Why I am Switching To Posthaven

I have posted on my blog exactly twenty times since September 2013 when Dan and I and Standard Treasury got out of Y Combinator and raised our seed round. Some of the posts have been quite business related while others have been deeply personal. 

All in all, I've had a couple hundred thousand uniques on the blog (my most popular post is about weight loss). Recently I got concerned about Svbtle, the blogging platform I was using. Svbtle is the brainchild of Dustin Curtis, and it's pretty well-designed. But it seems like a side project, and I just don't know much about its long-term viability. 

So, I have decided to switch over to Posthaven

My reasons: 

(1) Permanence. I believe that Posthaven, my content, and my links will be here a long time. The pledge says forever, but a decade or two would be nice.  

(2) Inexpensive. Five dollars a month is pretty damn cheap. I am also actually more comfortable paying for something than not: I know they're covering their costs.

(3) Trust. I know Garry personally through my time in YC. I trust that the pledge is real and he always try to do the right thing by us users. 

What I lose:

(1) Time. Posthaven doesn't seem to take markdown, so I had to convert all my markdown to HTML. There are some other basic administrative annoyances. 

(2) Kudos. On Svbtle, if someone enjoyed your post they could give you "Kudos". On Posthaven they can "Upvote". For good reason, I can't set the number of upvotes myself, so that's all gone. 

Standard Treasury as Bank

At Standard Treasury we are building an API banking platform, becoming our own bank, and doing so in the United Kingdom. I want to address these three aspects of our work and also talk about the long-term social potential for our bank.[1] 

Banking as a platform 

Over the last six years, we have seen a proliferation of startups at the application layer of banking. Some examples include LendingClub, OnDeck, Braintree, Stripe, WePay, Betterment, Wealthfront, Osper, TrueLink, Angelist, Seedrs, GoCardLess, FutureAdvisor, Square, LendUp, etc. 
 
Behind each one of those institutions is a bank. Sometimes these are big banks like Wells Fargo or JP Morgan, while sometimes they are small banks like BanCorp or WebBank. At either size, the technology is terrible at these banks. The interfaces which one has to deal with are foolishly designed, risk and compliance management are often done by hand, and the entire infrastructure often uses legacy technology that makes speed, consistency, and reliability very difficult. 
 
We are building the programatic banking platform which should underlie the new, growing application layer of finance. We want to be the Amazon Web Services of banking. Our wholesale commercial banking infrastructure will be unknown to most of the public, but it will power some of the biggest applications and companies in the world. 

Becoming a bank 

We must be our own regulated, deposit-taking institution in order to build the platform and product we are planning. We have to own the entire regulatory and technology stack.

On the regulatory front, we will be foot-forward on things like risk management, AML detection, sanction-list referencing, etc. We need to understand what our partners are doing and build our technology to work to underwrite and manage our risk. We have to understand our customers (specifically financial technology startups), so that we can help regulators understand our customers. In short, we have to be a purpose built communications layer between our partners and everyone else — including regulators and payment systems. Today, bankers are doing a bad job of this. (In fact, regulators have hit a lot of the small banks in this space with consent decrees, exactly because they did not manage risk properly).

On the technology front, after building out APIs for core banking systems in the US, we determined that none of the standard offerings met our desire to drive the entire bank with a secure API in a highly performant manner. We have been unimpressed with existing bank infrastructures. Both homegrown (often ancient) systems and the ones provided by vendors like FIS, Fiserv, and Jack Henry cannot fulfill basic requirements around security, auditability, reliability, speed, and usability.

Our core banking system is built using an API-first design. Every operation in the bank is controlled by a secured rest API, with a micro-services architecture on the backend. Because we started from scratch, we built our system with security, reliability, speed, and usability. We are using Clojure, PostgreSQL, Storm, docker, etc [2].

A bank in the United Kingdom

The UK regulatory environment favors more competition in the banking sector. They are actively encouraging new challenger banks. After extensive research, we have decided that it is more capital- and time-efficient to start a bank in the UK and build our wholesale services there with any number of great financial technology customers. We will then come back to the United States, either through a branch or agency (which traditionally emphasizes wholesale commercial banking activities) or through a US-based subsidiary.

By working closely with our UK regulators (the Prudential Regulatory Authority and the Financial Conduct Authority), by being competently run, and by proving our business model in the UK, we will be able to return to the United States more easily than we could pivot a purchased bank's model to it. 
 
