Everything you say is true for traditional full service banks. I believe however that we need to drop the idea of the one stop full service bank.
Where real innovation and safety comes is through the idea of narrow limited purpose banks. There is a lot of space to innovate if you as a bank can focus on one product only.
The simple way of doing this is to imagine every account type a bank has as a separate mutual fund.
The checking account would be replaced by a 100% reserve 0 interest cash mutual fund, which makes its money from float, membership fees, transaction fees etc. Most checking accounts now are paying an insignificant amount of interest anyway.
Savings accounts can be offered by various levels of money market and similar funds.
If all of these funds follow the same simple standards it is easy to transfer between them, even if they are run by different companies. We are working on creating these new standards on the Agile Banking list:
One of these standards we are working on is a dead simple OAuth/REST based transaction API that we're calling OpenTransact. It allows for very simple transfers, but allows more complicated financial transactions to be built on top of it.
What about ATM fees, credit cards etc. These should be run by independent companies. On the Agile Banking list we are talking about independent card issuers. These are independent companies that offer regular payment cards that in essence control OAuth Access Tokens to an OpenTransact based cash mutual fund as I described above.
As a card issuers only access to your account is via OAuth, you as a consumer can easily manage limits and even revoke the Access Token. You are in control.
Business model for these card issuers? Advertising on cards, transaction fees, membership fees etc.
There is plenty of money to be made in this business, we don't need to keep thinking about it in the frame of how it has been done until today.
They do have an existing, simple standard to transfer money. It's called ACH, and it's been around for decades. It works quite well.
ATM fees should not be run by separate companies -- then you'd have a company that would need to profit off ATM transactions, instead of using them as a loss leader, which means higher fees and more of them.
Credit cards can't be run by non-banks, b/c they are loans, and state and federal law limits the institutions that can issue variable-size loans.
Furthermore, the OAuth system would not work. Period. A customer being able to cut off the card issuer's access to their account? You would never get any card issuer to agree to use the system, because of the enormous potential for fraud (run up the bill, cancel the issuer's access before payment). BTW, you can already manage your card's limits -- just use the online portal, or call your company.
Finally, advertising is an overrated business model. Believe it or not, at some point, you need to make money off an actual valuable service or product. As mentioned above, transaction fees would need to be jacked up (for the institution to make money), eliminating any reduced costs benefit to consumers.
Where real innovation and safety comes is through the idea of narrow limited purpose banks. There is a lot of space to innovate if you as a bank can focus on one product only.
The simple way of doing this is to imagine every account type a bank has as a separate mutual fund.
The checking account would be replaced by a 100% reserve 0 interest cash mutual fund, which makes its money from float, membership fees, transaction fees etc. Most checking accounts now are paying an insignificant amount of interest anyway.
Savings accounts can be offered by various levels of money market and similar funds.
If all of these funds follow the same simple standards it is easy to transfer between them, even if they are run by different companies. We are working on creating these new standards on the Agile Banking list:
http://groups.google.com/group/agile-banking
One of these standards we are working on is a dead simple OAuth/REST based transaction API that we're calling OpenTransact. It allows for very simple transfers, but allows more complicated financial transactions to be built on top of it.
http://wiki.github.com/opentransact/opentransact/opentransac...
What about ATM fees, credit cards etc. These should be run by independent companies. On the Agile Banking list we are talking about independent card issuers. These are independent companies that offer regular payment cards that in essence control OAuth Access Tokens to an OpenTransact based cash mutual fund as I described above.
As a card issuers only access to your account is via OAuth, you as a consumer can easily manage limits and even revoke the Access Token. You are in control.
Business model for these card issuers? Advertising on cards, transaction fees, membership fees etc.
There is plenty of money to be made in this business, we don't need to keep thinking about it in the frame of how it has been done until today.