
Scanning the fintech landscape: disruptive models - zt
https://www.mckinsey.com/industries/financial-services/our-insights/banking-matters/scanning-the-fintech-landscape
======
sarcasmic
I didn't see 'cash management accounts' on the list, but I think these are
among the best products. They're not too common, but more are appearing now.

There's the classic ones that combine various investment products and slush
balance that's insured by a bank sweep in the same interface, and the new ones
that abstract completely away from the underlying storage of the money, and
provide some familiar features (debit card, bill pay, ACH transfers) and perks
(high interest rate, no fees).

The latter kind is a great, low-risk, low-effort store of spending money for
people with unpredictable income and/or spending who have little time or
cushion to invest in products with higher returns and need the liquidity. It's
a compelling alternative to a traditional US checking account at a large bank,
where most of this demographic has their money.

~~~
ddoran
Can you give some examples by name? I'd like to know more. Thanks

~~~
sarcasmic
"Classic" ones: Schwab [1], Fidelity [2]. Vanguard recently announced they're
discontinuing theirs [3].

New ones: Square Cash [4], PayPal Cash Plus [5], SoFi Money [6], Aspiration
[7], Simple [8], unreleased and cancelled Robinhood product [9].

These couldn't be more different: one is ripoff-tier, one is so-so, while the
rest are pretty good.

[1]
[https://www.schwab.com/public/schwab/investing/accounts_prod...](https://www.schwab.com/public/schwab/investing/accounts_products/investment/cash_solutions)
[2] [https://www.fidelity.com/cash-management/fidelity-cash-
manag...](https://www.fidelity.com/cash-management/fidelity-cash-management-
account/overview) [3]
[https://www.investmentnews.com/article/20190304/FREE/1903099...](https://www.investmentnews.com/article/20190304/FREE/190309978/vanguard-
to-end-its-small-cash-management-service) [4]
[https://squareup.com/us/en/legal/cash-
ua](https://squareup.com/us/en/legal/cash-ua) [5]
[https://www.paypal.com/us/webapps/mpp/ua/legalhub-
full](https://www.paypal.com/us/webapps/mpp/ua/legalhub-full) [6]
[https://www.sofi.com/faq/#money](https://www.sofi.com/faq/#money) [7]
[https://www.aspiration.com/get-account](https://www.aspiration.com/get-
account) [8] [https://www.simple.com/help/articles/goals/protected-
goals](https://www.simple.com/help/articles/goals/protected-goals) [9]
[https://www.marketwatch.com/story/robinhood-quietly-stops-
us...](https://www.marketwatch.com/story/robinhood-quietly-stops-users-from-
signing-up-for-cash-accounts-amid-scrutiny-from-regulators-2018-12-31)

~~~
airstrike
Which ones are the rip-off and so-so platforms, in your opinion? Thanks

~~~
sarcasmic
I'm a SoFi Money customer.

PayPal Cash Plus has a ton of features, but there's lots of fees [1][2]. You
earn no interest. It's not a good deal, other than it being familiar.

Square Cash, now known as the 'Cash' app, is a strange hybrid of a P2P payment
network and a spendable balance that gives a debit card and you can direct
deposit into. You earn no interest. It's odd. It targets a hip young consumer
who wants ease and convenience and doesn't know any better. It has... some...
virtues? Just not ones that make it worthwhile to use it instead of some rival
that earns interest.

Depending on your exact use-case, it will vary which one of these is ripoff-
tier and which one is so-so. I have a low opinion on nickel-and-diming fees
for convenience features, so I find the PayPal Cash Plus offering the most
grievous. Square Cash just has a weird use-case that isn't my use-case.

[1]
[https://www.paypalobjects.com/digitalassets/c/website/ua/pdf...](https://www.paypalobjects.com/digitalassets/c/website/ua/pdf/US/en/PayPal_Cash_Plus_Short_Form_Disclosure.pdf)
[2]
[https://www.paypalobjects.com/digitalassets/c/website/ua/pdf...](https://www.paypalobjects.com/digitalassets/c/website/ua/pdf/US/en/PayPal_Cash_Plus_Long_Form_Disclosure.pdf)

~~~
airstrike
Thanks. I use Square Cash to pay the cleaning lady on occasion, so I guess
that's one use case. I suppose if I kept more of a balance I would look into
interest rates and all of that

------
venantius
We [[https://griffin.sh](https://griffin.sh)] are building a bank-as-a-
platform in the UK due to the friendlier regulatory environment compared to
the US. We see a huge opportunity in this space and most of the existing
incumbent institutions have stumbled into the space rather than building a
purpose-built company to solve the issues that a platform bank can solve.

~~~
no1youknowz
Your pricing models from what I have found are truly awesome. I've been quoted
anywhere from £1 an account a month but needing £150k for setup fees to £250
for an account setup, and more monthly and other setup fees. In other words,
very costly!

The only problem is that it's UK/EU only. It would probably be better if you
can start adding ibans much like Iban First [0].

