[Book Review] Breaking Banks: The Innovators, Rogues, and Strategists Rebooting Banking
By: Cameron Schorg
Tags: Generation Blockchain, Bitcoin, Fintech, Finance

Let me first start by saying thank you to Brett King, the author of Breaking Banks. He has consistently been one of the loudest voices in the industry both informing the masses on the new fintech revolution we are in the midst of and encouraging innovation in all areas of financial services. I recommend you check out his podcast here and go buy his book NOW!

So the book is broken up into many different sections that I am going to dive into individually. There is a short introduction by Brett first and then ensuing interviews with the startups in each vertical of finance.

Lending and Credit Facilities:

As noted by Brett, lending/credit is one of the very first financial products ever to touch humanity. In fact, lending and credit predate the entire banking infrastructure and even currencies by thousands of years. This is incredibly important when you start looking at how lending products and institutions behave in the current market. There has been very little change, let alone advancements, in the way the whole shindig work, until now of course.

To start, lending startups like Zopa, Lendingclub, Sofi, and Lenddo are completely shaking it all up. Rather than looking exclusively at your credit score (which we know is a lot of times not predictive enough for our liking), they are increasingly looking at alternative credit metrics like your education, community reputation, and even social media presence. Additionally, these business and consumer loans are not being funded by big institutions and hedge funds, but instead by the community. This specific type of lending is called peer-to-peer lending and is exploding as a means of funding. The best part about all of this is that the default rates are actually lower than loans made in a traditional manner. Did you hear that?! This ‘risky’ form of lending is actually quite the opposite! Zopa, a UK based peer-to-peer lending startup is completely crushing it right now. The average default rates for consumer loans in the UK is 3–5 percent…yet for Zopa that number is less than 1%. Talk about efficiency.

Payments and Bitcoin:

Once again, our payment technology is completely outdated like the rest of our financial infrastructure. How is it that we can literally speak with anybody in the world on a moments notice through services like Skype and Facetime, send overnight mail to thousands of cities from pole to pole, and publish our thoughts on social media for millions to see with the tap of a button but interacting with our money in the same way is impossible. Have you ever tried making a payment to a friend overseas? In one story that I heard, a business man was trying to send money from India to the United States and it took his bank almost a full month and over a hundred dollars to make the transfer. Not to mention, boat loads of time was spent dealing with the process in the first place. How is that even possible?

Luckily, there are hundreds of startups working to solve these problems and even a whole new currency called bitcoin that hold an incredible amount of potential. The two most notable startups are Dwolla and Stripe. Instead of having to rely on ACH transfers when sending money from bank to bank, Stripe and Dwolla have partnered with thousands of banks and created whole new types of networks. We are talking bank transfer solutions that actually look like they were created this century. This means payments that take minutes rather than days, cost cents rather than half a Benjamin and even a user experience your grandma would love. Companies and consumers can finally interact with payments in a completely optimized manner.

Brett also talks about how payments at a physical location will look completely different and suggests that when we look back on the evolution of payments, the big shift will be from cash to mobile, not cash to debit/credit cards. Most interestingly, he makes the bet that one day payments will be completely invisible. Imagine walking into the grocery store, filling your cart up, and walking out of the store without ever having to stop at the cast register. As soon as you leave the store, your phone will ping with a receipt of your purchases.

Bitcoin is the most impactful invention since the creation of the internet. Yes, I did just make that claim. Bitcoin is a new digital currency that is set up in a completely decentralized and distributed manner. This means that the currency is issued and managed by the community that use the currency. Weird to think about, but this makes it an international currency bounded by no government or the privileged few.

When transacting with bitcoin, there are no middlemen meaning negligible transaction costs and a far improved transaction process. Finally you can have banking services without the need of an actual bank. You are your own bank! Remember that example I was talking about earlier with the bank transfer that took almost a month. Well, this would never happen with bitcoin. If I wanted to send 1 cent or 10 million dollars to my friend in Australia on a Saturday night, I could with the ease of sending a text message. The best part is that it is essentially free and arrives in seconds. Check out the video below to learn a little bit more and/or head over to my bitcoin and blockchain tab where I post about this stuff relentlessly.

Wealth Management:

For this topic I am going take a slightly different approach/talk about a slightly different vertical within wealth management than Brett did. Wealth Management of the future is all about an improved experience for the average investor. If you are like most people, you don’t have the time or the interest to extensively research every investment. In fact, you probably don’t know where to put your money at all. This is where robo advisors come in.

There are a few dozens startups who are leveraging the powerful nature of computer learning to help you manage your money for you (betterment and wealthfront). Enter your risk taste, how much money you have, and your goals for that money and they will make suggestions of exactly what you should do. They will even build you a portfolio and actively manage your money for you. The big difference between one of these services and a traditional financial advisor, is that the majority of the decisions are being made by computer algorithms rather than an actual person. This translates to huge savings and a much better user experience for you. There are even a few startups letting you invest in stocks for zero transaction costs and no minimum limit on new account openings like Robinhood (I use this one a lot).

Blockchain (The left out section)

So outside of the context of Bitcoin, Brett actually doesn’t talk about this at all. Blockchain is the technology that is running behind Bitcoin and has implications bigger than the currency itself. What the blockchain is, is a decentralized database that is immutable and far safer than any other solution. Blockchain technology has a lot of possibilities in all kinds of different industries, but in the financial services space it can solve problems in stock and trading settlements, remittance markets, and even things like startup fundraising and investing. Just like bitcoin, I talk about blockchain technology extensively in my other posts so be sure to check that out or reach out to me learn more.

Wrap-up

Above anything else, Brett’s Book highlights how the fairly stagnant way financial services and institutions have been designed is being completely flipped on its head. All I know is the future for fintech is extremely promising and I am thrilled to be a part of it.

Thanks for the read and I’ll see you next time! :)