There's been a long history of non-finance companies branching out into finance.
- Sears: had Allstate for insurance and Discover Card for credit. Unlike most "branded" credit-cards, Sears did its own underwriting for the Discover Card i.e. they owned the Greentrust bank behind that card. (That is unlike Amazon Prime card being underwritten by Chase Bank.)
- G.E. General Electric: financial services GE Capital like loans and leases
I remember finding out that many music stores use GE Capital to finance the inventory of all their guitars hanging on the wall. (Industry lingo of "floor planning".[1]) Sort of strange to realize that a lightbulb company has a bigger subsidiary that sells financial services. It's more profitable to make money by selling money than by manufacturing lightbulbs.
I see a lot of fintech startups but there is absolutely 0 money in providing basic bank accounts for paupers.
It's why companies like Revolut and Bunq always end up doing what ordinary banks are doing: upselling. Shitty insurance and expensive creditcards is where the money is. Also transaction fees up the wazoo.
Looking into it made me realize traditional banks aren't really evil- they are kept under tight government regulations that forces them to take any customer. Even the ones that make them no money. No I'll be sticking with €15 per year account.
> Looking into it made me realize traditional banks aren't really evil- they are kept under tight government regulations that forces them to take any customer. Even the ones that make them no money. No I'll be sticking with €15 per year account.
In the EU citizens have a right to a basic bank account that a bank has to give you (unless you were defrauding the bank etc), yes. Terms usually are not great, and details depend on the country.
In the US there is a not so hidden secret blacklist (actually a couple of them, different banks use different ones) where if you get on that blacklist the bank will refuse to open an account for you. Its an unaccountable list that unfairly prevents tons of people from needed banking services in this hyper-connected and hyper-financialized economy.
Also, a personal theory is that banks that provide high fee services for people in that black list (used to be called the chexx system or something similar) are much more likely to quickly put someone on it.
Various credit score systems played the same role here, and banks banning too many people despite always promising otherwise is what finally brought down the regulation hammer on them.
Is that by law? In the US, it's not legally mandatory to have a bank account, but it's expensive and painful to do things like cash paychecks if you don't -- which makes it effectively mandatory.
Don’t forget GMAC - General Motors Acceptance Corp. The joke back then was that GM was a perennial money loser and only existed as a loss leader, just so GMAC could make loans.
This is happening in software too. Office 365 is functions like car insurance for business activity. The products change pretty glacially, with most enhancements focused on increasing stickiness and upsell (PowerBI).
I was talking to a customer, a tax policy guru about some of the challenges with corporate taxation. My suggestion to him was to implement an excise tax on O365 and GSuite, as those products are probably more reliable metrics of business activity than payroll and other measures. Plus, Microsoft is better at compliance than most tax authorities.
I actually prefer the subscription model but only for enterprise.
It makes it a hell of a lot easier for the admins too, just buy a license for each user and it works. No worrying about license, needing to update to latest version etc in big jumps. Plus many people were paying for additional 'support' anyway.
As a non enterprise end user, it's the worst thing in the world. Like Adobe stuff for example. I'm sure the model works fine for businesses, but it's horrific as an average user. I just want Photoshop on my pc. I dont care if its the latest version. I just need a version of it that I can buy and use and not have to budget in forever.
True. I don't want to update every day or even every week. It's annoying and I rarely see any product improvement that affects my sentiment of the software equal to the annoyance of waiting several minutes a week to use the software while it's updating.
Give me an option for monthly updates and save the daily updates for product testers and people who aren't happy if they aren't running their PC on software's bleeding edge.
Also, I as an individual shouldn't be expected to pay monthly for using the software that is already paid for and installed on my machine. That process should be for corporate licensing, and individuals should be able to pay once and be done with it.
I’m not sure. I mean, that would make O365/Gmail more expensive (indirectly, but cost optimizers in companies would see this as a direct cost), and I’m not sure people would pay more for them that $5/user/month. In fact, companies pay way more for SSO and videochat than for their emails…
I was interested and fact checked this. Financial services are a small part of total revenue (about 1/12). They seem to be somewhat more profitable and make up about 1/4 of operating income. Fundamentally though Toyota is able to sell financial services because it sells cars. So Toyota I would say is very much a car company with a nice side hustle selling financial services.
All manufacturers (or wholesalers or retailers) that grow big enough will run into the problem of: their potential market running out of customers that can pay cash up front, or easily obtain credit to purchase their product.
Even "cash" accounts at things like trade businesses, where the account is more about convenience and workflow (and the professional getting paid only after the work is done) than it is credit or financing, are taking on some risk of non-payment at the end of the month in order to make business flow much faster and more smoothly, than it otherwise would.
It's just a matter of what industries or businesses have the capital and the will, as well as the right risk models and opportunity costs to try and implement it all "in-house" or as a subsidiary.
Talking of this, wasn't the issue for OnlyFans related to payment processing and banking? What's to stop a company like that from buying a bank and setting up its own credit card? Is the main issue that it would still be a visa/master/discover card, and therefore they would have the same payment processing woes?
