How Not to Sell One Dollar for 98 Cents

I notice that in HK, if you want to exchange those annoying coins into paper bills at a big commercial bank, you need to pay a fee (WTF?).

A quick comparison of the fee schedule is as follows:

HSBC: Below 500 coins per customer per day, waived; 500 coins or above, 2% of the full amount (minimum HK$50).

StandChat: MUST BE PRE-SORTED, Below 500 coins per customer per day, waived; 500 coins or above, 2% of the full amount (minimum HK$50).

A quick research on the internet suggests that a few years ago HSBC also demanded coins be pre-sorted before processing them. Some competition (and collusion perhaps) is a healthy thing.

Here is a good idea for a Internet+FinTech startup that makes great social and commercial sense:

1. Build a social network of professional coin exchangers who are dedicated to cooperate on this initiative.

2. Tell each member on the social network to get his/her family and friends to bring in coins. Each member counts those coins to decide the full amount and then pays out cash less 1% of processing fee. Each member then pays the social network 0.25% for the infrastructure and funding support.

3. Deposit 499 coins per batch per person per day at one of those big banks and pay zero fee. (Hint: bitcoins are almost infinitely divisible.)

4. Do (2) and (3) as quickly as possible before those senior banking executives find out and try to change the fee schedule.

Essentially this start-up will initiate a race to the bottom. Looking at how big banks tend to react to market dynamics, the window of arbitrage might be bigger than expected.

Worst case scenario those bankers cut the fee to zero and the arbitrage is gone. The start-up team wins social support and goodwill among consumers. It’s probably not a half-bad result.

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