Additionally, the US is averse to granting new banking licenses, and buying a bank often leads to more headaches than opportunities. (See my post Startup Banking’s Looming Leviathan). 

The long-term opportunities

When we talk to venture capitalists, we talk about the size of the opportunity. We have a small target market (financial technology startups) and also a clear larger target market (the $259 billion a year wholesale banking market). 
 
But I want to touch on something else. I care about the potential social impact of a bank that changes the cost structure of financial services. I want to build a bank that disrupts banking. And not just because I might do well economically, but because it would be one of the most powerful ways for me to help others do well economically.

Many people cannot access financial services because banks simply cannot make money off them. Starting a business, raising one’s family out of poverty, or just saving for a rainy day are all far more difficult without access to a bank. I hope to radically change the equation through our systems, allowing many more people to have access to the financial system.

By creating a platform which makes it cost-effective for smart folks everywhere to build applications, companies, and non-profits that use our services, I believe that we will impact millions of Americans and tens (if not hundreds) of millions of global citizens.

That might sound grandiose, but fixing the banking system is not an abstraction to me. It is what gets me up every morning — and reminds me that even though we likely have to do six or seven nearly impossible things to make this dream of an open, safe, compliant, risk-managed, technologically-enabled, and regulated banking API platform a reality, it is all worth it. 

Footnotes

[1] Once when I was in college, I asked a professor about an unusually short page limit for an assignment. He responded that "to be abstract is not to be vague." I have tried to live up to that notion in this post. There is a lot of abstraction here. Examples include getting regulated in the UK, the particular hardships of getting regulated in the US (whether de novo, purchase, or partnership), capital requirements and how to grow infinitely while following the rules, technical architecture, feature rollout, risk and compliance management, foreign operating licenses (branch, agency, or subsidiary), how we would specifically support individual companies, what social impact for the underbanked would actually look like, and the list goes on, and on, and on. Some of these topics I will write follow-up posts about, while others are secret Standard Treasury sauce. 

 [2] If this sounds interesting to you, email hiring@standardtreasury.com :). Our product engineering team is staying in San Francisco.

Standard Treasury as a Startup Bank

At Standard Treasury we are building an API banking platform, becoming our own bank, and doing so in the United Kingdom. I want to address these three aspects of our work and also talk about the long-term social potential for our bank.[1] 

Banking as a platform 

Over the last six years, we have seen a proliferation of startups at the application layer of banking. Some examples include LendingClub, OnDeck, Braintree, Stripe, WePay, Betterment, Wealthfront, Osper, TrueLink, Angelist, Seedrs, GoCardLess, FutureAdvisor, Square, LendUp, etc. 
 
Behind each one of those institutions is a bank. Sometimes these are big banks like Wells Fargo or JP Morgan, while sometimes they are small banks like BanCorp or WebBank. At either size, the technology is terrible at these banks. The interfaces which one has to deal with are foolishly designed, risk and compliance management are often done by hand, and the entire infrastructure often uses legacy technology that makes speed, consistency, and reliability very difficult. 
 
We are building the programatic banking platform which should underlie the new, growing application layer of finance. We want to be the Amazon Web Services of banking. Our wholesale commercial banking infrastructure will be unknown to most of the public, but it will power some of the biggest applications and companies in the world. 

Becoming a bank 

We must be our own regulated, deposit-taking institution in order to build the platform and product we are planning. We have to own the entire regulatory and technology stack.

On the regulatory front, we will be foot-forward on things like risk management, AML detection, sanction-list referencing, etc. We need to understand what our partners are doing and build our technology to work to underwrite and manage our risk. We have to understand our customers (specifically financial technology startups), so that we can help regulators understand our customers. In short, we have to be a purpose built communications layer between our partners and everyone else — including regulators and payment systems. Today, bankers are doing a bad job of this. (In fact, regulators have hit a lot of the small banks in this space with consent decrees, exactly because they did not manage risk properly).

On the technology front, after building out APIs for core banking systems in the US, we determined that none of the standard offerings met our desire to drive the entire bank with a secure API in a highly performant manner. We have been unimpressed with existing bank infrastructures. Both homegrown (often ancient) systems and the ones provided by vendors like FIS, Fiserv, and Jack Henry cannot fulfill basic requirements around security, auditability, reliability, speed, and usability.

