Blue oceans for banks
docs.google.comThe very smart, very shrewd, hard-working folks at Simple tried building a new kind of bank... and found out that the business of banking is FAR more complicated than it seems. Ultimately, Simple decided it would be best to sell to a giant established bank, BBVA (USD 800 billion in assets):
https://www.simple.com/company/the-next-chapter
The OP is a short ambitious document written by two guys who think they can do better. They think they can build a new kind of "bank for tourists." So far, they have a landing page and a mobile app: https://www.wrinq.com/ ...They will need a lot of luck.
The paper contains a lot of bullshit and I don't see any new idea in it.
Foreign transaction costs are not "prohibitive" expensive and there are CC in the US with no foreign transaction fees. You can use transferwise or WU in the worst case (just wired a buddy who is broke US$ 300 online). Social network and payments? Use Wechat!
There are three major problems that they won't be able to solve.
1. KYC regulations
2. Fraud. The financial industry makes it more difficult and more difficult to access your own money (e.g. require a receive text message to wire money. Good luck with that abroad)
3. "in multiple currencies and fast unrestricted exchange of funds within the internal banking network"
This is not a problem as long as your stay within ONE country. Use Wechat in China, use M-Pesa in Kenya etc. It becomes a problem when you do it internationally because many countries are heavily regulated and afraid that capital leaves the country. Have you made, as an average person, international transactions with China? India? Sri Lanka? Ethiopia? Good luck buddy!
In fact, even getting cash at the ATM abroad becomes more tricky. Recently I got into the habit of just carrying cash for all my travels after I run nearly out of cash twice (Ethiopia and India). What do I carry? Euros! They did not want my dollars in Ethiopia because they were "not the latest series" (remember point 2?)
The website is out of sync with our ideas. We need to update it. Apologies for any confusion caused.
If you don't see any new idea then can you at least see a concept that has been proven already by revolut. If so can you see a possibility that this concept can be taken further to include other businesses and banks? If you do can you can you imagine a scenario where ideas we suggest might be probable?
And if we are able to overcome the challenges you put forth would you say that this idea is a winner?
The idea of posting it on hacker news is to make sure that if we can't do it someone else (better) can. There is a market. There is big money to be made. Banks are more receptive of startups than they've ever been. It'd be a shame to see this opportunity pass by.
Further we're not building a new bank. We're proposing to use the existing systems available, in any international bank today ,in a new way.
Simple was a challenger. We want to collaborate. Hacker news might just be the rabbit's foot!
What you´re describing isn´t a bank. It´s an international payment facilitator. There´s more competition in that space than you realise. If you want to be a bank, you´ll need to solve lending, and you should also investigate nostro/vostro accounts.
We've compiled a list of questions that Banking partners,investors and startup mentors and other people have asked us in the past. If nothing else the document is a good overview of how the concept has evolved during the last couple of months. We're constantly updating the list as new questions come in. Here's the link:-
https://docs.google.com/document/d/1cu7vl4GiQHg8Tqqt_nGj7JOT...
Our two part plan for corporate banking innovation:-
- The low hanging fruits in corporate banking services (https://docs.google.com/document/d/11SRXfuC0-L5iGlHypnviI9H5...)
- A scalable banking proxy (https://docs.google.com/document/d/11SRXfuC0-L5iGlHypnviI9H5...)
I think the article is missing an important point. Why are there foreign transaction fees in the first place? Also I think that any large service is semi doomed because of the governments in each of the countries you plan to do business in. They want to protect their own banks.
You are right about the countries wanting to protect their own banks. We're not suggesting a "savings account" in the sense that you keep your money in a foreign bank. This is more like an efficient "bank proxy". Does "nginx for banks" explain what I'm trying to say? The money at the end of the day will be kept in your own banks.
Your point about foreign transaction fees is also correct in part. There are many layers of fees in a foreign transaction, many portions of which are directly controllable by the parent bank as is already proven by services like Revolut and centtrip.
Not much can be done about the remaining charges but even the savings that can be done with the help of a parent bank are very substantial and within the bounds of regulation.
You're right, however there is a possibility it will play out like Uber. I.E. Many of the states across the globe initially fought hand and tooth to protect their own taxi license systems, only to loosen up later...
The financial stability of their economies wasn't dependent on taxi firms.
Financial services are a commodity, and that is a good thing. They should face it.
I don't like centralized versions of cryptocurrencies, but they provide the rails and on ramps to lower transaction costs. Ripple, Stellar and Tether are fascinating additions to the cryptocurrency and banking space
Tether providing stable value for settlement
I think people wouldn't come up with ideas like wrinq if they were aware of existing solutions to build on top of
And I say that as a consultant who has seen many potential founders scrap their idea, after I sign their NDA and they finally tell me about their supposedly original idea only for me to tell them the existing solutions
It's fine to be unoriginal but they scrap their idea.
ever heard of cryptocurrencies? no banks are neeeded, and identity on blockchain will actually happen.
Cryptocurrency is the only way to circumvent the prohibitionist laws against free exchange of money. The biggest source of inefficiency in the global economy is the organized censorship of human economic activity via state intervention, and cryptocurrency directly addresses that.
