There's been a long history of non-finance companies branching out into finance.
- Sears: had Allstate for insurance and Discover Card for credit. Unlike most "branded" credit-cards, Sears did its own underwriting for the Discover Card i.e. they owned the Greentrust bank behind that card. (That is unlike Amazon Prime card being underwritten by Chase Bank.)
- G.E. General Electric: financial services GE Capital like loans and leases
I remember finding out that many music stores use GE Capital to finance the inventory of all their guitars hanging on the wall. (Industry lingo of "floor planning".[1]) Sort of strange to realize that a lightbulb company has a bigger subsidiary that sells financial services. It's more profitable to make money by selling money than by manufacturing lightbulbs.
I see a lot of fintech startups but there is absolutely 0 money in providing basic bank accounts for paupers.
It's why companies like Revolut and Bunq always end up doing what ordinary banks are doing: upselling. Shitty insurance and expensive creditcards is where the money is. Also transaction fees up the wazoo.
Looking into it made me realize traditional banks aren't really evil- they are kept under tight government regulations that forces them to take any customer. Even the ones that make them no money. No I'll be sticking with €15 per year account.
Don’t forget GMAC - General Motors Acceptance Corp. The joke back then was that GM was a perennial money loser and only existed as a loss leader, just so GMAC could make loans.
All manufacturers (or wholesalers or retailers) that grow big enough will run into the problem of: their potential market running out of customers that can pay cash up front, or easily obtain credit to purchase their product.
Even "cash" accounts at things like trade businesses, where the account is more about convenience and workflow (and the professional getting paid only after the work is done) than it is credit or financing, are taking on some risk of non-payment at the end of the month in order to make business flow much faster and more smoothly, than it otherwise would.
It's just a matter of what industries or businesses have the capital and the will, as well as the right risk models and opportunity costs to try and implement it all "in-house" or as a subsidiary.
Talking of this, wasn't the issue for OnlyFans related to payment processing and banking? What's to stop a company like that from buying a bank and setting up its own credit card? Is the main issue that it would still be a visa/master/discover card, and therefore they would have the same payment processing woes?
GE doesn’t own GE capital any longer. Turned out to be a crazy situation where they needed the cash flow but the assets were messed up because of valuations and insurance problems.
> Sears: had Allstate for insurance and Discover Card for credit. Unlike most "branded" credit-cards, Sears did its own underwriting for the Discover Card i.e. they owned the Greentrust bank
This was a fairly common thing to do, as you point out, for department stores. As far as I'm aware, Target was the last holdout department store owning its own bank, Retailers (then Target) National Bank, through which it issued the RedCard and RedCard Visa, and sold to TDBank. Macy's had Department Stores National Bank, which it sold to Citi, and so on.
> Sort of strange to realize that a lightbulb company has a bigger subsidiary that sells financial services. It's more profitable to make money selling money than manufacturing lightbulbs.
GE sells a lot more than lightbulbs and financial products.
GE is one of my go to examples of the financialization of American capitalism. Pretty much every company once it crosses a certain size starts looking more like a bank than the goods and/or services company that existed before hand. This is both bad as a country, we need goods and services not GE financial operations, and often quite bad for the company as everything else ends up getting deprioritized and/or sold off.
It’s also worth pointing out that this financial wing almost killed GE in 2008. Obviously consumer spending (e.g. washing machines) was going to drop during that time, but the financial wing of the company almost bankrupted them and ended up getting them removed from the Dow Jones Industrial Average.
There is a vast gulf between "finance company" and "regulated bank".
The levels of regulation is huge, and basically culture changing.
Coinbase is basically trying to avoid becoming a bank. If it finds it have to then, hey great more competition, but really I think the idea that "startup attitude" will be allowed by regulators or (because regulators basically follow what society has decided it wants from its banks over decades of scandals and abuse) what the market actually wants
As an example, there are loads of (US) fintech startups that let you store some money and pay at a shop. Because these are not banks and debit cards, they charge the customer nothing but can scalp the merchant who can do nothing. The fintechs are just playing regulatory arbitrage. It might end soon in which case dozens will drop out and the biggest get bought by real banks for their brand name and cool factor.
