank?

Another answer: because regular banks are awful to deal with. They don&#x27;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 &quot;gotcha&quot; fees if you make a mistake. They can take back money sent to you for up to 90 days, but often can&#x27;t get back money you sent to crooks even if you discover your error the next day. And 100 other complaints.<p>So if you&#x27;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.

Another asnswer: Because the people making the business decisions in these companies is the only thing they can do.<p>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&#x2F;or their Private Equity, Venture Capital backgrounds.<p>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.

&gt; 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!<p>Here&#x27;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&#x27;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&#x27;s worth of salary.)<p>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.

Related: In Denmark (where I live), we have an officially designated &quot;NemKonto&quot; (translates to &quot;EasyAccount&quot;), 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.<p>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 &quot;match this offer or I&#x27;m switching&quot;.<p>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.

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&#x27;re in, similar to past trends like the wild access to credit in the Roaring Twenties, the run up to the S&amp;L crisis in the &#x27;80s, the worthless tech IPOs of the Dot-Com Bubble, the liar&#x27;s loans of the 2000s, and another examples of rampant finacialization?<p>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?

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.<p>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.

The points make well enough sense, but the author is also the professed founder of this: <a href="https:&#x2F;&#x2F;betterbank.app&#x2F;" rel="nofollow">https:&#x2F;&#x2F;betterbank.app&#x2F;</a>

It&#x27;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&#x27;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.<p>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&#x27;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&#x27;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.<p>That all worked fine back in the &#x27;80s, but in the decades since, not only have our expectations changed (most bankers don&#x27;t know what &quot;API&quot; stands for, by the way), but also banks&#x27; regulatory reporting requirements have expanded dramatically. Governments wants to know (very reasonably) that a terrorist or money launderer won&#x27;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).<p>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&#x27;s about software and product. This seems like a pretty natural fit for a startup: break off a desirable chunk of the bank&#x27;s customers and deliver a modern, specialized solution that&#x27;s 10x better. There&#x27;s ~$12 trillion of bank deposits in the U.S., that&#x27;s a lot of market to go after.<p>* * *<p>Full disclosure, my company, Treasury Prime (<a href="https:&#x2F;&#x2F;treasuryprime.com&#x2F;" rel="nofollow">https:&#x2F;&#x2F;treasuryprime.com&#x2F;</a>) 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.

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.<p>It&#x27;s the golden cage dilemma banks find themselves into.<p>Fintech looks cool until it stops working, then you discover it&#x27;s the same system, only run by a startup.

Everyone is a bank today for the same reason everyone was a social network in the 00&#x27;s.<p>A few startups started encroaching into financial services territory, took all the risk (including regulatory), and now that it&#x27;s clear it&#x27;s something worth pursuing Big Tech is following, expecting to leverage their existing products&#x2F;services&#x2F;ecosystem to lock you in by yet another aspect your life.

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&#x27;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.

Because there is so much free cash it&#x27;s easy to build one just to pass your cash to your grandkids?<p>Ironically, fiat coins and banks are going to become so virtual , that bitcoin will look real in comparison.<p>also ironically, the author makes another bank

You know what also provides most of the services of a bank? A credit union. Why aren&#x27;t companies launching those?

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.

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

I think the article more or less nailed it, but the topic probably deserves journalistic attention of the kind journalists complain no longer exists.<p>The basic &quot;fintech&quot; startup theory is fairly reasonable:<p>(1) financial services have a lot of fat and&#x2F;or profit.<p>(2) financial services is&#x2F;should be a tech subsector. Debit&#x2F;credit cards, current accounts &amp; 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&#x27;s software.<p>(3) The competition is soft. Many banks have terrible consumer facing software, for example. Many have costly legacy structures.

Because it looks easy. And in an age where VC money doesn&#x27;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.

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?

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.

Is that a trick question? it&#x27;s because banks get to make money without doing any work. It&#x27;s a wonderful position to be in, the middle-man who just takes a cut of everybody else&#x27;s transactions.

Reminds me of a great talk my a16z about the holy grail is the bank account.<p><a href="https:&#x2F;&#x2F;www.youtube.com&#x2F;watch?v=gK9owf0PSZU" rel="nofollow">https:&#x2F;&#x2F;www.youtube.com&#x2F;watch?v=gK9owf0PSZU</a>

It has never, at any point since the introduction of electronic transfers, made the slightest bit of sense for &#x27;payment processing&#x27; 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&#x27;t just a simple matter of rent-seeking on the part of the financial class. It&#x27;s outright dangerous, and really shouldn&#x27;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.<p>That&#x27;s a juicy target. Any company willing to clear those regulatory hurdle gets to become not just a company, but effectively a taxing authority.

