Banking - something broken

I don't get it. Technology has been around long enough that we should be seeing huge economy-of-scale level benefits in the banking world. As it stands, credit cards are no cheaper in terms of fees to customers and merchants; interest rates on savings accounts are still pitiful; most accounts now carry transaction fees for all but the most innocuous transactions; and interbank or international transactions (while somewhat easier) are as expensive as ever. Don't even get me started on brokerage, although at least there is some improvement thanks to technology in that sector, but not enough by far. I have been involved in the tech industry internationally since pre-1990, and I can only come to one conclusion about the lack of "technology market forces" in the banking industry; No one WANTS it, except the customer, and the customer's voice is being ignored because they CAN ignore it - where else can you put your cash?!

I have been wondering about this for almost a decade now; I even drew up a business plan and technical architecture. Unfortunately, I got hooked into a different project and that was that. Well, here we are several years later and no one has done it yet - so the question begs, why not?!! In the interest of pursuing an answer to that question, I though I'd post the idea and get comments from as many folks as I could.

The comments to this blog are moderated, so don't bother sending posts that add no value to the discussion, or "me too" messages.

So here we go;

The Network Bank

The following set of questions acted as the catalyst for the conception and creation of the network bank idea;

• Why do I need separate accounts within the same institution for checking, saving, investing, trading, foreign currency and borrowing?
• Why do I need separate accounts with separate institutions for trading different financial instruments and/or trading on different foreign markets?
• Why does a bank charge a transaction fee for moving numbers from one record to another in their account database?
• Why does it take hours, days and sometimes weeks for cash to be transfered electronically?
• Why are currency exchange rate spreads often as much as 100 times those of the spot market?
• Why aren't the performances of all financial transaction professionals (fund managers, traders) available in real time with all fees calculated? (This data is available)
• How can a bank act such that it becomes a non-profit organisation, feeding back all excess gains to its account holders?
• How could you provide complete transactional transparency to regulatory bodies while also maintaining absolute privacy for your account holders?
• If you created communities of people with common interests and financial goals/capabilities - wouldn't they be capable of self-serving financial services with no requirement for "bank" intervention? (i.e., small business loans, mortgages)
• Couldn't a bank leverage its internal access to data to provide services such as automated simple income tax filing for its account holders - using highly leveraged tax expertise?
• Why is a merchant account separate from a current account?

Using those questions as a foundational thought framework, I designed a conceptual bank. Here are some of the highlights;

• Completely internet based, with phone support 24/7 (quality focussed for the internet challenged) - There is NOTHING that you can conceive of doing at a bank, that will not be possible to do online with this bank.
• Domiciled offshore in a tax free environment.
• Initial deposits arrive via electronic transfer (SWIFT, Visa, etc.)
• No service charges for online transactions (aside from those imposed by external organisations)
• Currency exchange at the spot rate, no commissions.
• Discount broker level commissions for all financial markets.
• Personal data kept in escrow, but not "online linked" to account information. Privacy is king.
• Single universal account:
• Has a single default currency which can be changed at will
• May hold portions of its value in any other currency(s) the holder my desire
• May hold positions (including margined) in equities, derivatives, currencies or any other financial product from any major financial market in the world
• Can monitor and manage positions in real time from anywhere via the web
• Can accept payments directly into the account via SWIFT, credit cards, e-checks etc., via a personal payment web page hosted by the bank
• Can make payments via internet using direct payment platforms and/or randomised credit card number tools.
• Has an attached private Visa/MC debit card (no credit cards, LoC can be attached to account).
• If the account holder is a trader/financial manager, they may create published profiles of their trading activity. These profiles will promote the individual's performance to all account holders and allow them to subscribe to the manager's program if they wish. Automated risk management systems ensure that the client's risk is managed (as well as the manager's) as much as possible. This function will permit traders to realise maximum value for their talents, since they focus solely on performance in their own account, the systems handle the "super sizing" of their executions as well as all reporting and client management. Fund managers will now have not only traditional asset classes to work with, but will now have a very effective and transparent performance based roster of trading talent to augment their funds. To the investor/account holder, the difference between a fund manager and a trader will be negligible in terms of interface - only the risk profiles and performance parameters will differentiate them.
• Long term, as deposits increase, move into self insuring.
• The solution is 100% electronic and is keyed to the idea that soon, we won't receive or send funds any other way.

All of this may sound simplistic, and in a sense it is - there are huge administrative issues that need to be dealt with, such as custodial services, risk management, licensing, account insurance (for account holders), not to mention the risks to be faced by doing this (you will make a lot of enemies in the banking world).

As time goes by, the cost of creating and launching the software/systems side of this business continues to drop like a rock. Current estimate is less than $1 Million to build it and launch the first usable version. Significant resources will be required to gain all the interconnections required to have access to world markets at competitive rates, and there is the need for human resources to support the users as they come online and begin to discover the environment. These requisite resources though can be accomplished as effectively through networking as through fundraising.

So, as I see the overall thing - You need some cash, a few savvy banking types with big rolodexes, and probably balls of steel to go out and do this thang. But once it was launched, it would attract almost anyone just on principle alone, and force a major change in the way financial markets work, simply because a large part of the information assymetry of that space will be vanishing due to the new bank.

I'm sure I've missed tons of things here, but I think this is a good place to start the discussion. As comments and discussion ensue, I will try to update this primary post to reflect good ideas or corrections (with credit of course!). What I am hoping for is to enrich this concept to the point where someone thinks it's worth doing, or we uncover a very good reason why it would never work.

PS: Yes, I know that payment gateways like PayPal and other interesting services like P2P Loans etc., exist already - what is missing is a fully integrated financial platform for everyone that gives them everything available (banking, credit, investing, trading, currencies and exotics) in one interface at the best value possible.