Can we start a better bank in T&T?
It’s a provocative title, I know. But what would it take to really start a new bank in Trinidad & Tobago, and does it even make sense?
Before diving into this question, I think a great place to start is to first explore what “better banking” actually means. There has been an explosion of fintech and digital banking over the last decade that gives us great context to work from when thinking through questions like this. This first post in the series looks at some of these recent trends, and it introduces the idea of what a new bank could potentially look like in this context.
So, there’s banking…
And then there’s banking!
Generally, if you’ve ever banked in places outside of T&T you’ve likely been opened up to a world of possibilities and seamless integrations; of good customer service and enjoyable experiences; of features that enhance your day-to-day life and go beyond the basics of “having an account”.
Digital banking has come a long way in the last decade. A competitive landscape means that banking service providers have had to look very closely at their product offerings and adopt the latest in User Experience practices to attract and keep customers.
What this ends up looking like is significantly reduced friction, unique features and a general enjoyable feel to things with product interfaces.
So what is it exactly that we aren’t yet seeing in T&T?
Table of contents
- What’s missing
- What makes this possible
- Why we need better banking
- What we currently have
- What I’d like to build
What’s missing
To make a useful comparison, we can neatly arrange the benefits of digital banking into two buckets: customer experience, and new features.
Customer Experience
Being able to simply reduce friction when doing normal activities goes a long way in creating a delightful customer experience. It’s very simple things that help to make for an overall less frustrating, and even enjoyable time. Imagine being able to:
- open accounts digitally from your sofa in 1–2 mins as compared to our multi-day/week, multi-trip, in-person processes in T&T (integrations like Onfido)
- find contacts by email/telephone number instead of abstract bank account numbers, and being able to send/receive instantly; having the funds show up instantly on the other person’s end (networks like Zelle, services like CashApp and Venmo)
- monitor debit/credit card transactions in realtime, approve transactions from an app, temporarily freeze/unfreeze cards, apply for new cards digitally and have them delivered to your doorstep (Monzo Cards)
- apply for loans and have them approved with minimal paperwork digitally (Monzo Loans, Chime Loans)
- doing this all in a way that feels more like “play” than “work” (Up Bank)
Features
Having a functioning fintech ecosystem means having access to a variety of offerings meant to make life easier. Imagine being able to:
- invest in stocks and virtual assets on the fly (Public, CashApp Stocks)
- issue credit cards on demand to employees, cap them, and disable them when you no longer need them (Privacy)
- spin up an e-commerce store in minutes and begin accepting payments online where your target users are, for e.g. directly on social media (Shopify)
- get smart budgeting recommendations from services with tight integrations to your accounts (Mint)
- save in creative ways from your normal daily activities (Acorn)
These examples paint a picture of an idyllic banking and payments world that I’m sure many of us would love to live in. It begs the question though of:
How did they get there, and how might we do the same?
What makes this possible
While it’s not often easy to pin down the progress of an entire system to nice singular factors, in my experience there have been two broad trends emerging over the last decade that has helped to push the progress of fintech in other places. These trends have been enabled by a mix of competitive environments, developments in tech and progressive regulations. They can be broadly categorised into open banking and challenger banks.
Open Banking
Open banking refers to the ability for third parties to interface in some way with the internal systems of a bank. This interface usually looks like a set of APIs that give access to certain types of financial information and enables certain automated actions e.g. being able to allow a third party to take a payment from an account. The interface is usually permissioned by the end-users who can grant access to third parties to access their information or perform operations on their behalf.
A simple example would be like being able to share some of your transaction history with some platform when looking for a home to rent or buy. The platform could immediately calculate what you can comfortably afford and present you with a menu of options tailored exactly for your budget. It can then also use this data to pre-approve you for a loan at a lending provider and have you up and running in a fraction of the time you’d usually take.
The ability to interconnect with banks is a significant part of the financial infrastructure of any good functioning ecosystem. It is the thing that enables a host of fintech possibilities since banks are usually the point of convergence for holding and sending money around through the system. To give an idea of how critical this ability is, Europe in 2018 passed new legislation to mandate that all banks must expose a set of APIs that would allow fintechs to interface with them (more here). There has also been a lot of progress on this front in Latin America recently (more here). The reasoning given was that having this sort of open data practice would allow for a fairer competitive environment and potentially significant innovations that historically come from allowing systems to be open e.g. who could’ve predicted that Uber would come from Google opening up their Google Maps API?