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.<p>People should lend directly to each other, or have sensibly priced investments, or people should have simple bank accounts that don&#x27;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 &quot;I&#x27;m gonna make a website that&#x27;s better than the incumbent&quot;.<p>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.<p>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?<p>What about the lending markets? How come Lending Club has issues making money as the premier business in the direct lending category?<p>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.<p>The FX niche, I don&#x27;t know how TransferWise are doing, but it&#x27;s fairly easily encroached on by the challenger banks. The backend is fully commoditized, it&#x27;s a question if getting customers. Which is probably why TW are offering bank account like services.

When you&#x27;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&#x27;re a real bank, then you can create money out of thin air as debt on your balance sheet via fractional reserve banking. There&#x27;s effectively a universal basic income for banks. What company wouldn&#x27;t want to get in on that?

If you&#x27;re interested in this space, we&#x27;re building a fully-regulated platform bank to essentially power all of these consumer&#x2F;business facing banking applications.<p>This is us: <a href="https:&#x2F;&#x2F;griffinbank.com" rel="nofollow">https:&#x2F;&#x2F;griffinbank.com</a>

Some cryptocurrency communities push the idea of &quot;Be your own bank&quot;, especially with hardware wallets specifically because of this problem of having to trust &#x2F; rely on custodians.<p>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&#x27;t have lost access to her funds.<p>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.

I&#x27;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 &quot;smart&quot; but I steer away from anyone with this type of &quot;strategic thinking&quot; because they are playing with fire.

&gt; 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<p>Isn&#x27;t this what CASS is for? Is there really no US equivalent?

Because that&#x27;s where the money is. -- Willie Sutton

Sounds crazy --- I don&#x27;t want to start a billion (trillion $$$) bank. What happens if &quot;my bank&quot; has never more than $10,000 in total assets. Our loans never go above $100. Do want to offer ATM cards, just we&#x27;re nano-sized.<p>Do I somehow slip under all the banking laws? Just as an &quot;experiment?&quot; Is this something that I could do? OR is it just a crazy idea?

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.<p>Big tech wants access to financial services for a few reasons laid out in the article in addition to FOMO and bypassing regulation.

But they aren&#x27;t banks, they are just partnering with banks and putting a smooth veneer on top of old&#x2F;greedy banks. The current trend seems very similar to when retailers all launched their &quot;own&quot; credit cards.

&gt;Why is everyone a bank?<p>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.

Existing banks&#x27; 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.

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.

&gt; for a large credit scarred portion of the populace, it&#x27;s their primary spending account!<p>As a European, this sentence seemed weird. Why wouldn&#x27;t it be? Do people not use debit cards in the us?

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

I was always wondering why Microsoft sunsetted MS Money and Google didn&#x27;t built something like that. This is a treasure of information

Interest is profitable. You take cash, you make interest. It&#x27;s just a step away from the oldest game in the book—loan sharking.

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.

Literally everyone could be a bank with Bitcoin

Not &quot;everyone&quot; is a bank. Some big companies can afford to be a bank.<p>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&#x27;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.

I am very grateful for my local credit union. Six years and they haven&#x27;t fucked me over once.

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

The article doesn&#x27;t touch this, US-centric, but I feel worth mentioning is the EU&#x27;s PSD2 (Payment Services Directive 2) which is driving a lot of consumer banking Fintech&#x2F;Regtech.<p>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) <a href="https:&#x2F;&#x2F;www.finextra.com&#x2F;blogposting&#x2F;12668&#x2F;psd2---what-changes" rel="nofollow">https:&#x2F;&#x2F;www.finextra.com&#x2F;blogposting&#x2F;12668&#x2F;psd2---what-chang...</a>

&quot;Heads I Win; Tails You Lose&quot; --Banks

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

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.<p>McDonalds is a real estate company that happens to make burgers.<p>The traditional car manufacturers are banks that happen to build cars.

&gt; Why is everyone a bank?<p>Banks usually make a shitload of money, I guess.

Because that&#x27;s where the money is.

“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.”<p>For financial ninkompoops.