I tend to agree.
Identity on the blockchain won't actually happen if nobody actually works to make it happen. In practice, though, it's much more profitable (and easier) to build centralised businesses where you actually have a product or service to sell that only you can provide (due to network effects), so people work on that instead.
> PPI
Doesn't know anything about retail banking if you are reusing that term
Yea. Came here to say what the previous commenter said. This basically sounds like Revolut.
Yes both Revolut and centtrip have marketed their products to only consumers (travelers) where as the concept of multicurrency accounts is very useful to business as well. Not just individuals. The customer acquisition strategy is like Revolut but the larger goal is not (Not that I can say what they have in mind,long term).
Revolut just announced business accounts. https://business.revolut.com
Ha! didn't know. Any way Revolut works in partnership with barclays. There are other banks to whom the service will be valuable.
Out of curiosity by just do you mean today?
I think it was at the start of this week.
They use Barclays as their backend but is anything of that visible to their customers?
It should be on bank statements and on the card. What I was trying to say though was that the fact that Barclays has a system like Revolut is a problem for other banks that don't have a system like that. So our solution is still valuable for them.
The idea of using Barclays, or any 3rd party bank, is just to get enough traction so they have their own participation method later. Also it doesn't show Barclays on the statement from my usage - it shows the end merchants details. I didn't really know it was Barclays till now.
Barclays has been known to help startups by lending them their (global) infrastructure in the UK. Another Example is Dopay where Egyptian Barclays ATMs have been lent out.
The Bank of England is moving towards allowing non banks to participate in the payments system by 2020, its supposedly blockchain secured so it goes a notch above what a sole bank/firm could do. Revolut could theoretically switch from Barclays then.
You misunderstand me....
You can think of revolut as a front end for barclays client pool account. This is a very simplistic explanation but what I'm trying to emphasize here is that the money revolut manages is effectively with Barclays.
So the idea of having Barclays is not to get traction or to have their own participation method later but to have the muscle of a bank that can handle large scale international payments.
There are other big banks who don't have something like revolut. So our solution can be a good proposition for them (Not saying that we don't have ideas for any new features. We do, but we've been caught off guard by the new announcement. It'll take a few more days to make it's way to the pitch)
>"Barclays has been known to help startups by lending them their (global) infrastructure in the UK"
Yes, but why? Barclays profits with every customer that revolut brings/ will bring. Other banks would want to profit in a similar way.
I didn't know about BOE but I don't think that switching banking partners after about 5 years of operation is going to be that easy... Not sure could be wrong.
> Yes, but why? Barclays profits with every customer that revolut brings/ will bring. Other banks would want to profit in a similar way.
Actually they hope the startup does well so they can buy them later. Revolut's cost of acquiring a user is far less than Barclays (<£10 vs £300+).
Barclay's deal isn't free, they take equity in exchange for letting startups using their infrastructure, it's not that expensive considering what they give though.
I think I know what you're getting at, at replacing the Correspondent bank system. There's another one, Transferwise, that seems to be getting transaction where Banks in other countries use it internally to avoid correspondent banks (transferwise often matches transfers to avoid transfers).
The BoE's 2020 system isn't for an ordinary firm to replace a banking partner. It's to join the payment network and have an account backed by the BoE/blockchain without it being at a designated high street bank. It wont be easy to use I guess, but it would be compelling enough for a Fintech company to use it.
I can see alot of value with the service you're describing, I don't think the level of value would be high out of countries which have high legislative requirements/forex controls. I had a similar idea a few years ago and my base assumptions were incorrect regarding people's needs for my service.
Thanks for the great explanation about acquisition costs. I think we can use it :)
Since they mention airlines: Norwegian (the airline) started it's own bank:
This has very likely tax reasons.
Many major companies have their own banks and even insurances. An insurance is an easily available tax shelter.
I'm sure there's tax benefits but wouldn't it also reduce fees and increase flexibility due to founding company's control of bank?
Yes! and virgin has a bank as well. This is a very lucrative market.
Yes, Virgin Money does a range of retail financial products. Their residential and buy to let mortgage offerings are based on their 2012 purchase of Northern Rock from the British Gov't. Northern Rock collapsed during the 2008 financial crisis due to the poor quality of its loan book and loss of access to wholesale money markets. Borrow short and lend long to sub prime borrowers turned out to be a bad strategy! I've just come off a year long contract working on the mortgage origination software Virgin Money inherited from Northern Rock. If I learned one thing it's this: the UK mortgage industry is technologically stone age!
>the UK mortgage industry is technologically stone age!
Very interesting. Would love to have more details!
May I also ask if Virgin money has services that integrate with their other business, like say virgin airlines, as well?
Happy to answer questions by email - see my profile for the addr...
Sounds like markets succeed by creating monopolies... like cable providers...
Sounds a lot like Revolut.
There ain’t no hubris like FinTech startup hubris.
Maybe so, but please don't post dismissive swipes to HN. It degrades conversation quality and encourages the habit of rejecting new work or new ideas.