Our core banking system is built using an API-first design. Every operation in the bank is controlled by a secured rest API, with a micro-services architecture on the backend. Because we started from scratch, we built our system with security, reliability, speed, and usability. We are using Clojure, PostgreSQL, Storm, docker, etc [2].

A bank in the United Kingdom

The UK regulatory environment favors more competition in the banking sector. They are actively encouraging new challenger banks. After extensive research, we have decided that it is more capital- and time-efficient to start a bank in the UK and build our wholesale services there with any number of great financial technology customers. We will then come back to the United States, either through a branch or agency (which traditionally emphasizes wholesale commercial banking activities) or through a US-based subsidiary.

By working closely with our UK regulators (the Prudential Regulatory Authority and the Financial Conduct Authority), by being competently run, and by proving our business model in the UK, we will be able to return to the United States more easily than we could pivot a purchased bank's model to it. 
 
Additionally, the US is averse to granting new banking licenses, and buying a bank often leads to more headaches than opportunities. (See my post Startup Banking’s Looming Leviathan). 

The long-term opportunities

When we talk to venture capitalists, we talk about the size of the opportunity. We have a small target market (financial technology startups) and also a clear larger target market (the $259 billion a year wholesale banking market). 
 
But I want to touch on something else. I care about the potential social impact of a bank that changes the cost structure of financial services. I want to build a bank that disrupts banking. And not just because I might do well economically, but because it would be one of the most powerful ways for me to help others do well economically.

Many people cannot access financial services because banks simply cannot make money off them. Starting a business, raising one’s family out of poverty, or just saving for a rainy day are all far more difficult without access to a bank. I hope to radically change the equation through our systems, allowing many more people to have access to the financial system.

By creating a platform which makes it cost-effective for smart folks everywhere to build applications, companies, and non-profits that use our services, I believe that we will impact millions of Americans and tens (if not hundreds) of millions of global citizens.

That might sound grandiose, but fixing the banking system is not an abstraction to me. It is what gets me up every morning — and reminds me that even though we likely have to do six or seven nearly impossible things to make this dream of an open, safe, compliant, risk-managed, technologically-enabled, and regulated banking API platform a reality, it is all worth it. 

Footnotes

[1] Once when I was in college, I asked a professor about an unusually short page limit for an assignment. He responded that "to be abstract is not to be vague." I have tried to live up to that notion in this post. There is a lot of abstraction here. Examples include getting regulated in the UK, the particular hardships of getting regulated in the US (whether de novo, purchase, or partnership), capital requirements and how to grow infinitely while following the rules, technical architecture, feature rollout, risk and compliance management, foreign operating licenses (branch, agency, or subsidiary), how we would specifically support individual companies, what social impact for the underbanked would actually look like, and the list goes on, and on, and on. Some of these topics I will write follow-up posts about, while others are secret Standard Treasury sauce. 

 [2] If this sounds interesting to you, email hiring@standardtreasury.com :). Our product engineering team is staying in San Francisco.

My Mental Health Story: Depression, Plagiarism, and Analysis

Over the summer, I wrote two articles on mental health and startup founders. One was on how the mental health problems of the founders I know often extend beyond depression and another was about how many founders I know have trauma and mental health issues.

These posts seem to have hit a nerve with a lot of folks, as every week I get a few emails from folks discussing their own struggles with mental illness as founders and asking me to share my story (as promised in both posts). Mental health issues are incredibly common but not talked about enough. They are prevalent almost everywhere and perhaps even more so in Silicon Valley. I hope by sharing my story people might be able to relate to the problem more, share their own stories, or even seek help if they need it.

Taking so Long to Write: Embarrassment and the Too Simple Story

I've really struggled with my write up for two primary reasons.

First, I find my story embarrassing. Not because mental health challenges are embarrassing, but because the critical event that finally forced me to seek help was a prolonged series of stupid mistakes. To mix the illness and the errors together too casually does a disservice to both. I am not sorry for being sick; I am ashamed of my actions. It's the same story, though, and I will trust the reader to have generous intentions.

Secondly, my story ends up tidy. Too linear. Fall, recovery, redemption. It’s true, but it also feels trite to me. I was depressed for a long time. That was terrible. I sought attention by doing something public and stupid. I got caught, I took time off from college, and I went to therapy four times a week for nine months. I had the luxury to address my depression.[1] I made the choice to not take a psychiatric medication, which isn’t an option for many people. I haven't been depressed since. Afterwards I lucked out professionally. So in short, things worked out for me pretty well.

