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  • Frank Tian

All Roads Lead to the Bank?

While some banks are collapsing, other aspiring institutions are eager to become banks. Why?


When the 2008 Great Financial Crisis hit, the previous monoline credit issuer Capital One and the industrial conglomerate GE’s Consumer Finance had taken the route of becoming banks. One primary motivation was to access stable and affordable funding.


Meanwhile, independent investment banks struggled to survive the volatile market conditions. Following the collapse of the Leman Brothers, the other major players swiftly either sold themselves to big banks (Bear Stearns to JPMorgan Chase, Merry Lynch to Bank of America) or became bank holding companies (Goldman Sachs, Morgan Stanley).


More than a decade later, P2P lenders such as LendingClub and SoFi became banks. It is more efficient and profitable to lend money on a larger scale, supported by low-cost deposits, and managed by professionals.


Across the ocean, Klarna quickly realized the vast potential beyond being just a BNPL platform. In addition to being an excellent shopping app, it became a bank and now aims to establish itself as one of the top 5 global digital banks.


Sharing a similar global ambition is Revolut, a financial super-app. It is still on the long and winding journey to pursue the much-needed banking license in its home market UK.


Even for the imploded crypto exchanges, it is the bank-like characteristics that attracted millions of consumers to engage in token-based activities.


What is in the old and boring model that incentivizes the challengers but eventually converts them?


Banks act as crucial fund pipelines, connecting depositors and borrowers. The function is supported by deposit insurance and regulatory frameworks.


Focusing solely on depositors or borrowers would not optimize the circulation of funds.


While definitely not perfect, the banking model remains the best-tested and proven way to circulate money to where it is needed.


No wonder all roads lead to the bank.


Image: The reflection properties of an ellipse.


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