It's true that most new work and new ideas won't amount to anything. But those that will, almost never look like they will when they're incipient. So if we don't want to trample on new things of great potential value, we have to adjust our response to all new things, including the ones that seem lame. It takes a certain discipline to practice that suspension of judgment, and we're hoping to cultivate that quality here.
Fair point dang.
OK: To expand. FinTech startups seem particularly prone to some form of the “the bits of a business I can observe from the outside are obviously shit, so all I have to do is re-create better versions of those & the customers will flock to me in droves & I can take over the world” fallacy.
Be as positive as you like, but any proposal that doesn’t at least nod to the wider issues is going to make me instantly suspicious that the founders don’t actually understand the banking system as is, or the reasons why it’s structured that way.
Here’s a small list of issues that I’d like to see covered in at least some fashion in a FinTech proposal, but are often glossed over or completely omitted. I’m sure others could think of more.
* Banking is heavily regulated whilst at the same time being the target of some of the most persistent and talented fraudsters on the planet. (Paypal burnt through, what, a $billion or so in fraud whilst trying to establish themselves?) You want to be a global banking solution? You’d better have a damn good idea how you’re going to deal with fraud.
* Did I mention that banking is heavily regulated? Your product brief had better demonstrate how you fit within the existing regulations. Failure to understand this will be terminal for your company (Where by terminal I mean: the execs risk going to prison and / or large fines. The SEC does not mess about.) Move fast and break things is not a valid strategy when ordinary people’s money is at stake.
* US FinTech startups are particularly prone to thinking that the rest of the world has a banking system as broken as the US one. Nothing wrong with trying to fix the US system but if you say you want a billion customers? You’re going to have to take a decent chunk out of the world’s population, which in many cases already has a perfectly decent banking system: Fast same day payments, very low fee international transfers, no-load payments in foreign countries, the works. Don’t think that the rest of the world works like the US.
* Every transaction is two sided - banks are middlemen - so your wonderful product had better appeal to both sides if it’s going to be successful. It’s pretty much doomed to fail if it only benefits one party in a transaction. If your plan is full of details about how wonderful your product is for people making purchases but very light on anything that would appeal to vendors (or vice versa) then I’m going to think that you don’t understand what makes payment systems successful.
* Banking is as much about reputation and credit management as it is about the boring details of money transfer. What allows me to buy things at a distance without cash is that my bank stands behind me and tells the vendor that my credit is good. If your bank is going to do that for me, then they have to have the standing to do that with the vendors I wish to purchase from. Can your FinTech payment system product do this? If not, it’s going to fail.
etc etc.
No doubt. Where does the assumption come from that banks aren't aware of this market. And how on earth does one compare near lawlessness of Facebook with the most heavily regulated sector of banking. Lastly, is the author completely unaware that not all business models try to maximize "eyeballs", or customers and that some attempt simply to maximixe revenue or profit.
Great critiques! Please understand that when you write a pitch the tone has to be a bit assertive. It wasn't meant to be insulting but rather invigorating. However I apologize for any offence if might have caused. We didn't mean any of it.
Having said that you raise many important points. Let me try to respond to them
>Where does the assumption come from that banks aren't aware of this market.
I'll concede that they probably are aware of this market. Now we want to build a service that caters to this market. And in the process make a profit for everyone involved. We know that there are businesses like revolut that have proven a part of this concept. We want to take it further.
If the market has been observed, services have been shown to be deficient and the concept proposed has been shown to be working then it should be smooth sailing.
>"not all business models try to maximize "eyeballs", or customers and that some attempt simply to maximixe revenue or profit"
There may be some business that don't try to maximize eyeballs or customers. But banks are not one of them for sure. If you look at the history of original credit cards they were made popular by
>"mass mailing of unsolicited credit cards (actual working cards, not mere applications) to a large population.[1]
It has also been my personal observation that banks put on large advertisements to attract new customers based on attributes like interest rates and after a certain period of time these attributes get constant across banks. We are suggesting that it could be beneficial in the long run to look for a different set of customers.
>And how on earth does one compare near lawlessness of Facebook with the most heavily regulated sector of banking
But we didn't suggest any lawlessness!
The credit card model is a major departure from classical banking, so I wouldn't consider it a valid counter argument here. And besides, credit cards aren't about maximizing eyeballs, they are about maximizing fees and revenue. And I wasn't suggesting you were advocating lawlessness, I was suggesting you were comparing apples to oranges. Facebook and banking are based on totally different business models.
Banking, proper, retail custmers, includes merchant banks, investment banks, money markets, M&A, public markets debt and equity, and such. The piece seemed to boil it down to retail banking.
Point taken, though I disagree with your assertions that credit cards don't have much to do with classical banking and that they are not about promotion.
It's also true that banking services are entirely different from facebook. But the goals are similar.
I guess one way to restate my opinion in a couple of lines would be
There are markets and customers that are not immediately in the operational radius of a local bank. Any bank that can create offerings that would appeal to such markets would stand to gain profit.
Also to flip the discussion we could ask if facebook were to create a bank how would they do it?