If Griffin can do something like:

1) Onboard anyone in the world, using e-kyc.

2) Have the ability to handle 50 other currencies.

3) Remittence funds using either Ripple (XRP) or IBM World Wire.

You would definitely have something special.

I know other companies such as getbabb [1] and railsbank [2] are trying to do
something similar. But they are years behind.

[0]: [https://www.ibanfirst.com](https://www.ibanfirst.com)

[1]: [https://getbabb.com](https://getbabb.com)

[2]: [https://www.railsbank.com](https://www.railsbank.com)

~~~
venantius
Thanks! Those are the goals, among others (we also want to make it trivial for
companies to issue card products or launch online lenders).

I suspect Getbabb may have difficulty with the crypto angle. Not clear.
Railsbank does not intend on becoming a bank and operates with a lighter-
weight regulatory framework than we're aiming for.

------
nice__two
Unfortunately, this post is very US-specific and completely ignored PSD2 and
the concept of Third Party Service Providers (e.g. Payconiq).

The whole authentication scheme based on EIDAS is a shot show, though and
really very horrible.

~~~
zt
(I’m the author and the OP)

Agreed! I want to do a much bigger international scan and am working with some
colleagues in Europe and Asia.

I know a decent amount about open banking and have been gathering my thoughts
(I.e. I keep writing and rewriting without finding the right angle) about it
more generally. PSD2 is being perused primarily from a compliance perspective
rather than a revenue generating perspective.

~~~
os7borne
Hey! I’m from India and investing in the Fintech sector. Would be good to have
a chat. Let me know how I can reach you.

------
sigi45
It's not hard to see what are disruptive models in fintech.

I have 5 bank accounts and you can see, based on the login method, how modern
a banking software is.

There is a ton of potential just not be used at all.

Even without much change at the original banking software layer, putting a
modern analysis tool upfront would make a huge difference. Just imagine having
a secured mobile app which has limited permissions but allows you to perform a
few basic things like checking your balance or transfering small amounts of
money.

Or just a web ui which doesn't suck. If it doesn't suck, how about income
analysis?

~~~
rectang
> _Or just a web ui which doesn 't suck._

I left Wells Fargo for a credit union. The online banking experience the
credit union provides is not as nice.

It doesn't matter. I don't need all those features. The product is
commodified.

And I'm happy to be gone from a horrible company that actively victimizes its
customer base. I don't have to watch my back, and I don't have to regret that
my deposits help Wells to build systems which extract maximum wealth from its
most defenseless users and funnel that wealth to its executives and
shareholders.

Crazy fintech innovation idea: how about just actually serving the customer's
interests?

~~~
kurtisc
>It doesn't matter. I don't need all those features. The product is
commodified.

I've encountered a case when it does matter. I tried applying for a bank
online through multiple browsers, OSes, VMs, but never managed to get the form
to work. Eventually I called them to apply - there was a valuable perk for me
- but most customers just won't bother. A good software team would have
spotted the drop in conversions instantly.

I told them about it, using the terrible online form. They weren't interested.

~~~
Scoundreller
Heh, I was doing an online payment for a government agency. While my credit
union’s form asked for my account number for the gov, they really wanted a
different sub-account number and kept giving errors.

When I called them to bring it up, they thought I wanted them to change the
form just for me. They seemed even more surprised when I said “No, you should
make this change for everyone, not just me”.

------
gumby
don't be put off by the breezy, buzzword-heavy tone, this is a useful, quick
glance at the landscape.

------
sgt101
"Demographic-focused products" or flat out racist products as they are
otherwise known. How about we have products for categories that people choose
to be part of, like "credit cards for stoner rock fans" rather than "credit
cards for people who are Hispanic"! I guess that if that happens it'll only be
weeks until someone launches "the card for the everyday Klansman".

Save us all...

~~~
RickS
I previously worked in the fintech space, on a product that provided
remittance services to multiple countries – people in America send money home
to India, Mexico, more.

The preferences among customers sending to each country were _meaningfully
different_. These countries have differing economic climates, which means the
people on the receive side have needs that are distinct among nations but
fairly uniform among people within those nations. Similarly, people on the
send-side tended to cluster into a handful of common industries (and therefore
income brackets) depending on where they were sending to. Some demographics
were, on average, high earners who were more rate sensitive than time
sensitive. Others were lower earners who tended to send in emergencies and
were time/delivery-sensitive more than rate sensitive.

Those financial products don't look the same. And it would be a mistake to try
and build the average of the two and underserve everybody because you don't
want to "look racist" by intentionally accommodating the varied needs of your
customers.

It is a fact that many financial products have racist origins or overtones.
Bank redlining has a dark history in America, and things like payday loans
gouge customers who are desperate and unsophisticated.

But that does not make it racist to build financial products that fit a
specific customer segment's needs in a way that _those same people_ find
constructive and self-select into. I don't know which products you're speaking
about specifically, but abstractly, a service that makes it easier and cheaper
for hispanic people specifically to save money or provide for their families
is a positive force in the world, IMO.

