The unbundling of banks

By 2030 we won’t ask why traditional banks are gone, we will wonder why they hadn’t disappeared years ago. 

Banks are truly awful. Ignored or forgotten most of the mega banks of 2021 only exist due to the socialization of their losses in 2008, and being propped up by preferential lending from our central bank today. Despite or more likely because of this preferential treatment by the government, banks have largely failed to innovate while abusing their customers with high unnecessary fees for increasingly commoditized services. Interacting with the mega banks summons a feeling of nostalgia as you’re plunged into an antiquated era where it is still acceptable to do commerce via dead trees and fax machines while other companies are regularly launching self landing rockets into space. Many interactions with these dinosaurs will require you to enter one of their many no doubt expensive locations where despite being near empty will provide you a level of customer service that would make a DMV employee blush. 

By 2030 we won’t ask why traditional banks are gone, we will wonder how they lasted so long. 

If banks are the dinosaurs then fintechs are the mammals. Fintechs are usually small and specialized businesses undergoing adaptive radiation while the current dominant lifeforms fail to adapt to a changing world. Welcome to the Eocene Epoch. 

After reading the above it should surprise you that banks do still exist and provide a variety of services people voluntarily consume. Today banks are essentially a bundle, a bundle being a convenient form of distribution for goods and services. It made sense prior to the microprocessor and internet that you’d have a relationship with your local bank where they would know both your character and finances. This bank would provide a one stop shop for earning money on your savings, investing for retirement, and financing your home or car. 

Bundling and unbundling

“I said, really just to end the conversation, Gentlemen, there’s only two ways I know of to make money: bundling and unbundling.” - Jim Barksdale

As mentioned above bundles are just a convenient form of distribution for goods and services. My hypothesis is that bundles largely arose out of distribution restraints not out of customer preference. Media bundles such as broadcast and cable television, newspapers, or music are all classic examples of bundles that have been unbundled, unlocking massive value to both producers and consumers. In a world of the microprocessor and internet you can slice and dice the media you want to consume. We are no longer subject to a newspaper editorial, now we can consume the news in a curated feed of niche interests. The same holds true for music via iTunes or Spotify, niche education and entertainment via Audible and Podcasts, and specific shows that interest you via streaming services and YouTube. 

Even internet companies get unbundled by new internet companies with laser-like focus on a single vertical, the classical example being Craigslist below. Capitalism’s creative destruction hates stagnation and encourages ever better user experiences. 

Craigslist Unbundled

Banks Unbundled

This brings us back to banks, banks have historically been less subject to the above due to a protective regulatory environment and the structural advantages that provided. Despite that there has been an explosion of new highly focused companies attacking every vertical that banks profit from. 

Banks and Brokerage services have begun to unbundle in ways that seemed impossible just a couple years ago as shown by this fantastic graphic above. 

What is currently bundled into banks? 

From Chase’s Website:

  • Credit Cards

  • Checking and Savings accounts

  • Home Loans

  • Auto Loans

  • Commercial Loans

  • Credit Scores

  • Merchant Services (Point of Sale, Payments)

  • Business Lending

  • Investing Services

  • Retirement Plans

What does this look unbundled? It looks like a series of hyper focused companies going after each vertical above. 

If you are interested in the specific players disrupting banking incumbents you can dig into the list below, otherwise I will leave you with these parting thoughts: 

The time is now to disrupt these institutions, low rates and a lack of technological innovation actually tilt the advantage to new entrants. If you are starting a company in this space you should aim to provide excellent UX and customer service with a focus on a single vertical at least at first. You should also reach out to me, a former fintech founder passionate about the space. Likewise if you are a VC or investor interested in fintech you should also reach out to me. I would love to help both parties above remove the frictions and end the dark patterns banks monetize today via competition. 

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The fintech list

Debit / Credit Card Issuance

Non-bank players: VISA and MasterCard are non-banks themselves and manage the infrastructure around payments. These cards were historically issued by banks which actually charge the interest and take the lending risk. 

Startups doing card issuance include:

Stripe

Payments infrastructure for the internet

https://stripe.com/issuing

Galileo

The API Standard for Card Issuing and Digital Banking

https://www.galileo-ft.com/

ModernBanc*

Launch banking products fast. (accounts, cards, and loan products)

https://www.modernbanc.com/

Synapse

The Launchpad for Financial Innovation

https://synapsefi.com/

Lastbit*

Pay or Get Paid in Bitcoin or Euros

https://lastbit.io/

Letter*

Beautifully designed banking made for high net-worth individuals.

https://letter.co/

Starship HSA*

MONEY FOR HEALTH.

https://www.starshiphsa.com/

Checking and Savings accounts (Personal)

Synapse

The Launchpad for Financial Innovation

https://synapsefi.com/

Galileo

The API Standard for Card Issuing and Digital Banking

https://www.galileo-ft.com/

ModernBanc*

Launch banking products fast. (accounts, cards, and loan products)

https://www.modernbanc.com/

LVL*

Bitcoin custodian and FDIC insured checking

https://lvl.co/

Checking and Savings accounts (Business)

Mercury

Banking built for startups

https://mercury.com/

Bank Novo

Powerfully simple business banking

https://banknovo.com/

Arival

The first fintech bank

https://arival.com/

Synapse

The Launchpad for Financial Innovation

https://synapsefi.com/

Modern Banc*

Launch banking products fast. (accounts, cards, and loan products)

https://www.modernbanc.com/

Home Loans

Better

https://better.com/

Blend

https://blend.com/

Point

https://point.com/

Salt Lending

https://saltlending.com/

Auto Loans

Carvana

https://www.carvana.com/

Upstart

https://www.upstart.com/

Upgrade

https://www.upgrade.com/

Commercial Loans

nCino

The Worldwide Leader in Cloud Banking

https://www.ncino.com/

Credit Scores

Credit Karma*

https://www.creditkarma.com/

Intuit*

https://turbo.intuit.com/free-credit-score-report/

Merchant Services (Point of Sale, Payments)

Square*

https://squareup.com

PayPal*

https://www.paypal.com/us/home

Stripe

https://stripe.com/

Adyen

https://www.adyen.com/

Clover (Fiserv)

https://www.clover.com/

Business Lending

Kabbage

https://www.kabbage.com/

Crowdz*

https://www.crowdz.io

Investing Services

Consumer Facing

Robinhood

https://robinhood.com

Public

https://public.com/

Trade Republic

https://traderepublic.com/

Equilibrium Ventures*

https://www.equilibriumventures.com/

Vinovest*

https://www.vinovest.co

Otis

https://www.withotis.com/

Starship HSA*

https://www.starshiphsa.com

Farm Together*

https://farmtogether.com/

Tuned*

https://www.tuned.com/

Tribevest*

https://www.tribevest.com/

Retirement Plans

Wealthfront

https://www.wealthfront.com/

Betterment

https://www.betterment.com/

Sofi

https://www.sofi.com/

Acorns

https://www.acorns.com/

API Driven Banking

Modern Banc*

Launch banking products fast. (accounts, cards, and loan products)

https://www.modernbanc.com/

API Driven Investing

DriveWealth

https://drivewealth.com/

Alpaca

https://alpaca.markets/

Gallileo

https://www.galileo-ft.com/

*I have invested in this company.

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