But I have many friends and family members who haven't been so lucky: some have spent years on what clearly in retrospect was the wrong medications or with the wrong diagnosis, some have had terrible times with therapists, some have been hospitalized, some have had their lives put on hold for years, some struggle so profoundly right now that they think their VCs, their employees, or their families would abandon them if any knew their challenges.

Reminder

A month or so ago, a few people sent me a copy of an interview with William Deresiewicz in the Atlantic called The Ivy League, Mental Illness, and the Meaning of Life. The essay touched a number of nerves for me. I was just such a student that he points to: the elite school, the sense of grandiosity, the deep depression, the fear of failure, the strong desire to do more than I was capable of doing, not asking why I was doing things (good and bad), and a very superficial understanding of myself.

That all changed when I took those nine months off from Brown in 2007. I went to therapy four days a week for nine months. I read the entire Contemporary Civilization and Literature Humanities course requirements of the Columbia Great Books curriculum. I built a language of reflection. I asked myself why I was motivated to do the things I did. I changes the trajectory of my mental health and my life.

Crisis

But to get to that utopian outcome, I made an incredibly stupid and embarrassing set of mistakes. I had been a columnist in the Brown Daily Herald, and, over a number of columns and a number of years, I plagiarized. I also plagiarized in a letter to the New York Times.

This ended up being a very important moment in my life. I had been depressed for several years before then. My therapists later described my condition as "long-lasting, complex, deep and persistent."

It's easy to say that my depression had it's root in a complicated relationship with my mother when I was young, or in being raised by my dad from ages ten to eighteen. As I wrote elsewhere:

In my case, my parents had me when they were incredibly young and promptly got divorced. I lived with my mother, an alcoholic, until I was ten. At that point, we had gotten in so many drinking-related car accidents together, that my stepfather was asking for a divorce and child welfare agencies demanded I move to live with my father. I didn’t see my mother again for eight years.

It can also be too easy to cast simple stories for complex realities. It can be easy to blame someone or something. It's not particularly useful, though -- it can often just be a shorthand to describe things to other people. There was some interaction of my childhood and everything else I'm sure of: not feeling completely at home at Brown, coming from such a humble background[2], not being comfortable with my weight[3], being popular in high school, but never being sure why that was, moving four times as a child and feeling like an outsider frequently, etc., etc.

I had what therapists call dysthymia. It's a mild but long-lasting form of depression. It was not so severe that I could not go to school or have outward success. In fact, I had too much of the outside world, I was successful. However, under it all were symptoms of fatigue, despair, trouble concentrating, overeating, and a sense of worthlessness. I did not know where to turn and my friends did not know how to help. I could not identify my problem and had no idea how to treat it.

Depression can be simplified too far. Often, when people are talking or thinking about depression they oscillate between two characterizations: one being severe depression and the other being the blues, a mild today-is-not-a-good-day mood. However, what I suffered was in between those ends. As my therapist put it once, it was a "low-grade, smoldering bad depression". I cannot recall, late in my high school years or during my college years, a time when I was happy -— at least in the ways others describe happiness.

Plagiarism came from a hope to get the help (I knew deep down) I needed. This is not to excuse my actions -- I think they're inexcusable -- but merely to explain them: In my own head, I needed to find a way to get someone to notice that I was unwell and unhappy, not moving through life as fine as I seemed. Many might turn to alcohol or drugs, but my outlet was as subtle as my condition. It was as self-destructive, too.

When talking to a boss about this, years later, she noted that "plagiarism just comes from laziness, and you would have to do a lot to convince me otherwise." In all but one case I was not lazy though, I wrote almost every sentence with my own ideas but then, hoping that I would get caught, I would add a sentence or two verbatim from an outside source. In retrospect, it does not make any sense. I sought attention, not for glory, but in the hope that someone would say to me that I had a problem, and would help me.

I did get caught. I did get help. I did get exactly what I wanted: for my world to fall apart and for me to build a new one, built on a better foundation.

Reflection

Analysis was a life-changing experience for me.

I began by finding a therapist that I jived with well. Not an easy task anywhere, made harder by living over an hour from the nearest city. Finding her, we agreed upon a commitment of four days a week.

