My Bar Camp Bank Dallas Bullets (get it?)
Posted by Charlie Trotter on June 23rd, 2008
(HINT: It’s funny because the animals were shot with bullets from guns and I’m talking about bullet points of information.)
But seriously, here are a few of the highlights from my first BarCampBank, BarCampBankDallas. I don’t take copious notes during open discussions; I just jot down the highlights. So, I’ll give you a few bullets that stood out for me and I’d like to get your perspective on some of the ideas, so chime right in.
Two of my favorite concepts of the day.
- Credit Report + Character Report
- Can FIs ever release their API?
Credit Report + Character Report
Social networks can facilitate understanding a person in context of their friends, family and character. Our credit report coldly calculate our financial dependability outside of the context of our whole life. Let us vouch for each other to fill in the gaps on our credit report and make informed exceptions to the hard numbers. Larry Hooper, beloved entertainer, told us that being an independent musician makes him a leper to the credit report robots. But if you sat down for a chat with any of Larry’s friends, you would quickly get a much different picture of the kind of person he really is, separate from his tax status.
So when can the credit report engines work more like LinkedIn? In fact, why can’t they hook into LinkedIn and view a person’s Recommendations and process that into their credit score?
(As an aside, Larry brought an authentic perspective to the discussions, which makes me think we might all stumble into from deeper insights in future BarCampBank sessions by inviting a few non-industry people.)
Can FIs ever release their API?
This was the ultimate question of Mark McSpadden’s session, “I want to start a nerd FI.” The question was how can a bunch of designers and developers get together and start an FI tailored to our specific needs. (Ex: Photoshop loans, server loans, etc.) Mercifully, there were some people in the room uniquely qualified to answer this question. It was an emotional roller coaster that left us all with one question that, while it is mired in regulations and red tape for now, offers a tiny glimmer of hope for some wild day in the future: Why don’t FIs release their API?
API = Application Programming Interface. When it is released, you can get your mitts in it and make it work for your own purposes, within limitations. Twitter released their API and IconFactory made Twitterrific. That’s one example most of our readers will know well. If a bank released their API, the idea is that groups could come along and hook into it to create an FI of their own. That would be more than just the online banking interface, but the whole bag of what keeps an FI pumping.
We quickly – depressingly – learned from the FI CEOs and General Managers in the room that the romantic days of a few teachers with $20 each and a cookie tin, or a few fire fighters and a lock box under the driver’s seat of Engine #1 are gone. The process of starting a financial institution is eat up with prohibitive regulations.
But, could there ever be a day where an existing financial institution could let people hook into it and meaningfully tailor the infrastructure and product to their own needs? I’d love to continue that brainstorm here for a few more beats. You lot who frequent this blog represent some of the sharpest minds in the biz, so turn those cerebral hounds of yours loose.
I’ll close with what was unanimously declared to be the quote of the day. As we sat around a nice conference table off a main room with enough taxidermied big game animals to make the staff of Bass Pro Shops blush at the excess, one of our young peers pointed up at the pair of stuffy portraits representing two generations of big-game-hunting, be-suited bankers (yes, they are exactly what you are picturing) and said, “We want our own FI because we don’t like dealing with that.”
PS: Go grab a look at the photos from this weekend.
Charlie,
I am glad you mentioned LinkedIn instead of Facebook or MySpace in your loan approval scenario! I’m sure that some ‘upstanding’ people out there would cringe at the thought of getting a loan approved based on a thorough review of their drunken weekend pictures featured prominently in their Facebook photo gallery!
As far as the API goes, traditional FIs are the opposite of open source. Being open requires a start-up mentality. Unfortunately today’s old dogs are more interested in keeping the vault full and closed.
I attended the Forrester 2008 Financial Services Forum today in NYC and there were panels of the big guys (State Farm, Citibank, Cap One and Chuck
- the cool new version of Charles Schwab -to name a few). I was struck at how utterly disconnected from Main Street America these firms are. To Chuck, those having less than $25 million in their portfolio are considered small and are treated differently. They were actually called less-fortunate by one presenter! You think you’re getting their API?This API opportunity lies with the credit unions. If an open CU was backed into a corner to survive, they may think differently if we could get them to understand the concept and potential power of an API. This type of CU may be ripe for innovation and may just turn that API over. If they did, I bet the geek world would love to slide in the door and innovate on their behalf!