Challenger Banks
Challenger banks or Neobanks are a recent phenomenon that have come up in response to the general “too big to fail” trend of the banking industry.
Over the years, due to natural incentives banks have generally been aggregating into bigger and more homogenous organizations. This growth has pushed their business models more toward supporting large scale operations and away from supporting the individual and small business. Naturally, what this has meant is a poor set of product offerings and experiences for smaller customers which opened up a market gap for smaller bank-like entities to fill.
Challenger banks generally take on a strategy that focuses on disaggregating the banking services stack, tackling niche problems and providing super targeted product offerings and customer experiences. They aren’t full banks in themselves and are often specially licensed to provide a small subset of banking services with the support of a fully licensed institution. It’s easier to think of this whole trend as a layered approach to scaling our financial system where Central Banks sit at the base, commercial banks operate one level up from that, and then challenger banks and fintechs ride atop the commercial banking layer.
Challenger banks are able to toy with traditional business models because of their flexibility and smaller scales, to come up with new ways that are seem more fair and practical for the end-customer. Examples include being able to adopt “Agile” practices and flatter organisational hierarchies usually seen in tech to help deliver more stable and reliable offerings. They also include switching from traditional arbitrary fee revenue to alternative revenue streams that aren’t as opaque and frustrating to the end user.
Why we need better banking
While the progress that banking and financial services has seen in other places may have originally come from competitive pressures and having to operate at scales we are not yet used to in the Caribbean, the time is fast approaching where we won’t have the luxury of simply “getting by with what we have”.
New macro-economic developments are starting to demand that smaller countries be able to effectively participate in the evolving trends if they don’t want to be left behind. The impetus is evolving beyond simply being a “nice-to-have” and becoming more of a “need-to-have” if we are to keep pace with an increasingly digital macro-environment.
For a flavour of what this looks like, we can look to how the futures of work, commerce and even currencies are evolving.
The Future of Work
As 2020 has made abundantly clear with the COVID-19 pandemic, remote work is a trend that has entered the mainstream and will likely be broadly adopted moving forward.
This phenomenon coupled with the rise of the freelance/gig economies points to a world where work happens across organizations and across borders. The “unit of work” is also being broken down and we are seeing more arrangements now where contributors can work on very specific tasks & projects and be compensated for exactly those things.
This new reality is one where our local folks will be able to provide their services over the internet across the world, and where local businesses may look to engage employees and contractors from any number of jurisdictions to be able to stay competitive.
To support this new reality, our financial systems will have to be able to accommodate the business of finance in this new paradigm. It will need to support being able to interface with the platforms that international persons may use, to be able to send them payments. It will need to enable local folks to receive payments from multiple currencies and jurisdictions. And it will need to be able to facilitate all of these in a cost effective way given that any given transaction can be a lot smaller now and things like “wire transfer fees” just won’t work in these scenarios.
The Future of Products and Commerce
Alongside work, the way we buy and sell things and the very products we consume are also changing. We’re seeing trends where more and more goods are being sold via online platforms and e-commerce stores. Platforms like Amazon’s Marketplace and Shopify help with the logistics of managing products, making them available online and getting them in front of customers. We’re also seeing a lot more social shopping where products are tightly integrated with social media campaigns to bring them even closer to the end user.
There’s also been a rise in the creation and consumption of non-physical goods. We see a lot of folks able to create content in different formats for platforms like YouTube, Twitch and TikTok and monetize that content in a variety of creative ways. They are able to tap into niche communities all around the world and find small audiences that demand what they can offer in a way that wasn’t possible before. People are also engaging in things like creating courses, working on mini-apps and games, or creating digital art and photography that they can then monetize on different online marketplaces.
All of these new types of products and new methods for delivering them are necessarily global and run over the internet. To complete the loop, the providers of these products must be able to connect their local payment methods to these platforms to be able to effectively engage in these sorts of activities.
The Future of Currencies and Assets
Our existing system will also need to be able to interface with alternative virtual currencies and cryptocurrencies that have been gaining adoption over the last decade and that are being used to conduct transactions as well.
The system should be capable of providing some sort of interface to these new systems, without which we risk being left out of entire sections of future economic activity on the global landscape.