So began the most difficult time of my life: a slow exploration of who I was, what I had done, and a difficult childhood. Every day, I traveled an hour and half, each way, to go through talk therapy. The drives themselves became part of the therapy. Beforehand, I would think about what I wanted to talk about that day. While on the drive back I would reflect on, or "consolidate", what I had talked about.

We named the problem. I remember the moment I said to myself, "I am depressed and it is treatable." Comfortable with this prognosis, I made the personal choice to avoid medication. Although nothing came easily or simply, we talked through the various destructive behaviors in my life.

There is no easy way to explain my analysis. It was slow: somehow both methodical and chaotic. Sometimes nothing much would happen in a session, sometimes a lot of progress would be made and I was upset the hour was over. It's exhausting. It's hard work. It can be yelling or crying. Sometimes my therapist seemed like my best friend, sometimes incredibly distant. Neither is factual but both were true for me.

A lot of work in therapy is, in a way, getting to know yourself. It was learning about my past, sometimes remembering things long forgotten. Acquiring a sense of why I do the things I do, where they came from. Sometimes all of this is simply labeled cognitions or "the mental action or process of acquiring knowledge and understanding through thought, experience, and the senses." Mental action is a nice way of putting it while in practical reality it can be a pretty brutal process to figure things out.

And that goes on. Four days a week, every week for months. There were rarely big revelations. One day doesn't seem much better or worse than the last, but one month to the next often seem better. Slowly, steadily, I was feeling better. I was more emotionally and physically active. I was growing to know myself better.

It was also a moment where I had a uniquely large amount of time on my hands and could read all those books. At the time I thought I was just using my spare time wisely, but, in retrospect, reading those books was part of my therapy. The Iliad is about wounded pride and hubris. Hard to read the Confessions without thinking of one's own sinful youth, as it were.

Where I Am At Today

It's been almost seven years now and I can't underestimate how helpful it is to seek help and address one's issues, no matter how hard that might be. Today it can almost be hard to relate to who I was before the analysis. All in all, I appreciate how far I have come, how differently I feel, and how happy I am that I went through the process, especially at that fairly young age.

I would not say I know myself fully, but through analysis I gained a much better idea of how I feel and why I feel the way I feel. My friends who knew me, before and after, noticed that I became a little more quiet, a little more thoughtful, a lot happier, and much surer of myself, not in arguments or intellectually, but in a deeper, who I am, sense.

Mental Health Beyond Myself

Stigma around mental illness, which is pervasive through academic and success-driven communities, is difficult to overcome. Sometimes, I feel like I should be a mini spokesman around mental illness. One in four students in college is clinically depressed at some point in their college career. I was one of them. I wouldn't be surprised if the numbers are similar among startup founders, and even though I haven't been depressed in over six years, I sort of wish I could do more to support those folks. To help them seek treatment without a crisis like the one I manufactured for myself.

People need to be more candid about mental illness. They need to be more forward. They need to be less embarrassed -- it isn't something to be embarrassed about.

More people need to have more understanding and acceptance. To do that, people need to speak up. The treatment around mental illness in this country could use a lot of help, which is difficult when it's so hard to talk about it publicly.

And on, and on, and on. My depression's public manifestation is the worst thing I've ever done in my life. It makes me feel like I am the wrong person to push these issues much farther. But maybe it gives me the ability to be more public about my mental health. Maybe I can work to address these problems by creating a discourse and finding ways to help.

Side Note: Consequences

I am not going to plagiarize again. It's a stupid, now unnecessary thing to do, and I obviously write so much now that these essays are unmanageably long. But I wouldn't take back the plagiarism, per se. It was a necessary precondition to get the help I needed.

It was a very important, if overly public, period of my life. It's the fourth or fifth link on a Google Search for my name, so it definitely comes up.

Obviously, I've since gotten in to Y Combinator, convinced people to work with me on building Standard Treasury, and gotten normal jobs/internships at Stripe, the City of Newark[4], Bennett Midland, and the US Department of State[5] as well as fellowships at Harvard and NYU. In all of these situations, I've had to discuss this history in a lot of detail with my employers.

On the other hand, there are some jobs I have been seriously considered for that I haven't gotten -- particularly government appointments, both for the Federal Government and the City of New York -- because, well, I did do something very stupid and very public in college. Although most people's reaction seems to be that we all do stupid things in college, most avoid doing them so publicly.

I do hope to, one day, hold another position of public trust beyond being Mayor Booker's Senior Technology Policy Advisor, but that might be a hard thing to do.


