Here’s a Bad Idea: Uber for Banking

Uh huh. Bad Idea.Facebook’s development credo is “move fast and break things”.

Uber’s credo is “break the rules, apologise (maybe) later”.

The lifeblood of the startup industry is this thing called “disruption”. Apparently all good things come from disruption: Craigslist disrupted the newspaper classified ads industry, Napster disrupted the online (and, by extension, offline) music industry, Apple disrupted the mobile handset industry (and along the way took down the software, music (again), and cellular industries for good measure), and Facebook disrupted interpersonal communication for good. And that’s just the first decade of the 21st century.

Many new companies like to describe themselves using the “X for Y” formula, where X = Well Known Company and Y = different industry. Therefore it is possible, and even probable, that some company will introduce itself as the “Uber for dog food”.

The original Uber – i.e. Uber for Uber, a company valued at over 40 billion dollars – connects people looking to get from Point A to Point B with people randomly driving around in cars who don’t mind veering out of their way to pick said other people up at Point A and deliver them to Point B all for the consideration of some reimbursement for their time and gas.

Unfortunately before Uber for Uber was called Uber, it was called a taxi service. And taxi services are regulated in every city that prides itself on preying on disadvantaged immigrants with borderline driving abilities providing reasonably priced, safe transportation from point to point.

So while Uber’s business is providing an alternative form of public transportation, their business MO is to bend the rules as far as they can bend, and in some cases break them, even if this causes the near-collapse of the established taxi services.

This is disruption. (Delivering dog food on demand – not disruption.)

Disruption can be a good thing if it causes a stagnant, overly regulated, over-compensated sector to snap out of its reverie and provide better, leaner services to its clients or completely fail and clear the way for the innovators.

If “stagnant, overly regulated, and over-compensated” makes you think of Banks, you’re probably not the only one in the room having the same thought (unless you’re the only one in the room).

The banking sector not only needs innovation, it also craves innovation. Unlike, say, travel agents who were caught completely unawares by the speed at which online travel booking made them mostly a sideshow, the banking sector, already a tech-heavy industry that is supposed to know a thing or two about risk assessment and management, knows that it cannot remain the closed opaque industry it has been for the last few centuries.

To name but a few, Wells Fargo, Barclays, and the Bank of Ireland, have all set up accelerator programs for outside startups in the Fintech sector. Citibank has taken the lead by setting up an Innovation Center in Tel Aviv where it combines its own internal innovation crew with different perspectives from the outside startups in its accelerator program, taking advantage of the brain power and technological prowess found in “Silicon Wadi”.

For many people the online banking revolution begins and ends with checking their account balance online (or mobile). But startups are looking to innovate in core banking areas, funds transfer for one, where Transferwise, Clearshift, and CurrencyFair are all making inroads in their own way in this gargantuan market.

Back to why Uber for banking is a Bad Idea: trust. Trust is the foundation of the financial industry. Banks and other financial institutions (“FIs”) either store your money or send it, and they tend to be sitting upon ALL of your money with the exception of what’s in your wallet for splurging on the occasional slice of pizza.

Banks are regulated up the wazoo in order to force trust upon them: liquidity, anti money laundering procedures, deposit insurance, and trading regulations are but a few of the measures the Regulator imposes upon FIs to keep your money safe. True, the Regulator doesn’t do a perfect job (sub-prime mortgages come to mind), but they have a pretty big stick to use when banks break the rules.

Ask yourself if you would really put your life savings – EVERYTHING – into the “Internet Uberbank”, one with no capitalisation, regulations, or oversight, just because it’s cheaper or willing to waive its fees if only you would just look at an ad or two.

Next question: do you think upending an industry where most people keep all of their assets – EVERYTHING – is a good idea? Is this really a place where you want to take an all-or-nothing risk? (If you live in Greece you don’t need to answer this question.)

The break-rules-and-move-on method is just the thing the financial industry doesn’t need because it kills trust. Real innovation will come from companies who have figured out how to make a particular banking function cheaper, transparent, and more competitive (“person-to-person loans” is the first answer to the ‘banking innovation’ question any banker will give you these days), in conjunction with banks, not in opposition to them.


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