What we currently have
Now that we have an idea of the possibilities of a progressive banking and financial system, how do we compare right now with some of these? How is the local banking experience defined, to what extent are we capitalizing on some of these opportunities, and where are we falling short?
For anyone who has banked exclusively in T&T, a lot of what has been described so far may seem alien. Unfortunately the local scene is more usually associated with some of the following.
Poor Customer experience
In general, local consumers have become accustomed to less-than-ideal customer experiences when dealing with local financial institutions. Online options are just now finding their footing, but even then a lot of processes remain manual and require one or many trips to a bank branch. Anecdotally, some examples of these are:
- Opening an account for a new business
We’ve seen accounts of extremely long and onerous processes with opaque expectations for things like opening new business account. A recent example of this frustration was shared in this piece where the author has been trying for 4 months to open new accounts.
The problem is so prevalent now that there was even a recent news story covering a response from the Central Bank promising to help try to ease this process (see here). We can assume they were prompted to make these public statements because of the public frustration being expressed by many recently. - Digital experience
The digital offerings by various banks both online and via mobile apps has been improving recently, prompted even moreso by the COVID-19 pandemic, but there still remains a lot to be desired. Aside from the core banking features, there is little else that customers can do online and the experiences come nowhere near to some of the experiences described in the previous section.
We occasionally even see the entire offering fall apart as with what recently happened with a new app by one of the local banks that apparently failed to operate on its launch day and may have also taken down the their online platform since many folks were reporting they were unable to log in via either of the portals. On that topic, folks are clearly not happy with the design of these experiences too, where we even see folks going as far as offering their own suggestions for how things can be changed (tweet below).
- Bank-to-bank transfers
While internal transactions may happen within 24 hours, many folks still shy away from trying to do cross-bank transfers because of the unpredictable transfer times, inconsistent formatting of accounts information and opaque transfer processes.
The process for making an online payment to a merchant for example is to go to your online account, make a payment and then screenshot your receipt and send it to the merchant somehow where a person has to verify the payment visually. Even then, the payment can take days to land as I have personally experienced recently when trying to cross banks. - Identity & security
Banks often need to identify who we are to do things like make changes to accounts, or respond to sensitive inquiries about our transactions. If you’ve ever had to follow-up a questionable transaction you would know how long the process can be to get through to an agent and then answer a number of personal questions to make any sort of headway.
While sometimes this is simply an inconvenience, at other times it can be downright malicious. For example, a common scam is for someone to call, text or email pretending to be from the bank. These persons would request certain information to verify they are speaking with you, but it’s often very difficult to tell that these are genuine representatives since these requests so closely resemble actual bank processes. What ends up happening is that you can accidentally share sensitive information that allows someone to commit fraud.
Imagine being able to instead simply click ‘Approve’ on a push notification generated inside a banking app whenever you are about to conduct a sensitive transaction with a bank representative.
Walled gardens
As described earlier, many foreign banks now have interfaces and APIs to allow fintechs to work programatically with their internal systems. This allows for things like automating payments and payment receipt, or drawing usual information from transaction histories for different purposes. It allows for more complex things to be built once these base layer things are available programatically.
Locally though, the programmatic access landscape looks more like a barren wasteland. I am not aware of any bank that offers any sort of programmatic access or plans to do so in the near future which excludes customers and potential third-party providers from a host of possibilities.
Dampened fintech innovation
Tied to the “walled gardens” problem, the knock-on effect is that the fintech scene locally is also pretty lacklustre. There are one or two examples of companies that have managed to build operations around these shortcomings, but in general we are missing a lot of the possible services that we would see being built in jurisdictions with more open banking infrastructure.
What I’d like to build
Looking at the gulf between what’s possible and what we currently have, I’ve been toying with some ideas for how I can help tackle some of these problems and minimize the divide. Ideally I would like to build a service that is light touch in regulation (in the spirit of the challenger banking approach), and that can start to address some of the shortcomings I’ve talked about so far.
For context on some of the following proposals, I’ve spent the last 4 years working in various software development and product management/guidance roles, both within companies and in open source communities. Most recently I’ve been working on research that supports figuring out good UX designs for the bitcoin community, some of which can be found at bitcoin.design.
These experiences have exposed me to working in technical roles, planning & helping to manage technical build-outs, and understanding some of the latest patterns in user interfaces and experiences.
