
A Bank Behind the Fintech Boom - prostoalex
https://www.forbes.com/sites/antoinegara/2019/12/17/the-forbes-investigation-inside-the-secret-bank-behind-the-fintech-boom/#e384e423c10c
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rahimnathwani
The article is light (and confusing) on details, so it's hard to take it
seriously or draw conclusions from it. For example:

"State-chartered banks like his have the regulatory and compliance framework
in place and the lending licenses necessary to originate loans. Most fintechs
do not and thus rely on banks for funding."

If the fintechs have a lack of _cash money_ then they might need to rely on
banks for funding. But there's no reason a lack of licences or processes would
require them to rely on banks for _funding_.

Also, I'm not sure why the need to mention 'FDIC-insured' a couple of times.
FDIC insurance has nothing to do with consumer lending (the subject of this
article). FDIC insurance protects retail deposits, but these fintechs aren't
generally offering current/savings accounts.

I wish the article would explain why it's difficult to become a lender in the
US. It mentions LendingClub many times, but a quick online search showed me
that LC has dozens of state consumer credit licences:
[https://www.lendingclub.com/legal/licenses](https://www.lendingclub.com/legal/licenses)

So why don't the other fintechs apply for these licences? Is it hard to be
approved? Are the regulations very difficult to implement?

~~~
rolltiide
The FDIC is a confidence game. Mentioning it just gives a reminder of its
existence and confidence in the system.

I just like to imagine the enterprisers in 1930 that convinced Congress to
insure their private company deposits with public money in order to more
easily convince people to make deposits.

Worried about the viability of a new market because there is no recourse if
you lose your money? Make enough money to lobby Congress to insure it with
non-participant's money! Now there is more confidence in your market

~~~
rahimnathwani
FDIC insurance, and similar deposit guarantee schemes in other countries,
aren't primarily a way to socialise private risks.

A bank run is caused by the perception that a bank may have insufficient
liquidity. But once a bank run starts, this is a self-fulfilling prophecy. The
bank may have held enough of its assets as cash/near-cash for normal times,
but of course many of its assets are illiquid things like mortgage loans.

The main purpose of deposit guarantee/insurance schemes is to prevent this
vicious cycle from starting in the first place. If the scheme succeeds in
instilling confidence, then there will never be a run, and the scheme will
never result in a costly bail-out.

~~~
rossdavidh
Just to reinforce one point: the bank in question could even have MORE of a
cushion than other banks, but if the rumor mill hits them instead of other
banks, they are the one who goes under. So, it's not even a case of rough
justice from the market, it's death by rumor mill. Of all the stupid laws and
regulations regarding finance, this is not one of them.

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wyxuan
The CAGR of 45% is nuts, but I think it's concerning when Banks start using
the same lingo and mindset that startups use.

~~~
CryptoBanker
CAGR is a widely used finance term applicable to literally any company.
Doesn't mean anything here

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wyxuan
yeah but i was referring to the growth or bust mindset that allows for CAGRs
like 45%

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freedomben
I wonder how much of this is a direct result of the massive regulation around
the banking industry.

I'm not saying regulation is necessarily bad, but the law of unintended
consequences can be a beast. The large amounts of regulations make the
barriers of entry very high, and make it impractical without preexisting
economies of scale. Perhaps we need to reexamine regulations and their
potential hampering of creative destruction.

Source: worked at a fintech startup and had to review and implement a lot of
this regulation. Some is really important for protecting consumers, but some
is hellishly onerous and makes automation difficult to impossible.

~~~
watertom
Depends on your goals.

If your only concern is investor return then banking regs are pointless, it’s
no different than the privacy laws impeding Facebook and Google. Fuck over the
consumer, fuck over the public.

I’ve worked at a very large financial institution, I helped to start their
credit card division, I helped to start their banking division, and I’ve been
recruited to a number of “innovative” fintech startups. The only “innovation”
I ever saw was how they interpreted regulations so they could exploit their
customers and transfer the firm’s financial risk in the short term so that the
principles could make as much money as possible in the shortest amount of
time.

~~~
freedomben
This is kind of what I'm talking about. Only the established players are able
to do this sort of thing, because of high barriers to entry. If you and I
wanted to start a bank that didn't do slimy things, we'd have a really hard
time.

That's not to say it's impossible, but I wouldn't try it again unless there
was a team of people willing to work for equity that were already experts at
compliance.

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55555
Why is Forbes.com prompting me to "Install Crypto Wallets" when I visit the
submission link?

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ncmncm
There is no bank "behind the fintech boom".

Clickbait, thy name is Forbes.

~~~
maneesh
Did you read the article? It's very clearly about one specific bank (Cross
River).

You might be trying to say that the forbes article is exaggerating with the
headline, but your comment is implying that there is literally no specific
subject of this story.

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gtirloni
There is no single bank behind the fintech boom. This is a click-batey
article.

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dang
We applied this one debaiting trick that will amaze you: s/the/a/.

~~~
gtirloni
Amazing, thanks :)

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the_mitsuhiko
I was expecting this to be about Wirecard.

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tempsy
Sometimes I wonder if the current state of fintech is nothing but lipstick on
a pig.

Maybe I'm being too cynical, but as someone who follows this industry fairly
closely I haven't seen many companies do something actually that innovative or
new. Most of it just seems to be a difference in distribution channel e.g. a
website.

~~~
hogFeast
I am not sure what the current state of fintech is but it is fairly obvious to
observe that there is a ton of cost in the industry that probably doesn't need
to exist anymore (and btw, we aren't even in the first innings of this).

This has happened before: for example, insurance used to be sold in-person,
then over the phone, now online. And that is innovation. Selling it in-person
was very expensive.

But it is also true that none of the companies mentioned in the OP have really
innovated anything. The innovation was finding a new way to justify massive
volume growth that would later turn out to be unprofitable. This happens every
cycle.

The distribution method wasn't really novel either afaik. Maybe having an app
makes your product a bit cheaper but it isn't really going to be a massive
difference to selling over the phone. In particular, with high-interest loans
analysing credit quality is probably going to be more important. But idk (I
have looked at these businesses and it isn't something I would ever get
involved with: high-interest, P2P, all scams).

~~~
tempsy
I can call Chase/Amex/Etc and have someone pick up in seconds or minutes.

I have signed up for some neobank accounts out of curiosity and there’s no
phone number just email and chat, and when I’ve asked a question it’s taken at
least 2-3 days to get a reply on average.

Reducing cost might be good for the business but as a customer I get no
additional benefit (my Chase account is free) and reduced quality of service.
Why would I want that?

~~~
tatoalo
I had the opposite experience, I needed a refund on a purchase. Revolut was
immediately on the case and issued a refund (in BTC, moreover) in less than 48
hours including the time required to check what I was arguing about. And with
the support chat I never really had issues thus far, with neither Revolut or
N26.

Similar situation with UniCredit (of the largest banks in Italy) and it took
me ages, was really close to give up. On top of that, their email support is
pretty trash...

~~~
tempsy
Big American banks have decent customer service IMO. I’ve had particularly
good experiences with Chase, Amex, and Capital One. And those ones have
invested heavily in their IT/digital experience. Might not be true elsewhere,
in which case the case for a neobank is probably stronger.

Also I signed up for Revolut in the US and not sure why it’s better from a fee
perspective. It charges a percentage fee for ATM withdrawals which I’ve never
seen before and frankly insane.

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thwd
"The Bank Behind High-Interest Loan Apps"

