Digital & Crypto Are Shifting On & Becoming a member of Conventional Finance

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Traditional finance and the “revolutionary youth movement” are, more and more, moving toward each other.
The “revolutionary youth movement” is the name given to the young entrepreneurs leading the charge in the digital and crypto worlds by Peter Thiel, the libertarian tech investor.
One of the latest examples of this has just opened its doors and combined the intelligence of the “revolutionary youth movement” with the resources of traditional finance.
The co-founder of the $13.0 billion financial-tech startup Plaid, Inc., and his wife, have recently acquired, and rebuilt, the traditional bank NorCal, re-named Column, and now have opened up a whole new approach to the ” new” fintech organization.
Speaking of youth, the acquirers of the bank William Hockey and Annie Hockey, are in their early 30s. Mr. Hockey cofounded Plaid during his senior year at Emory University.
“Plaid’s software bridged the gulf between banks and fintech apps, allowing companies to plug into banks accounts with consumers’ permission for the purpose of looking up balances and verifying other personal financial information.”
Today, more than 6,000 app makers are Plaid customers, including Robinhood Markets, Inc. (HOOD) and PayPal Holdings, Inc.’s (PYPL) Venmo.
The dilemma here is that almost every big fintech company has to rely on bank partners for regulated tasks.
The bigger banks are not interested in this business.
This leaves the business up to “community banks in far away places to do their financial grunt work.”
“Community banks tend to outsource their own technology to old-schooled software vendors whose digital offerings are limited and whose fees are often high.”
Not so for the hockeys.
The NewAge
The Hockeys team has developed its own banking platform.
They are totally responsible for the technology and the platform is customized with a direct connection to the Federal Reserve’s payments network.
The network has allowed them to sign up other fintech clients to bring even more activities to the bank.
“Everything that you can do at your bank, I want you to be able to do that with three lines of code,” states Mr. Hockey.
Plaid wasn’t and isn’t a bank.
Mr. Hockey left Plaid in 2019 but still serves on the board.
Mr. and Mrs. Hockey did their work and acquired the bank.
The bank had a “clean” balance sheet and was close to San Francisco.
The Hockeys wanted managers and employees to remain, as they divided the bank into two separate segments.
The Hockeys are co-CEOs with Ms. Hockey overseeing internal operations, legal, and compliance, with Mr. Hocky running technology, product development, and engineering. Mr. Hockey is the more “big picture” person. Ms. Hockey was formerly a consultant with Bain & Co.
The community bank continues to operate in Chico, California and the banking platform, which opens this week, is run out of San Francisco.
And, that is the way it goes.
The Financial World Is Changing
This is just another example of how the separate worlds are coming together.
Again, we see this transition taking place in many ways.
For another picture, look at how the young revolutionary Sam Bankman-Fried with his cryptocurrency exchange is talking with David Solomon and Goldman Sachs.
Mr. Bankman-Fried realizes that the young revolutionaries cannot do it all alone.
The young revolutionaries need to work with traditional finance. They need to talk with traditional finance. They need to combine with traditional finance.
And, the young revolutionaries need to bring in the legal wing to meld in with the traditional world.
Bring In The Lawyers
Here we find another example to help support our claim that the transition to the “new” world is really happening.
The article headline in the Wall Street Journal tells it all!
“Crypto Industry Can’t Hire Enough Lawyers.”
“Crypto exchanges and companies are poaching attorneys to help them navigate an evolving regulatory landscape”
“Crypto exchanges and companies are poaching attorneys left and right, from both law firms and other crypto companies, bringing them in-house to help navigate an evolving regulatory landscape while helping to curb outside legal expenses.”
“The increased demand for lawyers also marks a turning point for crypto, whose early supporters often expressed skepticism of regulation.”
“The industry has been expanding rapidly with hopes of attracting more mainstream investment opportunities and many are embracing the stance that they want regularity clarity.”
This, to me, is just another step on the way to bringing the new world about.
In the earliest stages, we generally always hear about how good it is to keep the government, the regulators, the intermediaries out. Let the markets do their thing.
Yet, as the technology progresses, people cheat on others, people use the technology of illicit purposes, and people just plain try and get away with things.
And, regulations and regulators have to restore the limits by which a society works and prospers.
The crucial thing is to achieve the right balance between free markets and regulators. And, I always like to err on the side of free markets.
The conclusion one can draw from all of this, however, is that the technology is here to stay and will continue to spread throughout the economy.
Back to Traditional Commercial Banking
The most encouraging thing about the movements I have reported on today is that the traditional commercial banking structure is being attacked.
Most commercial banks are too small.
Most commercial banks do not have the staff or the technology to fully operate in today’s world.
And, most commercial banks don’t even want to try to become “modern.”
I think that this is true of some of the bank regulators, as well.
The question has always been about how we are going to break into this fortress and bring the banking system into the 21st century.
The regulators don’t really seem to want to do it.
I’m not sure that Congress really wants to do it.
Therefore, economic forces must become strong enough to topple the structure piece-by-piece.
But, it really seems as if the time is here.
We have little or no idea of what the future banking system is going to look like. We are still in the period of radical uncertainty.
We are moving, however, and history tells us that in all likelihood the movement will accelerate.
Let’s work with the transition and build the best banking system possible, given the current technology.