A digital experience
To start simply, I’d like to build a service that has very simple functionality around carrying a balance and being able to send/spend that balance around.
Taking example from Monzo in the UK and their startup story, I think a great experience would be to build a simple service that users can load funds into and spend at merchants or send around to friends.
The value-add would be working the backend of this service to ensure:
- a clean onboarding experience
- a modern UI, leveraging popular practices in software design/development today
- a spending tracker, as a useful first feature to start adding unique value to users
A platform
In conjunction with the above functionality, I would also take an API-first approach to architecting my service with a deliberate focus on making sure the API is designed to be broadly consumable.
This would simultaneously facilitate the service’s internal architecture, but also could be leveraged to offer programmatic access to any software developers who would like to experiment with creating derivative services atop this service.
For example, API access could allow users to selectively share:
- transaction histories (for insights & budgeting)
- send/receive capabilities, to be able to make automatic payments from other services
My ideal strategic approach
I’ve thought a lot about the best ways to achieve these initial goals given the technical and regulatory constraints that we would currently have to work under locally. I’ve also had to consider the growth potential of the idea, and how it could eventually be leveraged to help some of our bigger banking/financial problems in the region.
Banking, without the bank
The first point would be to figure how to implement this service under some sort of a “neobank” structure. The process of trying to obtain a full banking would likely be too onerous and risky for concepts that are still not yet proven.
To build the service out in a smart way, I would need to be able to do iterative proof-of-concept releases and keep what works while culling what doesn’t. This approach requires a light touch interface with our regulations and I’ve figured that I could get this in one of three ways:
- partner with a local bank somehow
- pursue my own E-Money Issuer license
- work with existing infrastructure partners like Visa or Mastercard to simulate an effective banking experience
As of right now, the most ideal approach seems to be to work with Visa since they have prepaid card programs that you can add to the top of a logical banking layer. The logical banking layer would be an internal system of managing accounts and balances and the prepaid card would be the interface for users to be able to use funds in the real world.
Ironically this prepaid-card-first strategy is one that a number of other challenger banks have taken before as a way to test user experience ideas and bootstrap user bases while working on more long-term licensing and partnership agreements. This approach will be developed more in later posts in this series.
Territory-by-territory approach
My ideal strategy would also not just stop at Trinidad & Tobago, but rather would use T&T as a test bed to experiment with providing these sorts of services to persons in any small-island, sovereign currency context.
Once tested out, my setup should ideally allow for implementing the same strategies in other Caribbean territories and then eventually finding some way to connect them all into a potentially singular (friction-less) market.
It’s an ambitious plan, I know, but I feel like anything less would be wasted potential given where we are with fintech progress and the global state of things. Whichever approach I eventually decide on must also facilitate this eventual expansion across the Caribbean.
Progress thus far
This idea isn’t a new one of mine. It’s something I’ve been toying with for almost 4 months now from a number of different perspectives. Toying with it has meant understanding all the different strategic ways a service like this could be implemented, some of the macro-trends I’d need to be aware, and what the institutional partner landscape in the Caribbean looks like for some of my plans. It’s also involved understanding what the regulations that apply to a service like this looks like in our jurisdiction and what parallels are available in other places that folks have been able to successfully navigate.
On the coding & implementation front, I’ve already experimented with a microservices-based backend written in GoLang to internally manage user profiles, accounts and transfers. I’ve also collected and played with various user interface approaches and have looked at how I might implement some of these using React Native to build out a suitable mobile experience.
I still haven’t fully figured out how this service will be set up since the Caribbean is, so far, presenting some very unique challenges.
What follows in my other posts are my journey to exploring the different options for building all of this and me rationalizing where I’ve gotten to so far on this journey. My current position is that I’ve become stuck and I may need to retry the idea from another angle if I decide to continue. My hope is that sharing openly what I’ve found so far helps to inform, inspire and motivate any other folks exploring the same to take those first steps to starting to build out some of these things as well.
The Series:
- 👉🏽 (Part 1) Can we start a better bank in T&T?
- (Part 2) Layered Money
- (Part 3) The Visa Stack
- (Part 4) A better bank: what it takes
Footnotes:
- Thanks to Frederick Reid for being a sounding board for some of these ideas, and to all the folks who have shared feedback and helped shape my thinking on this so far.
