For sure, defeating banks in the matter of customer interaction seems like low-hanging fruit. As the article says, they are too slow, too cumbersome, and I'll add that they are too unfun, and their sales departments are pushy and intrusive.<p>Do we even need monolithic financial entities in this day and age? Most transactions would be better handled by smaller, specialized and modern service companies. Banks are to financial startups what taxi driver unions are to Uber.<p>And the financial sector definitely deserves a shakedown, after they essentially plunged the rest of the world into a decade of misery with their securities fraud during the housing crisis, and went unpunished for it.
I worked for JP Morgan Chase a couple of years ago, as part of the main technology division for the entire bank. If I remember correctly, this 'IT department' had the same headcount as Apple. It was an interesting place. There was a lot of technologies being used through the organisation, lots of python and Java code, perl with Mojolicious, puppet and cfengine, desktops were Linux based terminals connected to virtualised Windows desktops, Hadoop and Cassandra was being rolled out, interesting things with FPGAs were being done e.g. <a href="http://web.stanford.edu/class/ee380/Abstracts/110511-slides.pdf" rel="nofollow">http://web.stanford.edu/class/ee380/Abstracts/110511-slides....</a> I worked with many skilled and experienced people, and nice people too. I have worked for many multinationals before, and this bank was certainly the most nimble of them all while being the biggest and most stable at the same time.
"Building financial technology is hard. Really hard. Startups are always hard, but fin tech is a whole different level of self-inflicted pain. You’ll be regulated. You’ll deal with big banks. They’ll see you as little and cute until you’re meaningful. Once that happens, they’ll want to crush you out of existence."<p>- Max Levchin <a href="http://fortune.com/2015/03/27/max-levchin-hates-credit-cards/" rel="nofollow">http://fortune.com/2015/03/27/max-levchin-hates-credit-cards...</a>
Most people take SV/WS as a geographical identity, starting a war between the two. However, rather than war, we've been seeing a confluence. WS is nothing but a group of workers, morality, tradition and culture.<p>Right now, WS is not being destroyed: it's merely being mixed into the SV. Either by bringing its top executives or fostering a 'brogrammer' culture, the similarity between the two are becoming clearer and clearer.
I wonder sometimes what is left for banks to do that couldn't be fully automated (at least on the consumer side). Creating accounts, making deposits, withdrawals, transfers, paying bills can all be done online or through apps. Getting a loan or credit card seems to largely be a matter of 1) obtain credit score 2) calculate terms. Investments can be done through the likes of Vanguard/Wealthfront/Betterment. I feel like I must be missing something here, or maybe people really like talking with someone they know at the bank when getting a loan or mortgage.
It's not just that startups are identifying cool new technologies like cybercurrencies, and it's not just that they're using new models to offer loans faster. Startups have started to take on markets which banks pretty clearly knew about, but refused to touch - you can refinance a federal student loan with SoFi or commonbond now, which was unheard of five years ago.<p>The problem is that the little guys' competitive advantage seems to lie only in their willingness to enter the space. Once the market is proven, Wells Fargo and JP Morgan won't really have a difficult time stepping in with boringly normal technology and using their giant pile of money to dominate the market.<p>What can finance startups do to avoid being squeezed out by the older, established banks?
The problem with starting a new institution these days is that the regulatory & audit issues mean that you'll be a small bank, with the overhead of a large bank.<p>There's also the package integrations to deal with. Banks tend to buy packages for their core functions, and then (try) and integrate them. There's an opportunity here for someone who can offer a "Bank In A Box" -- all the software needed to start a bank/credit union that is well-integrated and complete -- from GL/AP to lending, depositor management, ACH + Fedwire connections, and disaster recovery.
>> “Rest assured, we analyze all of our competitors in excruciating detail – so we can learn what they are doing and develop our own strategies accordingly,” he said.<p>Perhaps worrying more about analyzing their customers needs and less about their competitors would be better.<p>I also found it amusing he considers PayPal a "new payment technology"...
