The Core of the Machine – Banking as a Utility

I have been a strong partisan of Banking as a Service and posted several times on the topic on this blog. Recently I have posted more on the shiny outer layers that could be / are created in such a stack but not so much of the core services under it. So it was with interest that I saw @giyom‘s tweet

A banking utility doesn’t buy debts, issue liabilities nor do maturity transformation, it only is a trusted accountant btw borrowers&debtors

It’s an interesting view, a pure banking utility would provide the pipes to connect depositors and borrowers and maintain the accounting trust between the two, whether direct, in a P2P lending type model, or indirect by reporting aggregated assets and loans. @giyom pointed me also to Dan Kaminsky analysis of  Bitcoin: – slide 14 and 15 are interesting in his analysis that supernodes in Bitcoin are effectively banks.

In parallel, a second French bank announced the launch of its API: AXA Banque (Credit Agricole was the first one with CAstore). I had the chance to talk with people there and while the current API is READ only, the mention of WRITE capabilities was not rejected from the outset. A Bank that proposes a READ/WRITE API is in effect giving up on a part of the their customer access and accepting its role as a utility for other services (as I pointed out before, it is something well know in the banking industry)



It seems that from both end of the spectrum, whether its is the  technology enabled P2P or traditional Banking, we are moving toward the creation of banking utilities. But what would be the business model of such players?

On one hand, in the P2P lending example and as specified by giyom, the role of the core provider is track and ensure the relationships between borrowers and lender as well as provide additional services such as transparency in the capacities of the borrowers and loan recovery in the situation of a default. In this system, the trusted core providers would have no leverage nor insurance (as deposit accounts are currently protected). In theory, insurance could be provided by an external provider up to certain amount and based on the lenders selected. The business model of such a platform is fee based.

This is the system adopted by platforms such as Zopa,

On the other hand, in a banking platform world, the bank uses the top layer as a deposits aggregators. It can provide non-interest bearing accounts and base interest bearing accounts the aggregator, as well as transaction facilities to help move money between various accounts. It provides the underlying regulated insurance to the end users. This source of deposits become a part of its core assets mix, which can be leveraged for lending. The same or other providers could be provided these lending facilities, with various rates based on risk etc.. The business model of such a platform is spread based.

This is the system adopted by platforms such as Friendsclear

The distinction made above is not as pure in reality. Zopa, LendingClub etc are using banks to manage cash accounts, payments etc..

I think the total disintermediation for banks is not for now and the two systems will live at the same time. What do you think?


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  • Zopa as a whole is fee-based, but there are at least three separate services being provided:

    1. Credit checking of potential borrowers
    2. Market making: matching borrowers and lending
    3. Loan administration: setting up accounts, moving money, collecting repayments

    The third of these is interesting because there’s no ostensible revenue model, but it’s pure banking as a service. I guess for Zopa it is subsidised by the fees charged for the other two services.

    But it would be interesting to try to provide the plumbing as a pure banking infrastructure service. Could you do it efficiently enough for Zopa to subcontract it to you instead of doing it themselves? Do they derive any value from doing it themselves?

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  • On a global view I am not sure that a collection of “Direct facing Asset-Liabilities Categories killers” will cover the wide range of bank services.
    The main role ok banking is transformation : typicaly from short term, no risk deposit to long term risky funding.
    And, for a time (long), it will still require a traditional money massification model.
    But as the banking market is deep, there are huge opportunities to bring together debtors and investors who want more dedicated and sophisticated products than provided by banks.

  • yranchere

    I agree, Banks will face stronger competition from P2P networks and Currencies where it does not innovate or provide services (which is good and hopefully translates to reaction)

  • yranchere

    Currently, Zopa uses Banks for this, which I think make sense and is what they are experts at.

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  • At the risk of appearing even more dumb, I expected Zopa to use banks for banking. Are you saying their banks maintain a separate account for each Zopa lender and borrower?

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