~~~
sgt101
Well, unless said product excludes south asians, africans or, well.. me.. and
it's a thin end of a wedge. A pro hispanic app may be a force for good (or
not) but the next week you can make a gold plated bet that the best offers
would be focused on folks with blue eyes and golden hair.

Offering a product is appropriate; excluding people from using it is wrong.

------
sandGorgon
We (RedCarpet.Cash) are also innovating in India on opening up to unbanked to
credit (similar to Tala and Branch in Africa). These are typically customers
that are new-to-bureau , so underwriting is particularly tricky.

We now have a regulated lending license from our central bank in India. Talk
to us if you want to talk banking and credit in India.

------
mizay7
Does anyone know if anything in the space can allow for P2P microtransactions?
Maybe in batches: people send each other a few pennies at time and cash out at
the end of the month?

From my review it seemed like this is hard to manage with money laundering
regulation but I would love to know if a fintech company can make this work.

~~~
TACIXAT
Could you describe a more specific use case? In the US, P2P is much more
difficult than consumer to business.

~~~
mizay7
Say i have a platform (like a game) and I would like users to be able to
exchange tokens of some kind, like kudos. But i would like those tokens to
have actual value. So a user might buy 50 tokens for a dollar, gift them to
teammates at end of matches for good team work. At the same time the user is
collecting tokens for her good teamwork. At the end of the month the user
might have given out 40 tokens but received 200. So she can now withdraw 210
tokens from her account for a value of $4.05. Or maybe those initial 50 tokens
cant be withdrawn, only the 200 that were earned are redeemable for cash.

Also, is this possible outside of the US? How would this work for US based
users?

~~~
TACIXAT
Not sure about non-US law. In the US, you would need to register as a federal
money service business (MSB), as well as in all 50 states (it costs about
$150k in state level fees to do so). In addition to this, it is (from my
research) incredibly difficult to find a bank that is willing to touch you
with a 10ft pole. When they are, they usually charge high account maintenance
fees (one bank told me 10k / month) due to the increased record keeping they
need to do.

I agree that there is a massive need in this area. It is total non-sense that
every online transaction costs 30 cents + 2.9%. I think it is very much a
reason why the whole internet is still ad and tracking supported. It is not
possible to bill people near the true cost of computation on an incremental
basis.

It very quickly turns into a money launderer's dream. So I understand the
regulations, however, they are incredibly burdensome and feel anti-competitive
(re: banks). The best thing to build it off of is ACH, so if you go this route
you're looking for the cheapest ACH provider you can find. It does make sense
though, one ACH charge on the deposit and one on the withdrawal, which enable
a lot of (free) transactions in between. It could save a lot in the fixed
costs (the 30 cents part).

I'm talking to a lawyer next week about some exemptions to see if a C2B play
makes sense in this space. P2P is hard (in terms of regulations) and you're
probably best served by cryptocurrency. That too may fall under MSB laws, so
it is best to talk to a lawyer.

~~~
mizay7
Yeh, my research had basically dead ended in MSB regulations as well. I get
the money laundering concern but also strongly feel that absence of micro-
transactions has destroyed the internet and is now doing terrible things to
our brains.

I should look more into ACH, i dont remember why i moved away from that
direction.

I considered crypto but it seemed like too much of a bucket of worms at the
moment.

I was hoping somewhere in the fintech survey someone was doing something to
enable p2p microtransation. But it seems like the quest continues.

------
ackbar03
Maybe I'm missing the whole point but I've never completely understood the
concept of fintech. From what I've seen it's just moving banking services
online isn't it? There doesn't seem to be much actual innovation in terms of
tech

~~~
psnosignaluk
As a client of open banking and an employee of a startup in the fintech space,
I'd say that its a little more nuanced than that. Token (my employer) provides
a platform that enables PSD2 and RTS compliance, open API's, crypto-based
security, identity and programmable money amongst others to enable banks and
merchants to rapidly adopt open banking and remain complaint with legislation
governing the industry.

~~~
ackbar03
Could you provide some insight into how the company was built up (if you
know), how it is managed day to day, and how it is growing? Cause I'd imagine
it takes a large team from a wide variety of disciplines to get started. Again
it comes back to (to me at least) creating a new bank but with a stronger tech
offering

------
acjohnson55
A couple things I don't see on here:

-Robo-advisory and asset allocation stuff, like Betterment, Wealthfront, and Personal Capital -They mention API companies, but don't have Plaid and Yodlee, which enable a lot of consumer fintech.

~~~
chasedehan
Those robo-advisors definitely shook things up, but it seems like the giants
(Schwab, Fidelity, etc) have rolled out their own in order to compete. It
actually is now a really competitive landscape where the incumbents can offer
additional support for a fee which Betterment and Wealthfront aren't able. And
a lot of people get comfort from knowing that they can pick up the phone and
call someone.

Note: I'm not in that camp, I have multiple Wealthfront accounts (Investment,
IRA, and child's accounts) and am really happy with it, but I don't need or
want to ask anyone questions about my asset allocation

