People around here know the darndest things – so, virtual banks?

Anyone know about this?

By virtual bank I mean that Third Bank of Breqhou does not run its own debit card operation. But if TBB can attract a few thousand people who want a TBB debit card then pretty much everything, other than the actual designation of being a bank, can be contracted out to reputable and efficient companies.

So who here knows about this world?

Can’t be American but other than that – I’ve a possible, a slightly, maybe, possible, few thousand customers. So, how to start thinking about this?

23 thoughts on “People around here know the darndest things – so, virtual banks?”

  1. More information may be needed. There needs to be an underlying banking operation for a debit card to be doable so in that sense a credit card may be an easier bet – something like Egg which was part of the Pru until it ended up being subsumed into barclaycard because no money.

    Generally at volumes many times larger than you’re talking about, it’s a service offered because it’s a must-have for the customers. You might try co-branding with a larger player.

  2. An example would be the post office in the UK. It’s basically a reseller operation for bank of Ireland.

  3. Contis? Datacard?

    Yes basically you can outsource most things, although for the volumes and services you are talking about I’m not sure it would justify setting up a bank, perhaps most economic to distribute ‘white label’ products from a bank. Like many corporates do.

    When you talk about debit cards, what services exactly do you think you can distribute here here? A facility for deposits? A demand for payment services? Something more?

  4. A Debit card is a Credit card by another name, originally a Debit card was sold as an electronic cheque that cleared at the time of use (realtime authorisation and transfer, you couldn’t spend money you didn’t have access to).

    The definition of a Debit card changed (I can’t remember when, it was a while ago) because the banks wanted to charge for a declined transaction but had no methodology (no mechanism for withdrawal charges except loss of interest which wasn’t given on current accounts).

    Entering your PIN at a terminal is a request for Credit (there was a contrived court case), this is a chargeable transaction that is levied on the merchant, a declined transaction cannot be levied on the merchant (no service provided) but is chargeable to the customer (current charge = £0)
    (this is detailed on page 39 of the currently 46 page Santander Ts&Cs printed on an A8 booklet)

    A virtual bank is the same as a bricks and mortar one just without the bricks or mortar, they are bookies really, buying in services and sharing risks by offsetting bets.
    Provident is effectively a virtual bank that doesn’t bother with the illusion that it needs customer deposits to loan money.

    All banks are subject to regulatory capture, the small ones get screwed and the big ones get bailed, sell the small ones to your customers for a commission and buy shares in the big ones.

  5. A debit card requires there to be funds to access, which are usually, but do not need to be, in a bank account with the issuing bank. So you someone to hold the funds (which can be any bank authorised in that jurisdiction) and a computer programme which will transfer money from the designated account of the cardholder to the bank of the retailer (or whoever).
    There is an interesting subset of pre-paid debit cards which can be used by bankrupts who don’t have bank accounts and credit facilities (because the accountholder pays cash into a ringfenced account set up by prepaid debit account firm and cannot go overdrawn) so that they can buy things with plastic or over the internet (ebay is cheaper than the High Street so this makes sense if you are broke – and you can’t overspend with a pre-paid card).
    The main source of profit for credit cards – the interest on uncleared balances – is not available to providers of debit cards. So where is your major source of profits going to come from?

  6. john77,

    (RTFM, when your money lender writes to you and the effect is in your benefit or neutral, they print it on a one page glossy leaflet, when it is in their interest it is in the form of a letter pointing out a change to subsection 6 on page 24 of the enclosed Ts&Cs)

    The bank guarantees to provide the funds, they can put a check/stop on your card for transactions over a certain amount but each confirmed transaction has a cost, it is cheaper to allow unconfirmed transactions (usually less than £15) to go through without a balance check, the bank recoups these costs and more through excess overdraft charges (which most customers pay when charged).
    This is Instant Credit (you were not told at the time of the transaction that a £x charge would be levied, this is in the Ts&Cs, current charge for a decline is zero but they reserve the right to change).

    Typing your PIN is a Request for Credit whether you have clearable funds or not.
    (read that line again, then read your Ts&Cs)

    Almost all of the costs of day to day administration of Credit/Debit cards is paid by the merchants in the form of transaction fees and % of transaction fees
    (ok Tim, the customer ultimately pays, even the cash ones)

    The provider benefits from all the interest it charges on unauthorised overdrafts and extended credit, the provider risks never getting the money back.

    Traditional banks can cross sell (personal loans, mortgages etc.), pureplay credit/debit can’t, this was reflected in the interest spread but nowadays pureplay can sell your details which has narrowed the spread.

  7. Ivor,

    money is backed by the promise to pay, it is the lack of belief in that promise that provides the opportunity to profit.

    If you back up that promise with the cast iron guarantee of solid gold, where is the usurious profit ?

  8. Please, please, pretty please, become an issuing bank.
    What the world needs now, more than anything else, is a private currency.
    And you get your head on the notes & coins.

  9. @ BobRocket
    I don’t have a moneylender – I paid off my last mortgage twenty years ago. [No, my credit card payments are always more than covered by the balance in my bank accounts but the ability to claw back fraudulent charges is a reason for using credit cards on some occasions (mostly it is to have a paper trail that I can present to HMRC when they eventually come round to check my tax return)].
    On a pre-paid debit card the bank doesn’t guarantee anything – if the funds asre not there the transaction is rejected.
    The customer pays because some expletive-deleted middle-class so-called “consumer champion” petitioned that purchasers using credit cards shouldn’t have to pay for the extra costs to the retailer – so the working class who couldn’t get credit cards pre-Brown have to share the cost of the much wealthier Polly Toynbee-types who pay for everything by credit cards to save them the effort of carrying cash.
    FYI – my bank rings me up [actually a computerised female voice rather than a real person] when the computer triggers a response to an anomalous transaction.