>, wasn't the issue for OnlyFans related to payment processing and banking? What's to stop a company like that from buying a bank and setting up its own credit card?
Because having an "OnlyFans Bank" to underwrite the "OnlyFans Mastercard" wouldn't accomplish anything because the credit-card _network_[1] was also getting more restrictive about the adult content rules.
The major separate entities in the chain of making credit cards work:
- processors, gateways: e.g. early PayPal, Stripe,
- payment networks: e.g. Mastercard, Visa
- merchant banks: e.g. Wells Fargo Merchant Services, Worldpay
Getting transactions rejected by any of those 3 middlemen would be a showstopper for many businesses. If heightened fears about child pornography and sex trafficking causes all 3 financial layers to crack down with stricter rules, it would be impossible for most businesses like OnlyFans to overcome it.
So being your own bank to get around Wells Fargo Merchant rules doesn't solve the issue for Mastercard's rules unless you're willing to create a new payment communications network and convince millions of consumers to apply for a new credit-card using that unfamiliar network. It's not impossible as Discover Card and American Express did it but even they don't have the wide acceptance of Mastercard/Visa.
You need to actually clear the payment with the payer/drawer's bank eventually. This means either having a direct relationship with all of the banks your customers might foreseeable use, or using a clearinghouse with pre-established relationships. One of the functions served by the payment networks (actually the merchant processors under their agreements with the acquirers I believe, it gets confusing in the details) is managing relationships with clearinghouses such as FedACH. These clearinghouses are hesitant to allow access to parties other than established financial institutions because of the risk involved, and they are likely to judge "starting our own payment network for adult content" as very high risk for a variety of reasons.
It is conceptually possible for an adult entertainment website to sidestep the payment processors by clearing directly through ACH or an EFT network or something, but this is high risk for the bank offering the service (ODFI) and so access to ACH clearing is generally more difficult to obtain than merchant banking. Banks are not really any more willing to work with adult entertainment than credit card networks, and some of the material problems that make credit card networks hesitant (unusually high levels of chargebacks and use of stolen card information) are even bigger problems for ACH/EFT/etc. which are "less reversible" than credit card payments.
The ease of processing credit cards today is sort of a newer invention - you used to have to fill out an application and usually meet with a banker for an interview to get approval to open a merchant account, because the bank that offers the account is taking on risk on your behalf. Newer processors like Square and Stripe have gotten rid of these requirements, but presumably incur more expense and use more automation in managing the risk than conventional banks (as a result they often charge higher fees than a merchant account at a good low-cost commercial bank).
A somewhat related example was the Federal Reserve's decision several years ago to not grant a master account to a Colorado-based credit union formed specifically for the cannabis industry---if memory serves, the primary concern the FRB identified was that the low diversification of such a financial institution would make it especially fragile in response to economic or regulatory changes, creating a very high risk of the credit union going insolvent if there was some shift in the cannabis industry. I imagine an FRB would raise the same concern in relation to adult entertainment, which is also in a complex and often unclear regulatory environment due to the history of US obscenity laws, the often cash-based nature of the industry, and much of the industry being overseas.
> unusually high levels of chargebacks and use of stolen card information
Design the onlyfans credit card bank to be unusually secure (e.g. non-phone 2factor auth) and unusually profitable for processors (higher commissions to processors, higher value clients a la Amex).
The stolen cards are ones issued by other banks, though. Unless you propose that every OF customer has to open an account at OF's specific bank, in which case you end up with the same problems about how they transfer funds in.
>but why can't you issue your own card, on your own bank, and process your own payments?
>How are people going to find out? It could be an online only thing.
Ok, I guess you're asking about the creating a non-Visa non-Mastercard credit-card? If you're avoiding all mainstream payment networks of Visa/Mastercard/Amex then your problem really reduces to an internal OnlyFans ledger accounts. Sort of like the old days before credit-cards where each grocery store had their own "ledger accounts" for each customer.
If so, to simplify it, you really don't need the complexity of creating a "OnlyFans credit-card" as the problem reduces down to establishing direct payments to OnlyFans (e.g. bank-to-bank electronic funds transfer). This might be an option. E.g. Amazon has a way for customers to enter bank account numbers and routing info for ACH payments from a customer's checking account: https://www.amazon.com/gp/help/customer/display.html?nodeId=...
I'm guessing that OnlyFans entertained that idea for a few minutes and concluded less than 1% of customers would willingly enter direct bank account info so that OnlyFans can bypass Visa/Mastercard. Whatever the tiny percentage is, it's a drastic enough reduction in customers to make it unviable financially for both the content creators and OnlyFans.
If we're not talking about direct payments but back to the idea "credit-cards" as in an "OnlyFans credit-card"... we're strongly implying transactions on the mainstream networks Visa/Mastercard. Otherwise, there's no reason for the extra layer of complexity of "credit" and issuing a "card" to go with it that can only be used at one service.
It’s a good question. I’d guess a combination of the expense of operating all three, obtaining the banking license and surviving US Treasury Dep’t scrutiny and pressure.
In 2021 it’s probably much easier and cheaper to accept cryptocurrency and let the user figure out how to move the money from their bank account to their wallet(s).
