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Software Eating the Banking World

Is banking the next industry to be disrupted? Historically regulated industries such as banking and health care have been harder to tackle for startups. Banking is almost de facto monopolistic. The regulatory impulse that banks were “too big to fail” became in practice “too small to succeed.” The concentration of deposits soared after the financial crisis.

Banking however is reliant on credit assessments. These are data heavy but also very incomplete. As more transactions move online there can be more confidence among the transaction processors.

Today Stripe sent me/Woovit an offer. With our still relatively meager but growing subscription fees, if we want some capital they can make that happen:

The fees appear high for these very low amounts, but the automaticity of issuance and the reliability for the financial institution is so compelling. There is also no interest rate (though one could do that calculation: I think it roughly maps out to 2ish percent for us. Hugely compelling!)

As their data grows so will their market advantage. A Utah-chartered bank is still there in the fine print, but that layer is commoditized.

This is before one even gets to blockchain option though there too the knowledge is complete: in this case, the collateral. You’ve given the bank your bitcoin or whatever, they have zero risk of losing it nor any costs associated with the pursuit. BlockFi does this, as do others.

I would have thought data would disrupt the insurance industry before banking, but it will be a domino to fall in short order as providers will learn with 100% accuracy better data than they went on before. While state-level plans are regulated, it’s hard not to see how some player slightly on the legal margin, like Uber, just blows by them with immensely successful offerings.

Published inBusiness

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