Footnotes

[1] I moved to live with my father, who was incredibly supportive. He had moved to teach in Kansas and had an extra bedroom. My maternal grandmother gave me some money for food, etc., and my therapist saw me for nearly free during her lunch hour. I was also 22 and had no real responsibilities to anyone really.

[2] Things got complicated here. When I was growing up, my Dad was a postal clerk and my mother a waitress/chef. When I was fourteen, Dad went back to get a BA at Rutgers and then stayed on there for an MA and PhD. This leads to two simultaneous complications: (1) My Dad and I intellectually matured at the same time and (2) My Dad made...whatever PhD students make...until months before I took time off to go to therapy. I grew up in a small, working class town in New Jersey and without very much money: Brown was a culture shock for me in some ways.

[3] See Losing 58.3 Lbs for Science

[4] Part of my job in Newark was to break some eggs, so, one of my adversaries leaked my appointment and plagiarism to the New Jersey press. Some folks chatted with Mayor Booker's Chief of Staff and Chief Policy Advisor, and everyone decided it was a non-story.

[5] I applied for my internship at the Department of State before leaving Brown in 2007. They let me know in May 2008 that they'd like to do my security clearance. I passed the clearance and showed up for an internship, after deciding with my therapist that I was ready. On the third or fourth day, I told my bosses at the Office to Monitor and Combat Trafficking in Persons. Quite conveniently, they were all Christians and Bush-appointees, and they definitely responded to the story as one of redemption. Ultimately, they thought hard about firing me, but felt that if I had worked so hard to put my personal life in order then they would help me put my professional life in order. That, they did: it definitely mattered to the first person who hired me after college that I had that internship after the plagiarism.

Losing 58 Lbs For Science

This morning was my final data collection for a randomized diet experiment I have been participating in for the last year. Here is a graph of my near-daily weigh-ins on Withings:  

It can be hard to read: on the first day of the study, October 2, 2013, I weighed 236.3 lbs and this morning I weighed 178.0

The study

I have been a participant in the One Diet Does Not Fit All: Weight Loss Study. The theory of the study, which makes intuitive sense to me, is that people's bodies and genetic makeup are different and, as a result, that different people would lose weight on different diets. That is, they're trying to "find characteristics that would help determine differential response to weight loss diets."

My study is a follow up to "The A to Z Weight Loss Study" which randomized premenopausal women to one of four diets. In that study, among many other things, "the investigators observed a 3-fold difference in 12-month weight loss for initially overweight women who were determined to have been appropriately matched vs. mismatched to a low carbohydrate (Low Carb) or low fat (Low Fat) diet based on their multi-locus genotype pattern."

Thus my study was born. It started as the Diet X Genotype Study and got NIH funding, and then expanded both in the tests administered to each participant and the number of folks in the study through outside funding (see more in the Wired article Why Are We So Fat? The Multimillion-Dollar Scientific Quest to Find Out).

They're testing as many of us on as many factors as they can to see if some of the those factors correlate with successful weight loss on one of the two randomized diets: low-carb and low-fat. For example, they're sequencing the parts of genome that might predict our success on one diet or the other. Additionally, they figuring out how insulin-resistant we all are (through a Glucose tolerance test, our resting energy expenditure, something about how our fat is stored (I had two fat biopsies), and also information about our microbiome. The outcomes seem pretty simple: weight, waist, and a body composition measurement (DXA scan).

Why I joined the study

I've been overweight for a long as I can remember. Actually, obese, which at my height is anything over 190, and "severely obese" at times, which is 250 and above.

My weight didn't really come up all that much on my mind or with my friends. If anything, it was just the target of my own self-depreciating humor. I got made fun of some in middle school, but that might just be why I am a tough fella.

Adulthood is more explicitly forgiving although perhaps not implicitly forgiving. I do remember having a very candid conversation with my high school math teacher my senior year. I was close to him and had him for three years. He had worked in industry for a long time before retiring to teach us calculus. At some point my self-consciousness about my weight came up and he shared with me that as a one-time manager of people he thought I'd be disadvantaged in life for weighing so much. People would assume things about me that weren't true. I might not get jobs or opportunities I deserved for the subtle biases that being obese brings with it.