All the practical means of handling cryptocurrency involve exchanges where, sooner or later, regulatory scrutiny and the risk tolerance people have with money makes them as complicated as banks. This is the same problem people have making new programming languages and frameworks to address existing problems: sooner or later, they accumulate all the problems of the old system trying to address the limits of their simple designs.
Yes, I’m sorry you misunderstood; I was only saying it’d be easier to take pre-existing cryptocurrency, since the two exchanges required are less complicated than running an entire processor, payments network and bank. Performing the conversion to the currency is pushed off on the user and some other exchange service, and converting currency after the sale just needs to be correctly reported.
Creating an entire cryptocurrency ecosystem as an alternative to taking CCBill would not go well, I agree.
Because you're not going to get awkward questions if people found out you had a mastercard, but you are going to get it if you had a onlyfans credit card.
The problem is in the end, you still need to move the money from the customer's bank to yours. That can happen either directly, or through an intermediary. If you have a direct relationship with the customer's bank, then all is well and dandy, but as a risky business you'd probably have a hard time doing this kind of direct relationship. The easier alternative is to find an
intermediary bank that has connections to a lot of major banks. If you can actually find an intermediary bank willing to do business with you, i.e. open a corresponding account for your business, then you can pretty much accept payments. The trouble is if other banks find out that your intermediary bank is doing business with you, they might be able to force your intermediary bank to cut off that relation. I believe Bitfinex allegedly had that issue. So in the end, unless the customer is directly handing in cash to you, you're pretty much at someone's mercy, regardless of what channel the payment is performed in. If you want to setup a new credit card brand, better make sure the customer's bank is willing to send you the funds when its time for settlement.
> What's to stop a company like that from buying a bank and setting up its own credit card?
They can set up their own credit card network, sure. If they want to issue their own credit card with existing network like visa or mastercard, they need permission from visa or mastercard.
These payment networks have huge network effects. I can't imagine anyone really entering that market.
You have no idea whatsoever. The financial services industry might as well be a surveillance mechanism for the U.S. government at this point. Compliance/AML/KYC is huge, complex, and a giant pain in the arse.
Absolutely. Simple Bank tried so hard and so long. It just isn't easy to start a bank and probably for a good reason. For every well intentioned startup like simple, there will probably be a thousand snake oil salespeople.
GE doesn’t own GE capital any longer. Turned out to be a crazy situation where they needed the cash flow but the assets were messed up because of valuations and insurance problems.
Indeed. And not just that. GE finance division turned out to be its undoing. Maybe Amazon which looks invincible today will fall to the perils of leverage in finance.
> Sears: had Allstate for insurance and Discover Card for credit. Unlike most "branded" credit-cards, Sears did its own underwriting for the Discover Card i.e. they owned the Greentrust bank
This was a fairly common thing to do, as you point out, for department stores. As far as I'm aware, Target was the last holdout department store owning its own bank, Retailers (then Target) National Bank, through which it issued the RedCard and RedCard Visa, and sold to TDBank. Macy's had Department Stores National Bank, which it sold to Citi, and so on.
> Sort of strange to realize that a lightbulb company has a bigger subsidiary that sells financial services. It's more profitable to make money selling money than manufacturing lightbulbs.
GE sells a lot more than lightbulbs and financial products.
With a "lightbulb company", I was just using a rhetorical device of describing something in banal and obvious adjectives to the average consumer to contrast it with something non-obvious.
E.g. The "hamburger company" McDonald's is actually one of the largest real estate holders that makes more money from land rent than food. Adding later clarifications of "McDonalds sells more than just hamburgers such as salads and eggs in English muffins" isn't necessary for most readers.
To be precise on the McDonald's thing, it rents the land to the franchises and extracts the franchisee profits that way as no doubt it's tax efficient.
How is it tax efficient? Why do all franchisors not behave in the same manner? The land under hotels are very rarely owned by the hotel brands themselves.
I thought the real reason was to exert control over franchisors, so that in the event of a McDonald’s going rogue they can revoke the lease and end the franchise.
It is to stop a franchise rebranding themselves as Golden Arches, selling their own food to the existing customer base and not kicking the franchise money back to corporate HQ. Versions of which happen a lot when an established franchise owner realizes they can make more money by no longer paying for the franchise branding and infrastructure (lose 10% customers, gain 25% revenue, profit!)
The switcharoo is really common with smaller franchised brands. A few years on the original contract, then do a quick brand change overnight or contract with a similar competitor. I see it all the time around where I live it’s kind of hilarious.
“Welcome to Totally A Different Hot Dog Joint! The menu is 99% the same!”
Sure they can, the amount of money generated from these actions you honestly believe McDonald's doesn't have the best contract lawyers to enforce their TOS.
That is mainly due to manufactures hiding info from their own customers, and Independant shops. That whole Right to Repair.
The typical consumer doesn't like paying $290.00 plus hr., the minute the warranty ends. I hope they don't like being fleeced? I see them sipping Starbucks in the lounge, and wonder sometimes.