  10. Tim, if TBB want to be taken seriously then people are going to want to see that the bank has sufficient assets under management.
    (bank assets are outgoing loans, liabilities are deposits)

    I’m prepared to let TBB lend me £3.5bn at NIRP 0.5%, I guarantee that I will invest the loan in ZIRP Government assets of the Government of their choice (redeemable by ECB)
    All you need is another 9 ‘investors’ and you have a bank with £35billion under management, who wouldn’t buy into such a sound financial proposition ?
    1000 such ‘investors’ and you will have both the Italian and German Governments rushing to back you.

    If you want to launder money, start a bank.

  11. john77,

    When you use your plastic the retailer is charged by the clearing house, for small retailers it is a fixed transaction fee plus a % of the total value. (it is just a % for big retailers)
    This is a cost of accepting the card that the retailer is prepared to pay to get you to spend your money with them.
    Ultimately this cost is spread amongst all customers of that establishment irrespective of payment method (finance favours big players).

    There are two types of card that can be presented, those with raised numbers and those (rarer ones) with printed numbers.

    Cards with printed numbers can only be used with electronic card readers and are realtime verified, these include all pre-paid cards.

    Cards with raised numbers can be used with one of those old 3 part vouchers you have to sign (a clunky-clunky machine) called fall-back vouchers
    (remember back in the day when only 10%ers had barclaycards and everybody else used cash, the cashier had a slidy thing for cards, they still have one under the counter but nobody knows how they work).

    That fall-back mechanism is now verified by PIN instead of signature and is implemented in electronic version, we used to have a list of blacklisted cards we couldn’t accept, that is checked by the computer now but that is the only difference.
    (there are no checks, every credit agreement created increases the assets held by the bank)

    The customer with a raised number card enters a Credit agreement backed by the credit/debit card company with the retailer at the point of sale.

    The customer with a printed number card authorises the issuer with a payment to the retailer instruction, the banks only get paid the transaction costs with no increase in assets and no opportunities to gouge an overdrawn customer so you pay those charges upfront.

    Your bank rings you when it sees dodgy transactions because it can charge back the transaction to the retailer, this is risk management, they determined that you check your statements and won’t pay the charges so they cut their losses, shrink their assets by refunding the credit and pass the cost back to the retailer.

    It was the Banks in collusion with the Government not Toynbee who campaigned for retailer transaction charges to be hidden so there was no advantage to cash transactions, Governments lose tax and Banks lose charges in a cash economy, they both lose control when the ordinary people understand what money really is which is why there is a war on (fiat)cash.
    Both Governments and Banks are run by statist fuckwits, they believe (fiat)cash is money, it isn’t.

    Money is fungible.

    Whilst (fiat)cash can display the attributes of fungibility in circulation and acceptance, it, in and of itself isn’t fungible, all of a sudden it can become unacceptable.

    Money (by definition) is the only true medium of exchange and can never become unacceptable

  12. Another thought.

    In which country would TBB be operating? In UK and US, for instance, credit cards are very popular. This is a very expensive way of getting consumer credit but the big attraction is that you don’t have to make a specific loan application so convenience is a factor.

    In continental Europe, Credit cards are far less poular because a debit card generally comes with an accompanying overdraft facility for people with a decent credit history and a regular income.

  13. TMB,

    you normally pay for any bit of the overdraft you use (a nominal amount if pre-arranged, more if not)
    The perceived advantage of a CC is the no charge/interest free period (usually 30 days) and whatever consumer protection is offered (the CC provider buys the product and sells you the credit, saves having to build a car)

  14. TMB,

    what you describe is a Charge Card (traditional AMex or Diners Club), the transaction fees for retailers are extortionate and they don’t expand credit (no increase in assets) so they are falling out of favour, read the Ts&Cs of the transaction, these ‘Debit’ cards with guaranteed overdrafts sound suspiciously like Credit cards with 30 days to pay despite what they brand them

  15. OK, Country still nuder US sanctions. Not under EU. Upper middle class types want a card that works outside said country. Maybe a bank account to. That’s pretty much it.

    Two options: supply the services.

    Take an introduction fee for pointing to someone who will.

  16. Slightly laboured, but very droll. Almost.

    Short answer : take the finder’s fee and run.

    Slightly longer answer : find a smaller bank, or private banking / family office type of entity, or an offshore arm of a larger bank, and see if they would create a product specifically for that set of customers, assuming that the risk profile of those customers and the political risk and sanctions environment is one they’re happy to deal with, that you could stick a brand on and sell.

    Don’t dick around trying to set up a entity that would be acceptable to the regulators and your other counterparties for this set of customers from scratch, as the political environment could change drastically before you get even half way done.

    So yes, you could enter the type of agreement(s) with a licensed deposit taker of the sort that allows Tesco Bank to operate, or Manchester United to issue credit cards, and run “bank in a box” type software, but for a couple of thousand customers in a country under US sanctions? They’d have to be UHNW types at least, which raises another set of questions.

    Also : nuder US sanctions.

  17. I think BobRocket’s posts explain why my French Visa card from BNP is both a credit and debit card: the difference between one and the other appears to have been eliminated (anything I spend on it is deducted from my bank balance at the end of the month).

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