I didn't think about that all too often though. I didn't think about it much, since I really had never known anything else. I had always felt like I could do the things I wanted to do without much inhibition. I now know that you do get treated differently if you're thinner and more attractive, something I'm sure I "knew" but wasn't particularly pleasant to think about fifty pounds ago.

Thinking a little bit more about my weight had a weird trigger: James Gandolfini dropped dead at 51 last June. My reaction was oddly personal, since it's not like I'm a big fan or anything. I thought to myself: he's an overweight guy from New Jersey, and I'm an overweight guy from New Jersey. I don't want to die when I'm in my fifties. I suddenly became concerned about my long-term health.

I wasn't sure what to do though.

Around this time, Dan and I were driving a lot between San Francisco and Mountain View while we were going through YC. We had lots of meetings with VCs, meetings with potential bank customers, and meetings with startups to understand their financial problems. Over and over again, I heard a radio advertisement for a Stanford weight loss study. A few times I'd think to myself that I have to remember the URL or Google it. Eventually, after a month or two, I did.

I then got invited to be screened for eligibility. One has to be at least overweight, with relatively stable weight, and be within certain blood pressure and cholesterol bounds. (By the way -- the study is still recruiting) I got through that and then attending a informational, consent, and Institutional Review Board session: these things could happen to you, the diet could be terrible for you that's the point of a randomized experiment, will you consent to the extra tests and to having your blood stored forever.

The support and training

After that all, I was assigned to a particular nutrition class. On the first night, I showed up with almost twenty other people. We were a cohort of sorts. We would all have the same diet. We'd see each other consistently over the year to learn from our nutritionist and to share how it was going. It was some mixture between group therapy and a very basic science class.

For the first eight consecutive weeks we got training and support on the diet. Things like how to do lunch, how to snack, etc. After that the classes tapered: every other week, then every three weeks, then just once a month from the six-month mark to the end of the year. The classes also switched to shared topics across the cohorts like mindless eating, making sense of food labels, sleep and weight loss, etc.

These classes were incredibly important and supportive. Even though people might be on the "right" diet or the "wrong" diet, it always felt like they wanted us to succeed.

The diet

I was randomly assigned to the low-carb diet. For the first eight weeks they'd like you to try to stay below 20 grams of carbs a day. (For folks familiar with Atkins, that's total carbs not net carbs). That's a low amount. I stayed below that number for maybe six months or so, although I've become a little more liberal now introducing things like berries and nuts. I still haven't had grains, bread, rice, potatoes, sugar, etc for a year now.[With few exceptions, see footnote 1]

I find the low carb diet pretty easy to maintain: it's basically vegetables, meat, eggs, cheese, and then pure fats like oil and butter. Thank god for cheese. In particular, I eat out a lot and it's usually pretty easy to manage these restrictions. Many dishes are composed of a carb, a protein, and a vegetable. Almost everywhere I've eaten in the last year they'll substitute more of the vegetable for the carb. I do have to avoid some types of places I've historically loved: pizza, ramen, dumplings, etc, but no one has minded changing locations of get togethers.

I think the low-fat diet is a little harder to manage because you're trying to avoid oil and butter. That's hard to do and eat out. Although, there is an element of resiliency here: maybe if I was on the other diet I'd say that was the easy one.

Sometimes it can be hard for me to know whether it's the diet that made my weight loss. I haven't eaten at Bi-rite Creamery (a famous ice cream shop) or Tartine (a famous bakery) in a year, both of which are minutes walk from my house. That is, importantly, my relationship with food has changed. It's become no less joyful but it has become more deliberate. I think about what I'm eating.

I'm pretty sure I eat less. I eat a lot, more than I need to I think, but I use to go, for example, to an Indian buffet or something like that and eating until I was absolutely stuffed. I've only had that feeling a few times in the last year.

So was it the composition of my food or my changing relationship to eating? The answer is likely both.

The other stuff

Whether or not it was the easy diet, it worked well for me. I've also been particularly fanatical about the diet. I find it easy to have a strict rule-set and then just to follow it without compromise. I like how the diet has limited my choices, particularly as I'm building Standard Treasury. I also think having an oracle -- Stanford, science, whatever you'd like to call it -- is very helpful. I can't break the diet because more is at stake than just my personal well-being.

Most importantly, though, is that I'm at an easy place in my life to do this sort of thing. Some of the other people in my class have spouses who weren't doing the diet and/or kids. It's pretty easy for me to do exactly what I want food wise because I'm not actually beholden to anyone else. It's easy for me to eat protein heavy because the cost of food isn't a concern for me.

