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Starting a Bank

ma.tt

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Re: Starting a Bank

#31

Post by pelle »

mdasen wrote: post #17

The problem is that his proposals ignore the economics behind banking. If you take someone's money and put it in a vault, how can you provide interest on that money? You can't. You'd, in fact, have to levy fees to cover the costs of staffing, buildings, security, etc. Yes, even an internet bank has to have physical infrastructure somewhere. Heck, why am I going to spend $3 for a SafeBank iPhone app when I can access…

Everything you say is true for traditional full service banks. I believe however that we need to drop the idea of the one stop full service bank.

Where real innovation and safety comes is through the idea of narrow limited purpose banks. There is a lot of space to innovate if you as a bank can focus on one product only.

The simple way of doing this is to imagine every account type a bank has as a separate mutual fund.

The checking account would be replaced by a 100% reserve 0 interest cash mutual fund, which makes its money from float, membership fees, transaction fees etc. Most checking accounts now are paying an insignificant amount of interest anyway.

Savings accounts can be offered by various levels of money market and similar funds.

If all of these funds follow the same simple standards it is easy to transfer between them, even if they are run by different companies. We are working on creating these new standards on the Agile Banking list:

http://groups.google.com/group/agile-banking

One of these standards we are working on is a dead simple OAuth/REST based transaction API that we're calling OpenTransact. It allows for very simple transfers, but allows more complicated financial transactions to be built on top of it.

http://wiki.github.com/opentransact/opentransact/opentransac...

What about ATM fees, credit cards etc. These should be run by independent companies. On the Agile Banking list we are talking about independent card issuers. These are independent companies that offer regular payment cards that in essence control OAuth Access Tokens to an OpenTransact based cash mutual fund as I described above.

As a card issuers only access to your account is via OAuth, you as a consumer can easily manage limits and even revoke the Access Token. You are in control.

Business model for these card issuers? Advertising on cards, transaction fees, membership fees etc.

There is plenty of money to be made in this business, we don't need to keep thinking about it in the frame of how it has been done until today.

Re: Starting a Bank

#32

Post by randallsquared »

Dilpil wrote: post #25
jdminhbg wrote: post #18

The problem with the "Bank Safe" slogan is that the FDIC exists.

This. No one lost money by depositing their money with goldman sachs (they were not a deposit accepting institution). People lost their money speculating on stock and real estate. Having their money in a slightly safer bank would not have helped.

It's marketing. That's all.

Re: Starting a Bank

#33

Post by cookiecaper »

jdminhbg wrote: post #18

The problem with the "Bank Safe" slogan is that the FDIC exists.

Except that there've been rumors swirling regarding the FDIC's solvency for a while now. People no longer confident in the government's bailout ability would be comforted to hear there's an option where much more of their money will be physically retained.

Not that the government will let the FDIC fail. They'll just inject new money endlessly to prevent it.

Re: Starting a Bank

#34

Post by dreish »

cookiecaper wrote: post #30
webwright wrote: post #29

Earlier quoted context omitted.

"The problem is that his proposals ignore the economics behind banking. If you take someone's money and put it in a vault, how can you provide interest on that money?" Except that he said this: SafeBank would maintain a reserve level 2-3x higher than Fed requirements and any other bank. What he's saying is this. SafeBank would be less risky and could spend a LOT less money. Revenue would be lower, but he's saying tha…

>SafeBank would maintain a reserve level 2-3x higher than Fed requirements and any other bank. Which, for the record, isn't full-reserve (the legal limit is 900% leveraging... i.e., if I deposit $10, the bank can loan $90 off of that). He'd still be loaning out money he doesn't have, and he'd still be able to generate revenue from that. In the case of full-reserve banking, you can still make money. You may not be abl…

You're referring to a simplified description of the effect of a 10% reserve requirement on the money supply. If you deposit $10 into a transaction account, the bank may lend $9 of that (not $90), and only if you assume each dollar lent is deposited into a transaction account with the same 10% reserve requirement do you get the net effect on the entire money supply (mostly through other banks) of +$100.

In practice this does not happen. And in any case, no one lends money they don't have, as you put it, unless you have strange ideas about what constitutes money.

