Direct deposit · Financial Services

Chicken or the egg first ?

Chris Kwan & Inventor 10 US Patents in FinTech, P2P Prepaid Cards (US PATENT 8,650,126)

May 28th, 2016

I have this idea which is already matured into a functioning website and patented in the US. It is not the best website but it works. The idea is to provide a market whereby depositors provide deposits and banks/financial institution can bid for said deposits. Currently most banks advertised their deposit rates and some bad apples even go as far as to collude on reporting the average rates (remember LIBOR ?). 

Being an auction site, the problem I am facing is that no banks want to bid and no depositors want to provide their funds as there are no banks bidding. Someone told me that I should do like match-making sites by using fake hot chicks data to get traction. Someone else told me to make it exclusive (lke FB when it first started only those who can register, this gets people curious and excited) as banks only like to deal with those with lots of money rather than tiny deposits. 

Oh the unique part about my patented system is that the depositor can ask for either interest rate (cash) or something else (equivalent like shares or bonds etc). Most folks I speak to have no idea how to do this. It is like they can only ask for cash as this is what banks have trained all of us to accept or expect. Any suggestions most welcome. This is my first post so I hope I have not offended any rules. 


Scott McGregor Advisor, co-founder, consultant and part time executive to Tech Start-ups. Based in Silicon Valley.

May 28th, 2016

Banking laws vary from country to country and even sometimes state to state. Some banks may not be allowed to offer securities and may be only able to offer interest.    You might therefore NEED to knock off small niche markets one by one (Facebook model you noted).

The other strategy around Chicken and the Egg problems involves bringing in a third stakeholder, either temporarily or permanently.    

I faced the same problem when developing the first web conferencing systems. No one wants to present when there are no audiences, and no audience member want to sign up when there are no presenters of interest.     The solution was to pay presenters ourselves to deliver their (formerly primarily live) lectures on our web conferencing system.   We found a bunch of popular business speakers like Tom Peters and we hosted their presentations ourselves.  People who could not attend their live presentations came to our web conferencing system, not because they were interested in the technology but because they were interested in speakers we set up.    Once they came we had evidence of an audience that would be available for future speakers, and this temporary juicing of the market got us started (I guess this is akin to seeding a dating site with fake profiles, or more like paying desirable people to be on your site).

For some businesses you may need a permanent 3rd stakeholder and a different business model.   Visitors to a city like San Francisco want to know where are the interesting restaurants, bars, and night clubs to go to. And those venues want visitors to find them, too.   But these businesses are often low margin and have very limited advertising budgets.   So if you charge the businesses, you don't get many of them signing up.  That leaves you with only a small part of the market in your guide, and that's not interesting to visitors who want to see something comprehensive.    On the other hand, visitors are used to online information being free, so they don't want to pay either.   The solution to this dilemma is to involve a 3rd party advertiser like wine, beer and spirits companies, who want to associate their names with certain venues.  Now the listing can be free to venue and visitor  and the business model is adding an advertisement into the listing.

I hope one of those techniques are useful to you.

Susan CFA Principal of Scotch Pine Capital, a Management Consulting firm for Financial Institutions

May 28th, 2016

Chris, I see at least two questions here: first, what's the value to depositors (higher interest rates? consideration other than cash?) and second, how to get banks to participate. Let me focus on the second question for this post. The relevant questions you should ask: what type of banks want deposits? What kind of deposits are of value to banks - core operating deposit vs excess deposit. Are deposits assets or liabilities for the banks you talk to (yes, some banks in fact charge clients to keep their deposits, hence negative interest rates). What are the capital requirements in the jurisdictions you intend to operate in (so the banks may or may not have an incentive to take in retail deposits). Then let's look at your scenarios under different interest rate environment - if the Fed increases rates, will the pendulum swing to an era when it starts to make sense for banks to want deposits again?  These are just some of the questions to start with. Given complexity of the banking industry, I'd suggest that you start with a limited scope as pilot and grow from there if you see traction. Keep in mind existing operators (e.g. and ask how your offering is different and superior; ask also if you can collaborate and partner with existing players so you add value without having to invest in infrastructure build out. 

Orion Parrott Founder and CEO, Lendsnap YC S16. We're hiring!

May 29th, 2016

My guess is you would need a financial broker license to do such a business. FDIC, CFPB, OCC have rules about how you incentivize consumers to transact. For example for mortgage lending, you have to have a mortgage broker license to match a borrower to a lender and realtors are not allowed to get a kickback from the introduction unless they are also a licensed mortgage broker. But maybe for depository accounts there is no such licensure. 

As a consumer, I like the idea of banks bidding for my business with an interest rate. Nice market to make if you can!