That was back in 2010 when although the financial services was a small percentage of revenue it made up a good percentage of profit - nice graph: http://www.fromedome.com/2011/11/sony-profits/
Now the segment that makes the most is games:
https://www.statista.com/statistics/297533/sony-sales-worldw... which shows a beautiful graph showing just how variably some of their business segments generate profits/losses per year - notice how segments disappear from, or appear on, the graph.
Edit: Disclaimer: I am not a financial expert, but your fact seemed a little odd to be true. Financial services at Sony do look reliably profitable (perhaps mostly recurring revenue and use reinsurance so predictable profits?)
GE is one of my go to examples of the financialization of American capitalism. Pretty much every company once it crosses a certain size starts looking more like a bank than the goods and/or services company that existed before hand. This is both bad as a country, we need goods and services not GE financial operations, and often quite bad for the company as everything else ends up getting deprioritized and/or sold off.
It’s also worth pointing out that this financial wing almost killed GE in 2008. Obviously consumer spending (e.g. washing machines) was going to drop during that time, but the financial wing of the company almost bankrupted them and ended up getting them removed from the Dow Jones Industrial Average.
In GDP or GVA calculations any region on the planet that gets prosperous by building goods, food, mining, whatever, sees a jump in real estate activity that sooner or later grows as large or larger than the sector that produced the growth. After that people coast whether in a company or in a county or a district or a state. Until competion either pushes them out of their comfort zone or crushes them.
I'm not sure why you think that, because Amazon is an incredibly trusted brand. And having worked there, in their advertising division no less, even I would be open to trusting them with financial services.
I would prefer not to because I don't want to contribute to their domination of every market under the sun, but I'd pick Amazon over some traditional banks (namely Wells Fargo or BoA) if I were forced to make that decision.
I think you are vastly over-estimating how many people have this issue with Amazon. I can count on zero hands the number of counterfeit products I've gotten from Amazon.
I hear people complain about being a customer of other online retailers, but I can't recall any conversations where someone complained about their experience with Amazon.
You order it, it ships, it's the thing you ordered. Otherwise they refund you, or they ship you a new one and you keep the item they sent you be mistake.
Even all the people complaining about them in tech circles seem to either be delivering second-hand complaints, or are buying like huge amounts of SD cards and got one supposedly counterfeit batch one time. I am fairly convinced that the counterfeit goods thing is something that happens vanishingly rarely, probably similar to the people who get an expensive camera box containing nothing but a rock.
It really depends on what you’re ordering. I suspect they’ve put a lot of effort into solving this issue since I stopped using Amazon several years ago, but I had a couple issues in short succession that really got on my nerves. For me, it seemed to be niche Asian brands that were problematic. I got some counterfeit ham radio gear, and some counterfeit RC gear.
One of my parents recently got a gray market laptop was advertised as new from Dell, but the laptop that showed up had specs different from its service tag.
It’s shady crap like this that has made me happy to shop at specialty retailers. Sure, Amazon makes it easy to return, but I’ve found it easier to buy things from specialty retailers instead of processing returns. Especially now that many retailers have competitive pricing, quick shipping, and store pickup.
I've bought roughly 6 electronics things from amazon over the past 10 years (really, mostly 5 years ago) and had problems with 3 of those things.
2 were not the right product (in the right packaging), 1 was obviously opened but not marked as opened when I bought it. I've never received something as obviously wrong as "a rock instead of a camera".
My experiences may have been exceptional but they are my own. Now I just buy from Best Buy instead.
How do you know for sure that everything you have ordered isn't counterfeit? The counterfeits have gotten extremely good. Many times you don't discover until a long time later and other times you may just think the poor operation of the device is expected and you are now thinking this brand is junk.
Sure if it is just some plastic widget maybe its not so bad but at the end of the day the money is going not to the innovator but to some third party who had no business inserting themselves into this transaction.
Just the idea that what I receive is not what I expected to order is enough to doubt whatever arrives at my door.
There is a vast gulf between "finance company" and "regulated bank".
The levels of regulation is huge, and basically culture changing.
Coinbase is basically trying to avoid becoming a bank. If it finds it have to then, hey great more competition, but really I think the idea that "startup attitude" will be allowed by regulators or (because regulators basically follow what society has decided it wants from its banks over decades of scandals and abuse) what the market actually wants
As an example, there are loads of (US) fintech startups that let you store some money and pay at a shop. Because these are not banks and debit cards, they charge the customer nothing but can scalp the merchant who can do nothing. The fintechs are just playing regulatory arbitrage. It might end soon in which case dozens will drop out and the biggest get bought by real banks for their brand name and cool factor.
This isn't really true. In the US, if someone is "letting you store money", and it's real, actual money, the deposit has to be held at a bank or a credit union. Thus, the way many fintechs work right now is that they have a partner bank, which holds the bank charter, that keeps FDIC insured deposits.
Down the road, though, I think you'll see some big fintechs buy up one of the many small, regional banks just to get their bank charter. Most of the underlying tech at a bank runs on a "Core Banking" system from one of a couple of players (FIS, Fiserv, etc), but down the road I could easily see more modern core banking tech come out from a fintech so they could then control everything from backend to frontend experience and take all of the profits.