Re: Starting a Bank

#35

Post by randallsquared »

bonsaitree wrote: post #23

This reminds me of the wonderful theoretical country discussions we had in my economics classes at college. Forget a new kind of bank. Go total bluesky. What IF, we could design our own set of sovereign laws and principles. What would the "modern" country look like?

http://seasteading.org/mission/intro ;)

Re: Starting a Bank

#36

Post by cookiecaper »

m_eiman wrote: post #11
kiba wrote: post #3

This will probably not happen when there are too much regulatory barrier to start and too many rules to comply with. The more improtant something is, the more likely it will be highly regulated, or monopolized.

That just means that there's less competition. And when you start getting successful, your competitors will need to spend a few years implementing their system before they can start actually competing with you. And I wouldn't worry about the big banks catching on to the "do what you can to help your customer" concept, it's not in their culture.

It also means that unless you're starting out with at least $xx million dollars, you have no hope. It can take _years_ to get a business started if you're unlucky enough to choose a field under heavy regulation (something with it's own Cabinent-level bureau, like the FCC, EPA, or Fed).

The paperwork takes a long, long time to process, the processes are laden with significant fees, you have to pay staff (usually lawyers, not cheap) independently to prepare all of the forms and offer guidance through the process, and you have to be able to afford to wait for everything to go through, and that assumes a completely clean process with no need to contest, appeal, or resubmit anything.

The megacorps already initiated to the oligopolies hope that this is enough to prevent any significant or innovative new competition, and it usually is.

Sadly, those with the most innovative ideas are usually not those with the most $xx millions of dollars.

Re: Starting a Bank

#37

Post by hamidp »

The whole point of Safebank seems to be to have it be safe. How safe a is a week-old bank started by some guy with a blog who doesn't know the difference between retail and investment banking?

People don't love their banks? I do. Bank of America gives me ATMs everywhere and pretty awesome online banking, and the credit union gives me unbelievable customer service and great interest rates.

On a sidenote, do compare the HN comments with those on the site.

Re: Starting a Bank

#38

Post by senthil_rajasek »

mdasen wrote: post #17

The problem is that his proposals ignore the economics behind banking. If you take someone's money and put it in a vault, how can you provide interest on that money? You can't. You'd, in fact, have to levy fees to cover the costs of staffing, buildings, security, etc. Yes, even an internet bank has to have physical infrastructure somewhere. Heck, why am I going to spend $3 for a SafeBank iPhone app when I can access…

"People might hate banks, but they hate people mining them for data potentially more."

Matt clearly mentions that selling accurate consumer data as one of the ways to generate revenue.

It's not any worse than the current situation. Aren't banks already mining consumer data?

Safebank could possibly be a more ethical alternative.

BTW, credit unions charge fees like overdraft fees, wire transfer fees etc., only they charge a slightly lower price than banks.

Re: Starting a Bank

#39

Post by rgr23 »

The problem with his reasoning is that the big banks are evidently quite safe. No matter how bad their investments are, the government will bail them out with taxpayer's money to prevent them from collapsing. I doubt the same would apply to a bank ran out of somebody's basement.

Re: Starting a Bank

#40

Post by ig1 »

webwright wrote: post #29
mdasen wrote: post #17

The problem is that his proposals ignore the economics behind banking. If you take someone's money and put it in a vault, how can you provide interest on that money? You can't. You'd, in fact, have to levy fees to cover the costs of staffing, buildings, security, etc. Yes, even an internet bank has to have physical infrastructure somewhere. Heck, why am I going to spend $3 for a SafeBank iPhone app when I can access…

"The problem is that his proposals ignore the economics behind banking. If you take someone's money and put it in a vault, how can you provide interest on that money?" Except that he said this: SafeBank would maintain a reserve level 2-3x higher than Fed requirements and any other bank. What he's saying is this. SafeBank would be less risky and could spend a LOT less money. Revenue would be lower, but he's saying tha…

It wouldn't even cover your costs. Most bank current accounts are run at a loss for the bank, and just operate as a loss-leader for other products the banks sell. A current account costs in the region of a couple of hundred dollars a year to run (see countries which charge for current account services).

Assuming the bank is making an (adjusted) return of 2% on your money, the account has to have 10k in it even to break even. Very few current accounts do.

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