Canada's largest grocery chain, Loblaws corporation, had a vision of the grocery store becoming the hub for a diverse set of services. Under their PC brand, they offered chequing and saving accounts in the form of an online bank, credit cards, travel insurance, cell plans, etc. But in the end it didn't quite work out for them financially. They have been in the process of winding down their services and focusing on their core business as of a few years ago.
Ehh, I heard that song before and arguably there is a threat posed to banks' market power and influence from current breed of fintech and new entrants, but the more time I spend in banking, the less chance I see for a serious disruption.
I was initially going to cite an interview I did with a high level executive of a regional bank, whose entire view on the matter could be paraphrased as 'apps may be cool for kids, but when you want a full service, you want a bank'. I personally felt it was a little.. arrogant, but I understand where he was coming from.
The compliance burden alone itself can be painful for new players.
While it's true that compliance, know your customer, anti- money laundering laws are the crux of this, who knows more about their customers than big tech companies?
This is an area where big tech actually has a built-in advantage.
The question is increasingly: what is the actual purpose of a retail bank in 2021?
There was a time when banks and the work they did actually provided added value, historically:
- keeping your physical money safe
- providing safe and regulated accounting
- giving out loans based on existing deposits
- giving their customer financial advice
In 2021, it turns out: who needs these things at all?
- almost all money is digital
- any accounting need an individual will ever need can be provided by the combo of a phone and a $50 computer sleeping in a data center
- AFAIU retail banks don't really need deposits to give out loans these days: loans usually gets resold on the open market almost as soon as they are granted.
- there are *way* better places to get financial advice than going to me Henry H Banker at the local BofA desk.
This seems to have a central data-harvesting angle according to the article. The threat to banks is described as:
"And that means they'll be further away from the mountains of data others are hoovering up about the preferences and behaviours of their customers - data that could be crucial in giving them an edge over banks in financial services."
"Embedded financial services takes the cross-sell concept to new heights. It's predicated on a deep software-based ongoing data relationship with the consumer and business," said Matt Harris, a partner at investor Bain Capital Ventures."
This is how you build a dystopian panopticon, isn't it?
Yes. We already live in a panopticon, but I think we should at least resist making it larger.
My reaction to the trend is that while I'm forced into an intimate relationship with an established bank in order to function in society, there's no way that I'm willing to take on additional intimate relationships with the likes of FAANGs and Walmarts.
But I also know that most people don't have the same reservation.
We've been working in the banking industry for almost a decade now. I don't think any of our customers have ever expressed serious concern about technology companies breaking into their market and taking deposits from their institutions.
Business banking (esp. loans) is where I see virtually zero competition emerging any time soon. The complexity and value proposition around managing these kinds of customers is extremely nasty compared to the consumer side of the shop.
This whole thing is a fairly complex equation, but I would boil the barrier-to-entry down to a 50/50 between regulations & customer needs.
From a customer standpoint, the most meaningful specific deposits are going to come from your most painful customers. Our clients are not looking for victory in numbers with razor-thin margins. They prefer to find whales obtained by way of exceptional customer service.
When it comes to money, customer service matters a fuck load when you approach a certain level of stakes. I don't think Amazon and Walmart are prepared the engage their customers in a way that will distinguish them from the incumbents. Walmart is already host to Woodforest National Bank (their largest retail partner), who is only able to serve a very narrow band of the consumer banking market. I can see a potential partnership emerging here. I don't see Walmart doing it on their own, and I certainly don't see it taking the market by storm. Amazon, even more so.
This type of article confuses me because it ignores China and India. Specific case. Alibaba copied Amazon's business model. But then it successfully spins off Alipay (later Ant Financial and Ant Group). And before the government crackdown/policy changes at the end of 2020 Ant almost successfully IPO'd at a valuation of $314 billion.
Ant's business model involved payments, insurance and lending and was fantastically profitable because Ant leveraged its data about user payments to make efficient risk decisions. If the CCP hadn't decided Ant was too big (and violating data rules) then it would probably be continuing to grow.
I don't think any of this is obscure so I don't understand why the article doesn't point out that Amazon and Walmart aren't trying something that hasn't been done before.
