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  • “The unbundling of commercial banks”

    Posted by Jonathan on April 3rd, 2015 (All posts by )

    Via Lex, an interesting post about financial disintermediation:

    In a post on the state of consumer fintech, I took a look at how retail banks are beginning to “unbundle” as tech tries to reinvent finance. I now look at how the same is beginning to happen for commercial banks.
     
    Like it did for retail banking, I think technology is impacting commercial banking in three main ways:
     
    1. Increasing access to information thereby allowing businesses (businesses here refers broadly to small, medium and large businesses which would be the clients of commercial banks) to make better decisions
     
    2. Reducing the friction/offering better experiences for businesses in conducting common activities
     
    3. Lowering the fees on transactions for businesses by serving as a cheaper middle man

    None of this is a surprise. Banks tend to be inefficient and generally mediocre. The incentive structure for bank employees encourages the most productive people to look elsewhere (for example, the best traders and programmers tend not to work for banks). Incessant Obama-era financial regulation makes the situation worse by killing off smaller banks that would have increased competition. There is thus a lot of low-hanging fruit for creative non-bank providers of services that banks have typically provided.

     

    3 Responses to ““The unbundling of commercial banks””

    1. David Foster Says:

      Interesting piece. On loans/funding, I’m surprised he didn’t mention Business Development Companies, which extend loans to companies (often floating-rate, often with an equity kicker) and are themselves funded by equity and debt, not deposits.

    2. David Foster Says:

      Also, re short-term financing: here’s an interesting company which serves as an intermediary for truck transportation and among other things provides immediate payment to the carrier when the load is delivered:

      https://www.gobytruck.com/carrier

    3. Carl from Chicago Says:

      Banks need to be restructured. They don’t play a significant role in most of the economy because they don’t make loans for new enterprises unless you don’t need the money. They essentially live off the FDIC guarantee and the too big to fail mantra. They get money at zero from the Fed and park it into debt that pays a few points and they originate mortgages that they pass on to Federal agencies and get them off their books. Finally they run credit card operations looking for those that carry a balance for giant interest rates and high fees (and at a loss for everyone else).

      But they do provide massive financing for corporate restructurings. If you want to load your business with debt and sell it off for parts, the banks are there for you. Or if you want to engage in complicated derivatives transactions of which the US Fed is the ultimate backstop.

      We need smaller banks and commercial lending to help the economy grow, and to help smaller businesses. I agree that disintermediation would help immensely. Frankly the banks don’t even care about the end customer anyways… as long as they get the pass through business on the way to securitization they are probably happy.