On blockchain, Intermediaries and why we REALLY need it.

The problem of trusted intermediaries is real. It may not be visible to consumers, but it’s there. The most obvious one is the payment process. The product you buy and the service you pay for has to go through the middle man — your bank, their bank, credit card, square, venmo or paypal.

Here is the message from Stripe’s website. Sounds like a start up’s best friend. But is it really?

image via www.stripe.com

Here is the interview by Patrick Collison, co founder of Stripe.

And so what we really like about ours is that not only is it the main way we make money, but essentially the only way we can make money is from the businesses building on Stripe, they become more successful. That is why we focus on things like helping them expand to new markets or to address countries they didn’t previously serve and so forth.

https://charlierose.com/videos/30562

Sure, they are no hidden fees but they are still charging for every transaction. So any time the company builds a product and you use it, that cost will be passed on to you. Why do we accept this as a norm?

image via www.stripe.com

Bank to Bank transactions are even worse. ACH system was originally designed in the 70’s.

Let’s say I’m a start up A. My customer makes a transaction before 5 pm and I tell the bank to send an ACH payment. If the bank sends the ACH payment to the Federal Reserve by midnight, the Federal Reserve will send it to the receiving bank by 6 am of the next business day. However, because banks are on batch processing systems left over from the 70s, it takes one day for them to debit my customer’s account and another day to send to bank B via Fed bank and then bank B takes another day to credit recipient account. This leads to the 2–3 business day time for the end to end ACH payment.

This is what happens whenever there is money transfer. Let’s say you buy some stock for AMZN. You have to move money from your bank account to your brokerage account and this will take at least 2 to 3 days if not longer. By then that AMZN stock can sky rocket!

  1. The Federal Reserve charges banks $0.0032 cents per ACH transaction.
  2. FedWire costs banks $0.820 per transaction.
image via https://www.frbservices.org/servicefees/fedwire_funds_services_2017.html

This is how much the banks charge. Check out Nerdwallet for the full list.

image via https://www.nerdwallet.com/blog/banking/wire-transfers-what-banks-charge/

How is it that banks can get away with such a huge margin ?

Because NACHA (National Automated Clearing House Association founded 1974!) which manages the ACH network is a non -profit network that represents the financial institutions.

image via https://www.nacha.org/

Of course, they will support NACHA! Together, they make billions of dollars as “trusted intermediaries” for you and me!

Banks realize that they are going to be disrupted. SOON. So they are using the money that they made from all those ACH transactions and are trying to disrupt themselves.

JP Morgan decided to transform itself to one giant start up instead of getting distrupted by one. They added blue stools with no back support (tough luck pre millennial generation!) and glass walls you can write on! Apparently, hoodies are still not allowed making it only half a start up.

image via http://www.bizjournals.com/

They even have in-residence programs so they can spy on start ups under their wing.

image via https://www.jpmorgan.com/global/in-residence

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