I wonder if the banking laws in China, India, and the US may be so different as to be incomparable in this regard. The vast majority of the difficulty appears to be regulatory in nature, and I imagine that each nation has its own unique regulatory flavor.
I thought Ant is fantastically profitable, because it takes a 30% cut from the profit generated by the Yu'e Bao fund (used to be the largest in the world), with the money coming from the remaining balance of all the Alipay accounts.
Banking looks easy till there's the regular credit crunch. In the last credit bubble that ended in 2008 there were lots of disruptors.
However, when there's a crash, who gets saved is a matter of politics. In the last crash, Lehman got sacrificed[1]. Meanwhile, Goldman got it's credit default swaps paid out 100 cents on the dollar when AIG failed by the grace of the federal government.[2] Many of the disruptors crashed and burned though.
Everyone in business needs payments. For those of us with significant payments experience living the "build or buy" craze, as it continues to accelerate to light speed, just some insight to share. Your mileage may vary.
The financial landscape is significantly changing as entities realize the power of owning and controlling the process and data end to end. Many comments about credit cards and banks but if one has the foresight to see over the horizon the "store of value" "unearned income model" implemented by one very large U.S. coffee company is the future. This model is morphing with the existing gift card industry and the crypto push as the large card brands position to be able to handle and process such 'legitimate' activity. Extremely interesting times once more as the excitement continues to climb and the heat some feel is approaching dotcom bubble temperatures.
Amazon and Walmart can both benefit from the powerful synergies from their retail operations if they decide to become banks, don’t see how traditional banks can easily compete. Square too is heading down this path, arguably even faster.
I worked in finance for a bit. The knowledge moat for tech is far greater than that of finance. I wouldn't be surprised if a tech company breaks into finance and traditional finance companies can't compete with the tech moat.
Challenger banks who launched thinking this often end up owned by or serviced by traditional banks. Some of that thinking is at least making its way into traditional banking, but it's a slow process with entrenched interests fighting every step of the way.
Blockchain tech will disrupt the banking industry. Only a matter of time before CBDC (central bank digital currencies) become a reality and exchanges such as Coinbase or Kraken applies to become banks.
> Mercedes drivers can get their cars to pay for their fuel.
Does anyone know more about this? Is this for EVs only? Or is there a standard of some sorts or is it a custom agreement/implementation between car manufacturer and gas stations?
"Few products escape the Amazon touch," the Duke said.
"Books, the cloud, foodstuffs, servers, credit cards,
insurance, tv, music - the most prosaic and the most exotic
. . . even our poor handmade products from local mom and pop
stores.
Anything Amazon will transport [...]. But all fades before
our personal data.
The altered quote above may be a bit of a pessimistic quip, but I think in this day and age, nothing comes quite as close to Herbert's `Spice` as peoples personal data. Gather enough of it, and you do not only have the ability to glance into an individual's past, but into their near future, too.
Amazon the company offers a lot of services. Soon you'll be living in your Amazon Home [1], ordering food from Amazon Groceries and household items from Amazon Basics. You'll be working at some Amazon owned company [2][3], drive an Amazon vehicle [4] and pay for your Amazon insurance[5] with your Amazon issued credit card.
I find it harrowing that antitrust laws have been neutered so much in current times, where a breakup of the few well known Megacorps would have been necessary a decade ago. Amazon, Apple, Microsoft, etc. are slowly creeping their way into every aspect of life where there's a chance for monetary gain. Currently, a few select ventures are so large they can either outprice any meaningful competition for years until they fold, by just eating temporary monetary losses; or swallow them and incorporating their spectrum of products into their own lines. Even worse, some control the one and only marketplace on which competition can spawn, giving them the ability to shut down their opposition for inane reasons. Look at the FlickType keyboard on the Apple Watch for an example.
Question: why is "breakup" always touted as the solution to these free market destroying monopolies? Why isn't the fix regulation and aggressive enforcement?
Just to be clear, what makes a bank is not really lending, anyone can lend money (you might not necessarily be able to write a mortgage depending on the jurisdiction though). And there are lots of non-banks that lend money routinely, starting with car makers credit arms.
