Michael Karnjanaprakorn

Disclaimer: This blog post was a thought piece. It was never meant to cover every logistical detail of how to launch and run a bank.  This is an article on how I would start a bank if I had to start one from scratch. Yes, it’s an insanely difficult to tackle but what isn’t?

I WANT TO START A BANK.

Why?  Because it’s a super-duper profitable business (sidenote: Jason Fried of 37Signals likes startups that makes money from the get-go.  I do too.) and it’s an industry that needs to be flipped on it’s head.  Talk about a blue ocean?  Also, since the major banks are responsible for the financial collapse that resulted in one of the biggest recessions in our history, there’s a tremendous opportunity for a new bank to enter this blue ocean.  Consumers want to trust a financial institution again; not read about them going bankrupt in headlines every week.

If that doesn’t convince you, the WSJ thinks that “it’s a great time start a bank” too.  And if you still need convincing…

“Former Federal Reserve Chairman Alan Greenspan recently claimed he would open one himself if he were 50 years younger. The return on capital could be impressive, the 83-year-old Mr. Greenspan said in an interview.”

Lastly, Andy Beal is one of my favorite business people of all time.  Why?  Because he plays $50K/$100K limit poker with the world’s best poker players like Doyle Brunson, Phil Ivey, and Howard Lederer.  And beats them.  And because he’s a banker.  He does crazy shit like buy aircraft debt after the September 11th attacks when they were at an all-time low.  Today, he makes over $70,000,000 a year from those bonds.  Forget Donald Trumpet. Andy Beal is the real deal.  Forbes ran a whole feature on Beal Bank.

“In the last 15 months Beal has put $5 billion to work, tripling Beal Bank’s assets to $7 billion, while such banks as Citigroup and Morgan Stanley shrink and gobble up billions in taxpayer bailouts.  In 2000 American Banker declared Beal Bank the most profitable bank in the nation as measured by its five-year return on equity of 50%”

So, how would this bank look?  This article talks about what a bank would look like if Apple moved into the banking business.

“This would be a niche bank, taking deposits disproportionately from Apple consumers and lending for the kinds of ventures that, well, your typical Apple consumer might be undertaking: creative small business projects, distressed urban lofts, student lending, hybrid vehicles, and renewable energy.”

This SafeBank article from Matt Mullenweg about how he would start a bank is the most brilliant piece I’ve ever read and I agree with everything he says too (Matt – want to start a bank with me?).

“The name of my bank would be something supremely boring, like SafeBank. The idea behind it is that bad behaviour in the banking world has been largely inevitable because their compensation structures incented people to do overly risky things. SafeBank would maintain a reserve level 2-3x higher than Fed requirements and any other bank.

After a certain milestone, say 100 billion in deposits, I would buy or clone Mint. SafeBank would have more (and more accurate) data about its customers than almost any other company in the world other than credit card companies, so the online interface would have Mint-like lead generation offers based on that information. For example, you spend $140 a month on electricity, but if you switch to this new solar provider you’d save $200 a year. Think of it like Gmail contextual advertising but based on where you spend your money rather than the words in an email. There also might be aggregate data opportunities for economic research or targeting, but I’m not sure if I like the privacy implications there.”

Yes!  I would do all of that at this bank plus more.  Here are some ideas of what I would want to implement at my bank.

1. It would live online like INGDirect to eliminate a lot of the traditional overhead costs from traditional banks.  Like SafeBank, the majority of our focus would be on the website.  Imagine if you could login and have mint.com capabilities to track and manage your money?
2. Like Apple, we would have “stores” that will allow account-holders to attend seminars on financial topics such as money management and financial independence.  There would be ATMs but no tellers.
3. Design would play a huge role in our bank.  From the design of the website to the design of the debit cards, it would have the same high quality of design of Apple.
4. Like Zappos, we would focus on customer service.  Similar to Zappo’s policy on returning any purchases, we would allow all of our account-holders to withdraw funds from any ATM at NO CHARGE (woo-hoo!). Our account-holders would also be allowed to transfer funds to each other at NO CHARGE as well (everyone owes someone money).  And it would never ever charge our account-holders with overdraft fees.  If someone has overdrawn, they obviously do not have the cash so why charge them?
5. We would only give out credit cards to those who are qualified to receive one.  Our goal is to encourage saving, not spending. And rather than having cash-back, we would have charity-back credit cards.  Our credit card holders would receive 1% of their spending every year to donate to any charity.  For those that want physical goods, we would have cool products similar to those featured on joshspear.com and coolhunting.com
6. It would make money through loans (like every other bank) but not just any loans.  We would offer the best rates and offer loans for everything except for mortgages.  Our entire business revolves around getting as many people to deposit cash by offering high interest rates, and turning that money into loans and investments.  Pretty simple eh?  And also offer ways for our account-holders to save money like SafeBank.  Oh yeah, our vehicle loans would only be for hybrid vehicles.  We would never give out an auto loan for an SUV like a Hummer because of our values.
7. Our bank would be the biggest micro-lender into Kiva.  Rather than giving our mortgages left-and-right, our goal would be to fund every entrepreneur in a developing country through micro-loans.  Yes, we would have a 0% profit margin but the warm fuzzy feeling of doing good is priceless.
8. Our investing banking division would invest into for-profit purpose-driven companies that make the world a better place.  Every year, we will set aside 10% of our profits to invest into startups because we believe in supporting entrepreneurship and facilitating innovation.  Our private equity division would invest into companies that are already profitable to take them to the next stage of their business.
9. Obviously, we can’t do everything for everyone, so maybe we would eliminate checking accounts all together?  Instead, we would only have savings account to encourage our account-holders to save their money instead of spending it.

These are some ideas off the top of my head.  I’m sure I’ll come with more to add to this list.  I’m sure you have ideas too so feel free to add them in the comments section below.

I could honestly spend the rest of my life doing this.  Maybe I should start by putting together a business plan and raising $10M to launch it?  Who’s in to invest or join the startup team?!