Oh wow, ok, for curiosity, when I have a Shell Gas Gift Card, or balance in Starbucks app, or walmart or dominos gift card, somehow that money is being held in a real bank? Just asking.
Gift card balances do not have to be held by a bank. If it were held by a bank you’d need to provide ID for purchasing one and there would be more regulation around _gifting_ them. You can’t just _give_ someone a bank account.
However, balances held by PayPal or Venmo? Yeah those are backed by a bank.
Yes and no. In your examples, there card has been sold by an individual merchant and there is not an individual account at a bank for your gift card. There is certainly money in Shell's bank, and a liability on Shell's balance sheet labelled "unused gift cards". If Shell were to go bankrupt, it would be quite difficult for you to recover the gift card balance.
On the other hand, there are "universal gift cards" that work as a debit card and can be used anywhere (that supports that type of debit card). These would require a bank to hold the balance; when the card is used the money would go from that bank to the merchant's bank.
The term is "brokered deposits" -- Starbucks has a bank backing the app (not sure they publicize which one). But the bank doesn't declare those deposits under their control, can't loan it out, etc.
If they buy up the bank charter, doesn't that mean the whole company then becomes regulated like a bank charter? Wouldn't it make more sense to just continue using their services?
For exactly this reason, US financial regulators recognize Bank Holding Company (BHC) as a separate category from chartered banks. BHCs are subject to a more limited form of the examination banks receive, in order to ensure that they are not in danger of going insolvent (leading to the insolvency of their bank subsidiary). But the examination for BHCs is nonetheless much lighterweight.
Interestingly, all BHCs are regulated by the Federal Reserve (which is not true of banks proper, which may "choose" their regulator within certain limits from the FRS, OCC, and FDIC, occasionally others). There are some advantages that come from the FRS's approach to BHCs, including better access to FRS lending. As a result, many "banks" today, in terms of consumer branding, are actually BHCs that do all of their actual banking (depository financial institution/DFI) within a subsidiary.
"Bancorp" is a somewhat informal term for BHCs, so "banks" with bancorp in the name are often (but not always, the term has older uses) actually BHCs.
Well, the point is, right now, when a fintech partners with a bank, they still have to go through an extensive due diligence process and conform to all the regulations that are relevant to them because the bank is still on the hook from a regulatory viewpoint.
For example, let's say you're a fintech like Chime, which partners with The Bancorp Bank and Stride Bank to actually store deposits. When you open an account at Chime, Chime is responsible for just as much required KYC (Know Your Customer regulations) for account holders as if you opened directly with a bank. The partner banks demand periodic audits of the KYC processes because if anything is deficient, it's the bank's charter that is on the line.
> If they buy up the bank charter, doesn't that mean the whole company then becomes regulated like a bank charter? Wouldn't it make more sense to just continue using their services?
It likely would remain its own entity, similar to how banking and credit services are provided by different subsidiaries at places like Capital One.
So I should have been clear - afaik the fintechs are "banks" but as "small banks" are regulated more lightly. One such issue is the amount they can charge the merchant in a debit card transaction. There in lies the arbitrage.
Canada's largest grocery chain, Loblaws corporation, had a vision of the grocery store becoming the hub for a diverse set of services. Under their PC brand, they offered chequing and saving accounts in the form of an online bank, credit cards, travel insurance, cell plans, etc. But in the end it didn't quite work out for them financially. They have been in the process of winding down their services and focusing on their core business as of a few years ago.
Ehh, I heard that song before and arguably there is a threat posed to banks' market power and influence from current breed of fintech and new entrants, but the more time I spend in banking, the less chance I see for a serious disruption.
I was initially going to cite an interview I did with a high level executive of a regional bank, whose entire view on the matter could be paraphrased as 'apps may be cool for kids, but when you want a full service, you want a bank'. I personally felt it was a little.. arrogant, but I understand where he was coming from.
The compliance burden alone itself can be painful for new players.
While it's true that compliance, know your customer, anti- money laundering laws are the crux of this, who knows more about their customers than big tech companies?
This is an area where big tech actually has a built-in advantage.
Probably but on my side of banking our main attraction is capital concentration.
If nothing else, being enormous and focused entirely on getting more in to redirect to productive investments is the main "secret" to crack.
All fintech companies miss this point: they can get sexy, get a bit of retail, but when you want to buy a supermarket or expand a business you already have, you dont need software. You need capital.
AWS and Walmart may have some, and could convince clients to switch to them, but they re not going to be anything else than one more big pool of money to lend and collect.
The question is increasingly: what is the actual purpose of a retail bank in 2021?
There was a time when banks and the work they did actually provided added value, historically:
- keeping your physical money safe
- providing safe and regulated accounting
- giving out loans based on existing deposits
- giving their customer financial advice
In 2021, it turns out: who needs these things at all?
- almost all money is digital
- any accounting need an individual will ever need can be provided by the combo of a phone and a $50 computer sleeping in a data center
- AFAIU retail banks don't really need deposits to give out loans these days: loans usually gets resold on the open market almost as soon as they are granted.