What makes a bank is taking deposits (that's what requires a banking license). And banks are competitive at lending because they can fund cheaply with deposits.
> banks are competitive at lending because they can fund cheaply with deposits.
This was my understanding until I read this article[1] which essentially asserts that banks’ primary function is to create money to be lent out. True, banks did start out as deposit taking entities which they still continue. However, banks don't make much profit from deposits. In fact deposits, being liabilities, cost them money to keep them safe. They keep those deposits in short term fixed investment funds, most of the long term loans made by a bank are from money created by itself.
That article is from none other than the Bank of England.
You misunderstand. Lending is what makes a bank. When a bank (in the US) lends, it is creating new money that didn’t exist before due to fractional reserve requirements.
If you made a loan you’d effectively have a 100% reserve requirement to do so, while a bank currently needs 0% backing in deposits. You cannot make new money.
[+] [-] neonate|4 years ago|reply
https://archive.is/psX8v
[+] [-] jasode|4 years ago|reply
- Sears: had Allstate for insurance and Discover Card for credit. Unlike most "branded" credit-cards, Sears did its own underwriting for the Discover Card i.e. they owned the Greentrust bank behind that card. (That is unlike Amazon Prime card being underwritten by Chase Bank.)
- G.E. General Electric: financial services GE Capital like loans and leases
I remember finding out that many music stores use GE Capital to finance the inventory of all their guitars hanging on the wall. (Industry lingo of "floor planning".[1]) Sort of strange to realize that a lightbulb company has a bigger subsidiary that sells financial services. It's more profitable to make money by selling money than by manufacturing lightbulbs.
[1] https://www.google.com/search?q=ge+capital+floorplan+financi...
[+] [-] MomoXenosaga|4 years ago|reply
It's why companies like Revolut and Bunq always end up doing what ordinary banks are doing: upselling. Shitty insurance and expensive creditcards is where the money is. Also transaction fees up the wazoo. Looking into it made me realize traditional banks aren't really evil- they are kept under tight government regulations that forces them to take any customer. Even the ones that make them no money. No I'll be sticking with €15 per year account.
[+] [-] JackFr|4 years ago|reply
[+] [-] beerandt|4 years ago|reply
Even "cash" accounts at things like trade businesses, where the account is more about convenience and workflow (and the professional getting paid only after the work is done) than it is credit or financing, are taking on some risk of non-payment at the end of the month in order to make business flow much faster and more smoothly, than it otherwise would.
It's just a matter of what industries or businesses have the capital and the will, as well as the right risk models and opportunity costs to try and implement it all "in-house" or as a subsidiary.
[+] [-] asdfasgasdgasdg|4 years ago|reply
[+] [-] cdolan|4 years ago|reply
[+] [-] techsupporter|4 years ago|reply
This was a fairly common thing to do, as you point out, for department stores. As far as I'm aware, Target was the last holdout department store owning its own bank, Retailers (then Target) National Bank, through which it issued the RedCard and RedCard Visa, and sold to TDBank. Macy's had Department Stores National Bank, which it sold to Citi, and so on.
[+] [-] jeltz|4 years ago|reply
[+] [-] throwaway894345|4 years ago|reply
GE sells a lot more than lightbulbs and financial products.
[+] [-] oblio|4 years ago|reply
[+] [-] zarzavat|4 years ago|reply
[+] [-] agumonkey|4 years ago|reply
[+] [-] ashtonkem|4 years ago|reply
It’s also worth pointing out that this financial wing almost killed GE in 2008. Obviously consumer spending (e.g. washing machines) was going to drop during that time, but the financial wing of the company almost bankrupted them and ended up getting them removed from the Dow Jones Industrial Average.
[+] [-] travoc|4 years ago|reply
[+] [-] lifeisstillgood|4 years ago|reply
The levels of regulation is huge, and basically culture changing.
