In this episode of If I Ran the Bank, Clayton sits down with Peter Burridge, former Head of Operations Payouts at PayPal and former President and COO of Hyperwallet. Peter Burridge is a senior investor, board member, and strategic executive and carries over 30 years of management and leadership experience in the enterprise software and financial technology sector.
Don’t miss this episode with Peter Burridge, listen below.
It’s interesting when you look at banking today and the technology explosion that happened in the early 2000s. We anticipated there would be a lot of changes in certain sectors, but unfortunately, nothing has really changed in banking. Although, there’s a lot of new players that are trying to pick up the slack on what we aren’t providing.
Over at Travelex, running the world’s largest non-bank at the time was sort of interesting because I learned that people sending money around the world actually have to send the money to someone else, who then sends it to the person who you ultimately wanted to send it to. It seems a bit ridiculous that two payments would be involved to make one, but there you go. But there’s a lot that’s changed in that space and it continues to change, and a lot of the people leading that change don’t have “bank” in their title.
If you ran the bank, what would you be all in on?
What’s the definition of a bank? A bank is a financial institution licensed to receive deposits and bank loans. I don’t have any problem with the data associated with depositing money with a bank and having them loan it. We’ve seen with Covid-19, governments are pushing money out, and encouraging people to borrow money to save their businesses. The banks are pushing them through the same algorithms they would before in 2007-2008.
I think part of the challenge is, it’s extremely difficult to get a bank license. So they obviously want to build out the services associated with doing loans, but they haven’t innovated.
What we’re seeing is this massive industry built around e-commerce and global e-commerce, basically anything that touches money, that the banks aren’t doing. How do I get access to internet banking to pay my bills? Well, internet banking doesn’t exist, we send them a check.
It’s sort of funny because if you go to the UK, the word check doesn’t exist anymore. You’ve got all of this disparity around how banks do it and this lack of service has given rise to an endless supply of businesses (like Travelex). But they’re just fulfilling a small portion of the lack of capabilities by the banks.
There are definitely services I would be building under a different bank charter. I’d like to separate the bank charter from loans and deposits.
Going back to your big idea about a regulatory footprint that would support this very transactional, money moving kind of bank. Do you think that’s even what the banks themselves would need? Most banks don’t have that sort of transactional business, meant for this particular vertical market. But that would help? A bank slices off a division that does just this and adds a different regulatory framework?
I think to do that, the banks need to be either entering a different sort of partnership with one another where the responsibilities are very clear. All holding the bank responsible for everything has done is inhibit innovation. They either need to have a different relationship or they have to be global.
HSBC, Citi, and those types of organizations used to be the global banks. These new entities need to be able to go global, they need more than one country to agree to this because they all need to be able to share the same type of license structure so it can happen.
Do you have an alternative vision for correspondent banking? Is there a model that could more effectively interlace the global network of banks?
Well, you’ve seen part of it in businesses like Hyperwallet for payout, you’ve seen part of it in Braintree and Stripe, you’ve seen part of it in the neo-banks that have been set up that are domestic or regional at best. It’s putting all of that together under one regulatory framework that doesn’t include making loans.
Regardless of the world correspondent network, the United States is effectively 50 countries when it comes to payments, so what they really want is a single money transmitter accreditation, just to operate in the United States.
Yeah, totally. If we go back to the Ubers and the Airbnbs, they’ve taken very different approaches to licensing and remember, they’re holding money that doesn’t belong to them. So the first thing is when you look at banking and it’s associated services, the cost of client acquisition is the first thing that all investment people are going to look at, then they’re going to look at the lifetime value of those clients.
When you’ve had banks being regulated for deposits and loans, they’ve decided to pick and choose who they bank. The net result of that means that 20% of US citizens don’t have a bank account. So the system hasn’t helped everyone participate, because the first thing you need to have to play is a bank account. But they’re not just like a corporate that can decide that we’re not going to sell you a car, they’re a bank. They’re part of the government's implementation of policy, it’s almost sort of virtue signalling.
So if I was going to have the perfect scenario, there would be a transactional bank licensed where you could hold funds for the benefit of the corporate and how they want to manage their currency exposures or just run their business. Because some people don’t want to send you money for you to make payments, they just want you to pull the funds, there’s always the do I want an on-balance sheet or off-balance sheet? There are all these little things that go to the services that these institutions provide. You put a hybrid together of Ayden and Hyperwallet and some of the neo-banks stuff for businesses and consumers and you got a pretty cool set of services. You add some bill payment on top of that, so I can pay all my bills and everything comes into my phone and it’s a very, very cool service.
But the other side of it is, who’s going to carry the regulatory burden? I think the regulatory burden should be with the service providers. All the AML, all that stuff should be with the organization that’s onboarding the client, whereas the banks should be getting a leave pass on that and focusing on their loans and deposits profile.