- there are *way* better places to get financial advice than going to me Henry H Banker at the local BofA desk.
My main use of retail banking is for transactions. Having a bank account means that my employer can pay money into it, i can use a card to withdraw cash from it, or make payments from it, i can authorise direct debits against it, and i can use a web interface to make transfers and review my transactions.
When i have money to save, or i need to borrow, i don't go to my bank. I go to whoever gives me the best rate.
I'd be interested to know what fraction of bank customers are like me.
For the features i use, the web interface is probably fairly easy, but all the rest involves integrations with payment networks, which are not entirely trivial [1]. Money may all be digital, but as anyone who has ever worked with computers knows, that doesn't mean it's easy. So for me, the purpose of a retail bank is mostly to provide reliable implementations of a bunch of API clients.
[1] although i led a team which build a large chunk of a system for making transfers, and if i can do it it can't be that hard
A retail bank in the US is covered by FDIC or NCUA, which means that (up to reasonable limits), my deposit is guaranteed. If the bank goes belly up or someone steals all the money, I will not suffer a loss.
That's a very important benefit that is independent of whether or not the money is digital.
Real question, where are my direct deposit “paychecks” suppose to go besides a retail bank? Once they have the money sitting in accounts they might as well lend it or something.
Quite a few grocery stores across the world offer financial services. The issue is that lending is a very different low margin business that requires an incredible amount of capital and complexity to setup. Which is why usually they get winded down to partner with banks or begin with partnerships in the first place. You’re right - regulatory and compliance are huge barriers.
Tesco Bank is pretty much a branding of Royal Bank of Scotland (RBS) rather than their own financial service company though.
I used to have the Tesco credit card which was useful for the reward points but after trying to report a rogue transaction I found the customer service quite awful and left.
Dunno if that was always the case of if they have just gone down hill of late?
This seems to have a central data-harvesting angle according to the article. The threat to banks is described as:
"And that means they'll be further away from the mountains of data others are hoovering up about the preferences and behaviours of their customers - data that could be crucial in giving them an edge over banks in financial services."
"Embedded financial services takes the cross-sell concept to new heights. It's predicated on a deep software-based ongoing data relationship with the consumer and business," said Matt Harris, a partner at investor Bain Capital Ventures."
This is how you build a dystopian panopticon, isn't it?
Yes. We already live in a panopticon, but I think we should at least resist making it larger.
My reaction to the trend is that while I'm forced into an intimate relationship with an established bank in order to function in society, there's no way that I'm willing to take on additional intimate relationships with the likes of FAANGs and Walmarts.
But I also know that most people don't have the same reservation.
We've been working in the banking industry for almost a decade now. I don't think any of our customers have ever expressed serious concern about technology companies breaking into their market and taking deposits from their institutions.
Business banking (esp. loans) is where I see virtually zero competition emerging any time soon. The complexity and value proposition around managing these kinds of customers is extremely nasty compared to the consumer side of the shop.
This whole thing is a fairly complex equation, but I would boil the barrier-to-entry down to a 50/50 between regulations & customer needs.
From a customer standpoint, the most meaningful specific deposits are going to come from your most painful customers. Our clients are not looking for victory in numbers with razor-thin margins. They prefer to find whales obtained by way of exceptional customer service.
When it comes to money, customer service matters a fuck load when you approach a certain level of stakes. I don't think Amazon and Walmart are prepared the engage their customers in a way that will distinguish them from the incumbents. Walmart is already host to Woodforest National Bank (their largest retail partner), who is only able to serve a very narrow band of the consumer banking market. I can see a potential partnership emerging here. I don't see Walmart doing it on their own, and I certainly don't see it taking the market by storm. Amazon, even more so.
This type of article confuses me because it ignores China and India. Specific case. Alibaba copied Amazon's business model. But then it successfully spins off Alipay (later Ant Financial and Ant Group). And before the government crackdown/policy changes at the end of 2020 Ant almost successfully IPO'd at a valuation of $314 billion.
Ant's business model involved payments, insurance and lending and was fantastically profitable because Ant leveraged its data about user payments to make efficient risk decisions. If the CCP hadn't decided Ant was too big (and violating data rules) then it would probably be continuing to grow.
I don't think any of this is obscure so I don't understand why the article doesn't point out that Amazon and Walmart aren't trying something that hasn't been done before.
I wonder if the banking laws in China, India, and the US may be so different as to be incomparable in this regard. The vast majority of the difficulty appears to be regulatory in nature, and I imagine that each nation has its own unique regulatory flavor.
I thought Ant is fantastically profitable, because it takes a 30% cut from the profit generated by the Yu'e Bao fund (used to be the largest in the world), with the money coming from the remaining balance of all the Alipay accounts.
Banking looks easy till there's the regular credit crunch. In the last credit bubble that ended in 2008 there were lots of disruptors.
However, when there's a crash, who gets saved is a matter of politics. In the last crash, Lehman got sacrificed[1]. Meanwhile, Goldman got it's credit default swaps paid out 100 cents on the dollar when AIG failed by the grace of the federal government.[2] Many of the disruptors crashed and burned though.