Coinbase is basically trying to avoid becoming a bank. If it finds it have to then, hey great more competition, but really I think the idea that "startup attitude" will be allowed by regulators or (because regulators basically follow what society has decided it wants from its banks over decades of scandals and abuse) what the market actually wants
As an example, there are loads of (US) fintech startups that let you store some money and pay at a shop. Because these are not banks and debit cards, they charge the customer nothing but can scalp the merchant who can do nothing. The fintechs are just playing regulatory arbitrage. It might end soon in which case dozens will drop out and the biggest get bought by real banks for their brand name and cool factor.
[+] [-] smnrchrds|4 years ago|reply
[+] [-] omnicognate|4 years ago|reply
[+] [-] fartcannon|4 years ago|reply
[+] [-] A4ET8a8uTh0|4 years ago|reply
I was initially going to cite an interview I did with a high level executive of a regional bank, whose entire view on the matter could be paraphrased as 'apps may be cool for kids, but when you want a full service, you want a bank'. I personally felt it was a little.. arrogant, but I understand where he was coming from.
The compliance burden alone itself can be painful for new players.
Then again, Amazon already has experience and they are clearly doing relatively well ( their OFAC settlement was minimal - https://home.treasury.gov/policy-issues/financial-sanctions/... ).
The executives should take note.
edit: added 'alone' the burden sentence.
[+] [-] BenoitEssiambre|4 years ago|reply
This is an area where big tech actually has a built-in advantage.
[+] [-] ur-whale|4 years ago|reply
There was a time when banks and the work they did actually provided added value, historically:
In 2021, it turns out: who needs these things at all?[+] [-] lordnacho|4 years ago|reply
Makes sense though, why not be a lender as well? Then people can get their groceries before they get their monthly paycheck.
Also on the payments side, why pay the card company when you can make your own card?
These aren't new observations though, anyone looking at a supermarket would think of these things.
Big issue is regulatory. There's a heck of a lot of hoops to jump through to get a bank license.
[+] [-] photochemsyn|4 years ago|reply
"And that means they'll be further away from the mountains of data others are hoovering up about the preferences and behaviours of their customers - data that could be crucial in giving them an edge over banks in financial services."
"Embedded financial services takes the cross-sell concept to new heights. It's predicated on a deep software-based ongoing data relationship with the consumer and business," said Matt Harris, a partner at investor Bain Capital Ventures."
This is how you build a dystopian panopticon, isn't it?
[+] [-] JohnFen|4 years ago|reply
My reaction to the trend is that while I'm forced into an intimate relationship with an established bank in order to function in society, there's no way that I'm willing to take on additional intimate relationships with the likes of FAANGs and Walmarts.
But I also know that most people don't have the same reservation.
[+] [-] salawat|4 years ago|reply
[+] [-] bob1029|4 years ago|reply
Business banking (esp. loans) is where I see virtually zero competition emerging any time soon. The complexity and value proposition around managing these kinds of customers is extremely nasty compared to the consumer side of the shop.
This whole thing is a fairly complex equation, but I would boil the barrier-to-entry down to a 50/50 between regulations & customer needs.
From a customer standpoint, the most meaningful specific deposits are going to come from your most painful customers. Our clients are not looking for victory in numbers with razor-thin margins. They prefer to find whales obtained by way of exceptional customer service.
When it comes to money, customer service matters a fuck load when you approach a certain level of stakes. I don't think Amazon and Walmart are prepared the engage their customers in a way that will distinguish them from the incumbents. Walmart is already host to Woodforest National Bank (their largest retail partner), who is only able to serve a very narrow band of the consumer banking market. I can see a potential partnership emerging here. I don't see Walmart doing it on their own, and I certainly don't see it taking the market by storm. Amazon, even more so.
[+] [-] thepangolino|4 years ago|reply
[+] [-] adaml_623|4 years ago|reply
Ant's business model involved payments, insurance and lending and was fantastically profitable because Ant leveraged its data about user payments to make efficient risk decisions. If the CCP hadn't decided Ant was too big (and violating data rules) then it would probably be continuing to grow.
I don't think any of this is obscure so I don't understand why the article doesn't point out that Amazon and Walmart aren't trying something that hasn't been done before.
[+] [-] JohnFen|4 years ago|reply
[+] [-] throwdbaaway|4 years ago|reply
[+] [-] narrator|4 years ago|reply
[1]https://dealbreaker.com/2018/09/hank-paulson-killed-lehman-b...