This brings up another point though. I was in another meeting earlier this month with about 20 top credit union CEOs and the amount of stuff that they are dealing with was a real eye-opener to me. Not only were they entertaining about a dozen innovative new concepts that they might want to add to their credit union’s offering, they were also dealing with banking system conversions, new CRM systems, HR issues and increased regulations to name but a few.
The financial world is ripe for innovation. Don’t give up on the shoe box. I’ve got a $20 I could deposit.
Charlie, thank you so much for the recap of these two issues from the camp here. I’m sorry I couldn’t be there in-person to chime in.
As far as the Credit Report + Character Report: Good news; it’s already here; Prosper started doing this about a year ago, and I first heard about it in February this year. Check out Jim Bruene’s NetBanker report Prosper Helps Borrowers Tap the Value of their Social Capital.
The API is a stickier wicket. One of the major purposes of the financial institution system is trust and verification. As much as I love the concept of a FI having an API, opening things up to anyone is truly the opposite of that of that purpose. For example, unscrupulous programmers can abuse the Facebook API, and write things to people’s feeds that they didn’t actually do. I don’t like that scenario in the financial world. In that world, I can envision waking up one morning to discover that “Morriss just transferred $5000 to a P.O. Box in Guadalajara.”
On the other side of the coin, what you are probably talking about in regards to an open API might be more akin to “Can I design my home banking interface to work the way I want it to?” And in a certain sense the PFM sites are a step down that road in that you are taking your personal information, doing an end-run around the FI’s online banking, and importing it into a third-party of your choosing. If only certain safe parameters are available in the API, perhaps y’all are on to something there…..
The current consumer reporting structure is a compromise. On one side, you have financial institutions, insurance companies and employers who need objective data about credit worthiness for their business models to succeed. On the other side, you have consumers who want to control that data. It might be hard to feel sorry for consumer reporting agencies, but they are heavily regulated and get sued constantly. There are a lot of people who would like to change this system in the name of fairness. However, once objectivity in consumer reporting is lost, the entire system breaks. Everyone suffers.
It is difficult to start a credit union today. But people do occasionally come to me and ask me for help in doing it. To date, however, every one of them has really wanted to start a financial institution that they could control. That’s not the credit union model.
I think it’s difficult but important to decouple the concept of a “bank API” from anything technical. I think the concept we were moving towards is similar to what Morriss gets at near the end of his comment.
In the tech world, an API basically says, “Create your own interactions with our organization (within our guidelines) and we will do the heavy lifting for you.”
What would this look like for an FI? In my mind it would allow groups (maybe individuals) to create their own products, marketing, maybe even customer service that would allow a customized experience for certain groups with the FI sitting in the background doing the heavy lifting. Something like “The Nerd Financial Services Collection: powered by San Francisco Fire Credit Union.”
The more I think about the more this idea is growing on me.
@Rob- The impression given this weekend is that starting a CU is darn near impossible. (Anyone know when the last Federal CU was born? The last CU in your state?)
If it is still a possibility and a reasonable process, I’d love to get your thoughts on the feasibility of what kind of kicked off the discussion.
The basics are here: http://www.markmcspadden.net/2008/6/6/let-s-start-a-credit-union
It’s definitely not my life goal to control an FI, but I am interested in helping designers and developers (and helping them help each other) and I’m willing to explore any avenues that facilitate that.
Charlie, thanks for the updates from the BarCamp. As some folks know, this has been a hot topic for me for the last few years. We are in a mature market and if we can’t get some new differentiated CU’s going it won’t be looking pretty for us in another decade. As Tim said, most existing FI’s are the opposite of open source. They don’t play well together.
I believe a large opportunity exists in helping people start new CU’s. It is so tough from a regulatory perspective and from a capital perspective, that it always seems starting a CU is impossible. That is what we need to change. Aside from the open source core processor idea that has been kicked around for a while now, there exists the possibility to create an entirely new industry of the outsourced FI.