Everyone in business needs payments. For those of us with significant payments experience living the "build or buy" craze, as it continues to accelerate to light speed, just some insight to share. Your mileage may vary.
The financial landscape is significantly changing as entities realize the power of owning and controlling the process and data end to end. Many comments about credit cards and banks but if one has the foresight to see over the horizon the "store of value" "unearned income model" implemented by one very large U.S. coffee company is the future. This model is morphing with the existing gift card industry and the crypto push as the large card brands position to be able to handle and process such 'legitimate' activity. Extremely interesting times once more as the excitement continues to climb and the heat some feel is approaching dotcom bubble temperatures.
Amazon and Walmart can both benefit from the powerful synergies from their retail operations if they decide to become banks, don’t see how traditional banks can easily compete. Square too is heading down this path, arguably even faster.
I worked in finance for a bit. The knowledge moat for tech is far greater than that of finance. I wouldn't be surprised if a tech company breaks into finance and traditional finance companies can't compete with the tech moat.
Challenger banks who launched thinking this often end up owned by or serviced by traditional banks. Some of that thinking is at least making its way into traditional banking, but it's a slow process with entrenched interests fighting every step of the way.
I had always heard the problem wasn't necessarily the knowledge, it's more that starting a bank from zero in the US is extremely labour-intensive; something about having to get licensed by every state with its own slightly different set of rules.
The SOP seems to be to find some dinky bank with an established license and acquire it to get a seat at the big-boy table. I suppose, then, it inevitably leads to a culture clash as the "Bank people" can say to the "Tech people" that the moment they stop playing ball, the whole thing crashes down.
Blockchain tech will disrupt the banking industry. Only a matter of time before CBDC (central bank digital currencies) become a reality and exchanges such as Coinbase or Kraken applies to become banks.
> Mercedes drivers can get their cars to pay for their fuel.
Does anyone know more about this? Is this for EVs only? Or is there a standard of some sorts or is it a custom agreement/implementation between car manufacturer and gas stations?
It's essentially speedpass built into the car, nothing exciting.
Just like the Amazon BNPL scheme is just Layaway or a store credit card gussied up in Tech speak.
The whole article is just asking a bunch of fintech venture capitalists where they want the market to go; and throwing in a quick blurb from a JP Morgan/Chase exec to make it feel well rounded. Most banks and credit unions aren't JP Morgan, BoA, and Wells Fargo.
It’s a bit sad that everyone is so hung onto full-auto driving and car subscription models, that no one is trying to make current things more practical.
I’m not even talking about gas cars, is there an EV car that can park itself at charger and charge without human being involved?
"Few products escape the Amazon touch," the Duke said.
"Books, the cloud, foodstuffs, servers, credit cards,
insurance, tv, music - the most prosaic and the most exotic
. . . even our poor handmade products from local mom and pop
stores.
Anything Amazon will transport [...]. But all fades before
our personal data.
The altered quote above may be a bit of a pessimistic quip, but I think in this day and age, nothing comes quite as close to Herbert's `Spice` as peoples personal data. Gather enough of it, and you do not only have the ability to glance into an individual's past, but into their near future, too.
Amazon the company offers a lot of services. Soon you'll be living in your Amazon Home [1], ordering food from Amazon Groceries and household items from Amazon Basics. You'll be working at some Amazon owned company [2][3], drive an Amazon vehicle [4] and pay for your Amazon insurance[5] with your Amazon issued credit card.
I find it harrowing that antitrust laws have been neutered so much in current times, where a breakup of the few well known Megacorps would have been necessary a decade ago. Amazon, Apple, Microsoft, etc. are slowly creeping their way into every aspect of life where there's a chance for monetary gain. Currently, a few select ventures are so large they can either outprice any meaningful competition for years until they fold, by just eating temporary monetary losses; or swallow them and incorporating their spectrum of products into their own lines. Even worse, some control the one and only marketplace on which competition can spawn, giving them the ability to shut down their opposition for inane reasons. Look at the FlickType keyboard on the Apple Watch for an example.
Question: why is "breakup" always touted as the solution to these free market destroying monopolies? Why isn't the fix regulation and aggressive enforcement?
Right, but at least the boomers voting for both parties (and the corresponding elected boomers allowing this) will get to continue buying new RVs each year with pensions and inflated retirement accounts that only exist due to allowed tech consolidation and monetary policy we will one day look back in horror upon.
Just to be clear, what makes a bank is not really lending, anyone can lend money (you might not necessarily be able to write a mortgage depending on the jurisdiction though). And there are lots of non-banks that lend money routinely, starting with car makers credit arms.
What makes a bank is taking deposits (that's what requires a banking license). And banks are competitive at lending because they can fund cheaply with deposits.
> banks are competitive at lending because they can fund cheaply with deposits.
This was my understanding until I read this article[1] which essentially asserts that banks’ primary function is to create money to be lent out. True, banks did start out as deposit taking entities which they still continue. However, banks don't make much profit from deposits. In fact deposits, being liabilities, cost them money to keep them safe. They keep those deposits in short term fixed investment funds, most of the long term loans made by a bank are from money created by itself.