[2]https://wallstreetonparade.com/2021/08/meet-the-two-congress...
[+] [-] bokohut|4 years ago|reply
The financial landscape is significantly changing as entities realize the power of owning and controlling the process and data end to end. Many comments about credit cards and banks but if one has the foresight to see over the horizon the "store of value" "unearned income model" implemented by one very large U.S. coffee company is the future. This model is morphing with the existing gift card industry and the crypto push as the large card brands position to be able to handle and process such 'legitimate' activity. Extremely interesting times once more as the excitement continues to climb and the heat some feel is approaching dotcom bubble temperatures.
[+] [-] xwdv|4 years ago|reply
[+] [-] deshpand|4 years ago|reply
https://www.efinancialcareers.com/news/2021/02/jpmorgan-stil...
They mostly talk about being tech companies but don't take the time to put in the required investments.
[+] [-] kevmo314|4 years ago|reply
[+] [-] mkr-hn|4 years ago|reply
[+] [-] remir|4 years ago|reply
[+] [-] hypothesis|4 years ago|reply
Does anyone know more about this? Is this for EVs only? Or is there a standard of some sorts or is it a custom agreement/implementation between car manufacturer and gas stations?
[+] [-] selfmodruntime|4 years ago|reply
Amazon the company offers a lot of services. Soon you'll be living in your Amazon Home [1], ordering food from Amazon Groceries and household items from Amazon Basics. You'll be working at some Amazon owned company [2][3], drive an Amazon vehicle [4] and pay for your Amazon insurance[5] with your Amazon issued credit card.
I find it harrowing that antitrust laws have been neutered so much in current times, where a breakup of the few well known Megacorps would have been necessary a decade ago. Amazon, Apple, Microsoft, etc. are slowly creeping their way into every aspect of life where there's a chance for monetary gain. Currently, a few select ventures are so large they can either outprice any meaningful competition for years until they fold, by just eating temporary monetary losses; or swallow them and incorporating their spectrum of products into their own lines. Even worse, some control the one and only marketplace on which competition can spawn, giving them the ability to shut down their opposition for inane reasons. Look at the FlickType keyboard on the Apple Watch for an example.
[1]: They started two years ago by selling tiny houses. More will surely follow: https://www.housingwire.com/articles/49260-you-can-now-buy-y...
[2] Amazon owns more than 100 companies https://www.forex.com/en/market-analysis/latest-research/wha....
[3] Amazon employs 1 Million people - In the US alone. https://www.nbcnews.com/business/business-news/amazon-now-em....
[4] Did you know that Amazon sells and lends cars? https://www.amazon.com/Vehicles/b?ie=UTF8&node=10677469011
[5] https://www.insurancebusinessmag.com/us/news/technology/amaz...
[+] [-] wintermutestwin|4 years ago|reply
[+] [-] madengr|4 years ago|reply
[+] [-] cm2187|4 years ago|reply
What makes a bank is taking deposits (that's what requires a banking license). And banks are competitive at lending because they can fund cheaply with deposits.
[+] [-] vishnugupta|4 years ago|reply
This was my understanding until I read this article[1] which essentially asserts that banks’ primary function is to create money to be lent out. True, banks did start out as deposit taking entities which they still continue. However, banks don't make much profit from deposits. In fact deposits, being liabilities, cost them money to keep them safe. They keep those deposits in short term fixed investment funds, most of the long term loans made by a bank are from money created by itself.
That article is from none other than the Bank of England.
[1] https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...
[+] [-] unknown|4 years ago|reply
[deleted]
[+] [-] pram|4 years ago|reply
If you made a loan you’d effectively have a 100% reserve requirement to do so, while a bank currently needs 0% backing in deposits. You cannot make new money.
[+] [-] kerng|4 years ago|reply
[+] [-] eyeball|4 years ago|reply
this will go about as well as amazon / jp morgan / berkshire taking over healthcare.
[+] [-] unknown|4 years ago|reply
[deleted]
[+] [-] egberts1|4 years ago|reply