Category Archives: Economics

Customer Acquisition, Economics, Finance, Fintech, Lending, Real Estate, Tweetstorms

Consumer Finance Runs on Friction and Inertia

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Originally posted as a Twitter thread on June 04, 2019

An example of how friction and inertia extract profits in consumer finance, and how technology solutions/fintech companies will change the game.

“There are now about 5.9 million borrowers who could see their rates drop by at least 75 basis points by refinancing their mortgages…an aggregate of $1.6 billion in potential monthly savings”
https://www.cnbc.com/2019/06/03/as-mortgage-rates-plunge-millions-more-homeowners-can-benefit-from-refinancing.html

So why don’t consumers do this? It’s WAAAY too complicated for, in this case, an average of $271 per month. Add in the paradox of choice (refinance with whom?), getting stuff notarized, getting both spouses to sign, and hidden fees…and it’s easier to do nothing

Roboadvisors have been around for a while focused on investing assets and optimizing portfolios, but I believe the bigger opportunity is on roboadvising debt — and this has potentially the gravest impact to banks who *make money on friction* (which is all banks!)

There are lots of refinance companies out there, but the biggest opportunity is to do it all automagically for consumers whenever savings can be had (including shifting unsecured debt into secured debt). Refinance as a service, not leadgen to open yet another account

Banks are effectively the biggest “managed marketplaces” out there, between depositors and borrowers. Both sides are getting screwed over by a giant take rate protected by friction (too hard to switch) — with banks earning healthy spreads and record profits

Crypto, Economics, Finance, Fintech, Payments, Tweetstorms

Payment Networks, Protocols, and Crypto

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Originally posted as a Twitter thread on September 19, 2018

Visa today has a $328B market cap, bigger than virtually every bank on earth (JPM at $384B is the only one bigger). And yet it started out as a non-profit owned BY banks. How did it become more valuable than its “parents”? https://x.com/VisaNews/status/1042078029114048518

Since Visa intermediates rates between banks (“interchange” between card issuers and merchant acquirers) and clears transactions between issuing banks and acquiring banks, it is the ultimate “central ledger” or platform for finance.

It was originally part of Bank of America, called BankAmericard. But to syndicate this platform beyond BoA, it became a consortium — Visa. Independence (to ensure the central platform didn’t take too much economic rent!) was ensured via non-profit ownership structure

…that is, until 2008 when it went public in the largest US IPO of all time. It reorganized from a non-profit to a for-profit, partially to avoid anti-trust issues (all of the banks get together and decide what to charge merchants…imagine the airlines doing this!)

To me, this is a great example of where/how decentralized networks can preserve true independence (value accrues to network participants vs central player) — and why protocol design, if you will, trumps legal design

Visa is a great and incredibly valuable company. The “protocol” is one of transactional authorization/settlement/clearance. But it was enshrined in a once not-for-profit central actor who today has more value than all but one network participant

Despite a lot of “private blockchain” nonsense out there, this is a great example of how Visa could have or should have been constructed by banks way back when to ensure perpetual independence and inability to capture value as central ledger.

Protocol design matters. And a well thought through protocol is more valuable and protective than lawyers, contracts, and even governments — it will survive all of them.