That article is from none other than the Bank of England.
This is a pretty bad explanation. In almost all cases the deposit created is taken, sent elsewhere and reduces a loan somewhere. The document does explain this a little way down.
The original statement about cheaply funding loans with deposits is spot on. Look at any of the big four banks - they all have over a trillion dollars of deposits at 10-15 bps which they then lend at a few %.
Similar assertion (i.e., money is created by commercial banks) is made in this book too [1]. It is in the context of working of The Federal Reserve. The author worked is a former fed trader.
> the deposit created is taken, sent elsewhere and reduces a loan somewhere.
Sure, but that doesn't imply the converse (i.e., a loan is made from deposit), does it?
> they all have over a trillion dollars of deposits at 10-15 bps which they then lend at a few %.
It is not clear (to me at least) if the money they lent out is indeed from the deposits they took.
"money is created" doesn't mean what you think it means. The definition of "money' used by central bankers isn't the same definition which is used by regular folks in a common sense manner.
Take a look at the balance sheet of any of the big public banks. The assets on their books (mostly loans) has to add up to the equity on their books + liabilities (mostly deposits). If they didn't have all those deposits, what would they use to plug the hole? They could borrow money from elsewhere, but it would be more expensive and less sticky.
Yes they do need them, because they are cheap and long term (technically they are overnight but in practice, banks and regulators assume limited retail run-on-the-bank, so they are effectively long term liabilities).
If you don't have deposits, the only three ways a bank can fund are
a) issuing term wholesale funding (i.e. issuing bonds, no liquidity risk but expensive, if not uneconomical),
b) short term wholesale funding (money markets, cheap but dangerous, what happens if the wholesale funding market dries up like in 2008?). Banks are now prevented from taking too much of that risk by the introduction of the LCR ratio (which requires them to keep in liquid asset the equivalent of a 30 days bank run) and the NSFR ratio (which forces banks to maintain as much long term (>1y) liabilities than long term assets),
c) and the "originate and distribute" model, i.e. make some loans and resell almost immediately them through securitisation. Though banks are now required to retain much of the credit risk and are therefore limited in how much they can do that by their capital requirements.
And yes, your deposit has been lent out, at least 70-80% of it. That's because everyone assumes not all retail customers will request their money back the same day (and if they do the bank is dead).
The continued threat of bank-runs is the central absurdity of our monetary system. "Everybody keep your money in the bank because if you don't, bad things will happen!"
Personally, I think the only significant disruption would be that enterprises, instead of only having to get buy-in from bankers, would have to sell the public on direct investment.
Though I've been known to be an economic stick in the mud.
Why is it absurd? If all the creditors of any company decided they wouldn't roll their credit, and no new creditors would come along to replace them (ie, in effect a bank run), any company would default. It's not some unique thing to banking. It just tends to rear it's head more often in banking because banks are more levered than most other companies, and the nature of the agreement with creditors (you can call in your loan any time) means it can happen fast.
But that's the thing with deposits, people treat it as cash and don't even think of the credit risk. Companies are free to offer investments to the general public right now, but it is also heavily regulated to make sure that investors understand the risk they are taking. Banks do not have to at the expense of tens of thousands of pages of regulation in every jurisdiction (and that's probably low estimate).
No, they don't do that because "they have been lent out" makes no sense. You give them money and then you are a creditor of the bank. There is no special place for "your" money, ie "they" isn't a thing. It's just a giant bucket of money they now have.
Of course they need the money to fund loans. The money lent by banks doesn't come out of thin air. The bank has some equity (A) contributed by the shareholders and they borrow money (B). They can lend out A+B. That's it. They borrow it from several places, and the cheapest, stickiest way to borrow it is deposits.
There is no magic in banking. No money comes from the sky. The second you think "money is being created" you are going down the wrong path from an understanding perspective. When people who actually know what they are talking about say "money is created" they have a different definition of "money" than you do.
You misunderstand. Lending is what makes a bank. When a bank (in the US) lends, it is creating new money that didn’t exist before due to fractional reserve requirements.
If you made a loan you’d effectively have a 100% reserve requirement to do so, while a bank currently needs 0% backing in deposits. You cannot make new money.
I don't misunderstand and given my profession I should know. Loans are not a regulated activity. You can make loans. Any corporation can make loans. Taking deposits is what requires a banking license.
This is a rhetorical question. I think American healthcare is a different beast altogether from banking and credit. I could be wrong, but I'm not convinced breaking into financing is as hard of a beast as healthcare. For example, auto companies do often have a financial division that offers loans, often times being very competitive with or beating your bank or credit union.
I would argue this might be far easier for Amazon to pull off in the US or Western countries vs. countries like China or India.
The Waltons (Walmart) already own the regional Arvest Bank with numerous locations in Arkansas, Missouri, Kansas, and Oklahoma so they're no strangers to finance.
I think you are grossly mistaken. Banks make way more money helping you buy things you can't afford. Just look at how much more they make off of credit than they do traditional banking services.
https://archive.is/psX8v