One reason I don't think JP Morgan or traditional banks can compete effectively with smaller startups is the regulatory framework that they operate in. New startups can structure themselves outside this framework and be more nimble.<p>For instance, Lending Club essentially passes through all credit risk to its investors with its assets and liabilities perfectly matched. So every dollar loss in loans is a dollar less to the holders of the notes.<p>If a bank tried to have this sort of structure, it would be incredibly leveraged and would require a large amount of capital reserves.<p>There was a great Bloomberg article addressing just this [0]<p>[0] <a href="http://www.bloombergview.com/articles/2014-08-27/lending-club-can-be-a-better-bank-than-the-banks" rel="nofollow">http://www.bloombergview.com/articles/2014-08-27/lending-clu...</a>
His only mention of Bitcoin:<p><i>Competitors are coming in the payments area.</i><p><i>You all have read about Bitcoin, merchants building their own networks, PayPal and PayPal look-alikes. Payments are a critical business for us – and we are quite good at it. But there is much for us to learn in terms of real-time systems, better encryption tech- niques, and reduction of costs and “pain points” for customers.</i>
Everyone in the tech world, specifically the investors, has known this for a while. Marc Andreesen could have told this to Jamie Dimon ten years ago. "Software is eating the world" holds just as true today as it did when he first said it.<p>The problem is that "software is eating the world" only in the long term. It's easy to get behind the mantra when you're imagining software in an idealistic, abstract sense. After all, just look around you. Software is disrupting industries left and right. It's cheap, reproducible, and highly leveraged with low marginal cost. Software is more economically efficient than the incumbent operations of every industry it disrupts.<p>The financial industry is unlike any other industry software is "disrupting." The operations are irrevocably complex because they are inherently driven by human operators. Each year, more tech creeps in between the operators and the operations, and software gradually "eats" the industry. But bankers are not losing their jobs. Why would they? Software is more efficient, it makes them more money. It gives them more time to focus on improving other efficiencies. Bankers see software as a resource they can leverage just like anything else. The more it eats their industry, the more they feed it. As long as it continues making the bankers money, they will keep their own jobs. As long as they keep their jobs, they will keep leveraging their resources, which inevitably increases the complexity of the financial system.<p>The longer humans are in charge of the financial system, the more complicated it becomes. I see very little chance of humans relinquishing complete control of the system to algorithms. There is always a human, or group of humans, at the top -- that is the nature of politics and civilization. Perhaps the human has less input as technology improves, but politics still requires that human to occupy the seat at the top of the economy. Somebody needs to be responsible for the system. We cannot relinquish all control to the robots.
Relevant to discuss the viability of different fintech startup ideas:<p><a href="https://news.ycombinator.com/item?id=9321019" rel="nofollow">https://news.ycombinator.com/item?id=9321019</a><p><a href="https://medium.com/bull-market/a-cynic-s-guide-to-fintech-3cd0995e0da3" rel="nofollow">https://medium.com/bull-market/a-cynic-s-guide-to-fintech-3c...</a><p>I agree that there is some naivety when attacking huge institutions as mentioned in the article. Particularly when it comes to dodging regulation. Rather than putting you on top dodging regulation is probably going to put you out of business when it comes to Financial Institutions.<p>[P.S. will the Gods of HN please upvote my comment so I can have the slightest visibility here]
So Facebook basically gave everyone a personalized website and social graph.<p>Twitter, everyone got their own chatroom.<p>Instagram, a photo-album.<p>Perhaps the next killer finapp is to allow everyone to become their own bank?
Banks have one advantage in this area. The have government regulations and many other laws making it hard to organize competition, such as anti-money-laundering and know-your-customer laws.<p>Look at what happened to E-Gold. It was a threat to traditional banking, laws were changed, and the business was declared illegal (and many of the operators went to prison for violating laws that were passed after they started operating).
On this subject, from the finserve side: <a href="https://medium.com/bull-market/a-cynic-s-guide-to-fintech-3cd0995e0da3" rel="nofollow">https://medium.com/bull-market/a-cynic-s-guide-to-fintech-3c...</a><p>The author applies heavy skepticism, but does rate some of the fintech business models as worthwhile.
I find it curious that pain points is given the inner quotes treatment whenever the JP Morgan CEO uses that term. It's almost like such a concept didn't exist before startups started addressing it.
I think what is especially interesting about this comment is that Wall St, which is on the East Coast, uses the internet in very different ways than Silicon Valley does, which on the West Coast. Both have ground to make up in this sense; Silicon Valley could be much more in tune with their East Coast counter parts...
Maybe this will result in banks upgrading their systems from COBOL/FORTRAN to something slightly more modern, like... Java/C++.<p>Or are they just going to skip a generation, and move directly to io.js/Node.js?