As Mark said, it is not his life goal to control an FI, but he still wants to provide input on how it should be run. Same thing with Jesse Robbins and Black Rock Federal. Why can’t there be a company (or a FI if it had to be)that provides outsourced management for CU’s. A CEO for hire. Someone to manage the balance sheet, cost of funds, investments, etc, etc. Someone to be accountable for the CU to the regulators. Starting a CU shouldn’t be as easy as starting a Facebook group, but there could be quite an industry around helping people create FI’s.
I’ve always wanted to do that as a promotion at my credit union: “Start your own credit union”. Part P2P lending, part membership “pods”, I think it would be neat to allow users/members/etc to form their own “virtual credit unions” housed within an existing credit union.
Here’s how it would work. Joe Blow and his softball team want to create “Raging Rhino Credit Union”. They pool their money together (say, $10,000) and deposit it into ABC Credit Union under the name “Raging Rhino Credit Union” (RRCU). ABC facilitates transactions, prints statements, etc. in exchange for a monthly fee based on assets within the RRCU (say, two basis points annually, charged on a monthly basis). Collections and other CU functions can be charged at separate rates.
RRCU as a sub-credit union with its own board can set deposit types/rates and loan types/rates at in any way they see fit as long as they have the assets to support their decisions. This way, a parent credit union could contain hundreds of “pod” CU’s operating semi-autonomously. Their own websites. Their own marketing. Their own corner of the cooperative universe.
Just my dumb idea for the day. :)
@CU Warrior. That’s not a dumb idea at all. It’s genius. There’s no regulatory structure in place for it, but I could see how it could be done as a product line.
@Mark McSpadden If memory serves, a new FCU went into existence last year. It doesn’t happen very often. Moreover, when people do have the resources and the right attitude, they find that it is far, far easier to become a SEG of an existing CU instead of going at it alone.
@cuwarrior Yeah, you’re right – it’s a dumb idea. Just like all the other “dumb” p2p lending ideas out there. :)
Your idea goes to show, however, why I’m secretly skeptical about all these emerging p2p platforms (sorry, @bankwatch). It’s because there’s really nothing stopping existing FIs from implementing a p2p capability themselves.
Nothing, that is, except for management teams who can’t handle “dumb” ideas.
Prosper, which by most standards IS a financial institution…takes deposits in and loans money out…has an open API. It’s created a cottage industry of websites that parse Prosper data this way and that (eg. ericscc.com).
Sign me up for starting an financial institution, but let’s go “virtual” using the Mint/Wesabe/Prosper/Paypal model and ride on the rails of the U.S. financial system. That way we can focus on the customers instead of the regulators!
@Mark It’s very appropriate that you brought up the idea and question about starting up a new CU or FI at BarCampBankBigD. From what I understand, it’s the desire to do that that led Jesse Robbins to start his blog . Because of Jesse’s blog, Frederic Baud contacted him (I think?) to see if he’d be interested in spearheading a BarCampBank in the U.S., and the rest is history.
In researching this response, I have discovered that Jesse’s Black Rock blog seems to no longer be live, and I could only access Google’s cache of it. I think this blog ought to be a permanent record, even if Jesse is no longer updating it/pursuing that particular vision, in the way that the original Cluetrain Manifesto is still viewable by all, even though it has been closed to any updating for nearly a decade now.
Ron said:”Nothing, that is, except for management teams who can’t handle “dumb” ideas.”
It’s a shame that most CU management teams don’t read blogs like this or are in the know about p2p platforms, mint/wesabe, etc.
I picture someone pitching Matt’s idea to a board of directors (all over age 60) and getting profuse wide eyes/blank stares. How do we build this level of awareness amongst management to be able to even eventually pitch innovative ideas like Matt’s?
So what SHOULD we have, Christopher? Someone pitching Matt’s idea to a BOD (all under age 30) who will respond “wow, rad, dude, let’s go for it!” without any regard to the risk and/or return?
To your question “how to build awareness amongst mgmt…?”, the answer is the same as it ever was: By developing a business plan that lays out a realistic cost/benefit analysis, supported by the “soft” or non-quantitative aspects that makes the effort worthwhile.
Innovation is great. Foolish leaps of faith are… um, foolish.
D’oh. Shevlinated.
I would agree with your assessment. Unfortunately, I think that even if you come in with a tight biz plan supporting your innovative idea, if your management team doesn’t understand the medium, it’s less likely to be taken seriously.