Payment networks for the 20th century, overthrowing the government and crushing pawn shops - A bank blueprint for 2020
Okay so the title is mumbo jumbo but if that is what my mind feels like every time I try and move money in the US having been brought up on that sweet sweet UK banking infrastructure.
Over the past year and a half I have spent a considerable amount of time researching, thinking about, and pulling my hair out due to - the US banking system.
More specifically, the completely slow and outdated way that Americans and American businesses move money.
At first it was a thanksgiving 2018 vision, that the US payment infrastructure was never going to change, and that done the right way - one could build a bank so incredible that it removes the US payment infrastructure entirely.
After considering just how ambitious an idea it was it became more of a topic of deep thought and discussion to be shared with anyone that would hear me and add to the thoughts jumbling up my mind.
This growing body of debate, and ideas and feedback and visions led me to phone calls with the CEO’s of publicly listed fintechs, breakfasts with fintech VCs and even an application to YC with the sole purpose of getting the attention and feedback of the Collison brothers.
As the year draws to an end, I have embraced the reality that this isn’t something I can pull off today. Without silicon valley’s VCs in my back pocket I don’t believe I can get close to enough capital raised to even make a go of it.
I am however more galvanised than ever that the system is a mess and so I committed to myself that I would publish the high level overview of what I spent the year looking into as well as some of the key features I believe will make it possible.
I will try and maintain this post as more and more people discuss and add to it, such that if you’re working on a bank/payment infrastructure in the US you can skip a few steps and make life easier for the rest of us.
It all starts here. Moving money in the UK vs moving money in the US.
As a CFO, but also as a member of the general population here was the stark contrast in experiences that kicked off my frustration in the US:
The difference in the speed and cost at which you can move capital alone, threw me.
On the micro side If you can shorten this gap to seconds, you would be creating a financial system that works for the lower tiers of society more. People who need to max out credit cards, pawn their stuff, take payday loans would no longer need to.
The simple difference of getting paid instantly vs a bunch of days can dramatically improve someone's life.
On the Macro side, if you move capital in seconds not weeks, you are increasing the liquidity of capital and the velocity of money dramatically. You’d be unlocking, virtually free, economic growth.
Can you imagine building a singular business that had such an impact?
Mind melting right? Well that’s what drew me in.
Below is a mixture of a roadmap I drew up, my YC application and notes I’ve taken from various phone calls. If anything doesn’t make sense, is wrong, could be done better - please do reach out. I am 100% down to be wrong and to get better.
So what is it?
A bank that moves money in seconds not weeks
What is your company going to make?
We’re building a digital banking platform that sits on top of the existing infrastructure to allow for money to move digitally between accounts in seconds rather than weeks. Time & evidence shows that the US is miles behind the rest of the world in the adoption of modern electronic money transfers, and will not be catching up anytime soon.
Mobile first, with new identification technology, customers should be able to open accounts through their phones in minutes and have cash in bank in seconds.
If you can build a banking platform that acts as an external central bank (obviously not a central bank but it operates similar to the Fed, where customers are you members) you can cut out the existing payment networks and save customers an incredible amount of money and time by simply moving money between accounts in the same bank.
To be clear - for this to work everyone who wants to enjoy free, immediate money transfer needs an account with the bank.
Pause - I want to be clear here. What I am proposing is a bank where everyone has an account.
Then what happens is - when you send money to someone or your employer goes to pay you - all the happens is a bank writes an accounting entry that says $XX in its account used to belong to your employer, but now belongs to you.
Why did you pick this idea to work on?
I picked it for a number of reasons.
The market is huge in 2016 alone 148.1 million Fedwire transfers were valued at $766.7 trillion.
I want to have a disproportionate impact on the world. Changing liquidity and the velocity of money for US consumers and businesses could unlock serious economic growth. How cool would it be to be the person that did that.
As a COO/CFO in the US I am exhausted by how absolutely useless the US system is. SVB charges us $15 a wire and it moves slower than molasses. This frequency and intensity I’ve experienced this sends me into a twitter rage where I am met by several people sharing the problem.
What's new about what you're making? What substitutes do people resort to because it doesn't exist yet (or they don't know about it)?
It’s a whole new way of thinking about moving money and banking.
Currently people use ACH providers - slow and expensive.
Wires - slow and expensive. Or checks which super slow and free.
(I mean come on, I’ve seen VC’s send checks worth +$100,000 because it is free).
Who are your competitors, and who might become competitors? Who do you fear most?
New age business banks i.e. Mercury
Traditional Banks i.e. SVB
Neo banks like Monzo (although these are consumer focussed)
Consumer payment apps - Venmo & zelle
I am actually most afraid of Stripe and the credit card companies. If everyone is on the network, and money can move instantly at no cost. B2B subscriptions can run on the bank with 0% transaction fees. Customer payments can run on the bank = Bye Bye Credit Card fees.
What do you understand about your business that other companies in it just don't get?
You don’t need to start an actual bank anymore to build a bank.
Also most Americans don’t realise that money can move instantly for free. They genuinely think it is magic when I show them what is standard in the UK.
Finally, that opening a bank account can be made easy. This whole thing depends on easy account opening, which, with a little tech can be done no problemo.
How do or will you make money? How much could you make?
I am assuming we will end up charging a subscription to businesses. Maybe $10 a month. The key here will be growth though, we have to get those with the highest pain point on the network fast and cheap.
The market size is enormous, but would be a little silly to calculate. Small business banking alone is worth $56Billion. The whole market is easily worth +$1Trillion. See again in 2016 alone 148.1 million Fedwire transfers were valued at $766.7 trillion.
How will you get users?
We will make it easy to set up an account if you already have an account somewhere else.
This way we can lean on another banks due diligence as well as using accounting api’s to import your old transaction data and start giving you rich insights on who’s on the network and who to invite.
This part is key - opening a bank in the US is currently a ridiculously exhausting and slow process. If you already have a US bank account - NEW BANK would/should be able to lean on the due diligence your existing bank did to open your account (with some small restrictions) and open a new account for you in seconds.
Currently banking simply isn’t fit for purpose. There are a tonne of ancillary services and products that can be built and given away for free which I think financial decision makers (CFO’s) would eat up like wildfire.
Take contractor details for example, so many Americans are scared of giving out their SSN and bank details (somewhat understandably so). In my org we end up storing these in an airtable.
You make this much more secure and faster if integrated with the banking platform.
Working with VC’s and startup ecosystems to seed the network under the guise of moving capital faster, more securely and freely could also be an interesting GTM.
You could also start with the large hourly workforces. Shaving even just a day off of payment settlement times for them would have such a dramatic effect. I.e. Uber, Lyft, Instacart, Amazon delivery, UPS.
Settling in seconds would become a strategic recruiting edge. If Uber put ride fares in your account within seconds and Lyft takes weeks - who are you going to drive for?
The light of day
Well now it's out there in the light of day. I believe ideas should be shared and debated openly. Only by writing these out can I structure my thoughts better. Only by sharing them can they help people. Only by being read can they be verified, torn apart and improved.
This was a tough one to write. I was torn on whether I should publish my YC application, call notes, product specs and roadmap separately or whether I should blend them in to a fintech soup like I have. Big mistake? You tell me.