I also did not have any naysayers. All of my closest friends, my family, and my colleagues have been incredibly supportive over the year. Some of them have even adopted the diet entirely or almost always follow it when we're together.

There are also compounding returns, cumulative effects, or a virtuous cycle in two senses. The first is the results. I lost ten pounds, people notice. People compliment me. That's feels good. I stick with it. I lose ten more pounds. Etc. At some point the speed at which I was losing weight certainly slowed down, but by that time I had lost a lot of weight. It doesn't happen all the time, but I have pretty constantly seen people over the last year who haven't seen me since before the diet started: and their reactions have only gotten bigger and better over time. That's a big motivator.

The other place I've seen compounding returns is in exercise. Even before the diet, I had exercised pretty consistently, but as I lost weight it became easier to exercise so I would do so more intensely or for a longer time. Just last week, for example, I was in Boston and didn't have access to the gym. I decided to run around the Charles. I don't think I've run a continuous mile in my life: I easily ran three nine-minute-ish miles. Not fantastic. Not world class or anything like that. But also doable. I repeated that three days in a row. In short, I exercise more because it is more fun because it is easier.

Lastly, in class we learned about the National Weight Control Registry: "The NWCR is tracking over 10,000 individuals who have lost significant amounts of weight and kept it off for long periods of time." These folks have some common behaviors. Among them is: tracking their weight, tracking what they eat, eating breakfast, and being active. Of those, I have done everyone but tracking what I eat over time -- I find it a big pain in the ass. The other three habits have been critical to my success though, and I think I'll keep them.

The future

The results of the diet have been good for me. I've lost weight. My blood pressure has stabilized to normal. I'm more energetic. I exercise more. I'm more confident in some parts of my life. It's been good.

I'm still losing a few pounds a month and I'd like to keep that up. The BMI line between "normal" and "overweight" for my height is 155 lb. My doctor has said I shouldn't force that since I'm much wider (in the shoulders) than an average person my height; however, I'd like to stabilize in the 160s. So, another 15 lbs to go to reach my goal. We'll call is 75 lb. from when I started the study. I think it will be pretty easy to get there: mostly just time and keeping up the fanatical devotion.

More importantly, weight maintenance is a big problem for most people, so I'm not celebrating that much or declaring some sort of victory. I doubt that I'll stick with the diet forever as strictly as I have over the last year -- I'd like to eat a chocolate chip cookie again in my life -- but my relationship with food has been reset. Hopefully that will be the most enduring lesson.

[1] I'm often asked when I've broken the diet. I've broken the diet four times:

  • Dan lost a bet to a group of friends and we scheduled a meal at Manresa;
  • Thanksgiving;
  • I was at a wedding that instead of normal, boring catering had a New Haven thin-crust pizza truck roll up and cook pizzas fresh; and,
  • I went to Japan for a week and wasn't not going to eat any carbs, which would have been quite difficult anyway.

Building the Next Generation of Financial Infrastructure

(This started as an email to the Standard Treasury team to summarize the many conversations that my cofounder Dan and I had with them over lunch, dinner, coding, and a ton of product discussions. The team thought it made sense to share it publicly.)

I often get asked to tell the story of Standard Treasury: Why are we building it? What is our vision? How did we come to this thing over all others?

When asked questions like that one, I think it can be easy to fall into simple narratives or platitudes: we are revolutionizing banking, and have been, since day one! I'm not exactly sure what that sentence means, and nothing worth doing actually comes in a flash of genius. Certainly not by folks like us, who have always gotten on in the world through persistence first, and smarts a distant second.

The bigger problem is that I never have the time to tell the folks who ask the questions all that is on my mind, so I ended up telling them bits and pieces. This [blog post] is designed to tell much of the story although I still haven't captured it all by any means.

The Underbanked and Engineering Financial Operations

For me, the genesis of Standard Treasury was based in the two experiences I had in the year before founding the company.

The first was when I was working in public policy and civic technology in New York City and Newark. Particularly when I was working for Cory Booker and staff in Newark, I became curious about underbanked people — or the problem of financial empowerment as it is sometimes called. I talked to a ton of people about their use of payday lenders and check cashers. What I found was surprising to me (in my ignorance): most underbanked people or small business owners are familiar with banking products, their use, and their relative value over the options they were using.

So, why didn't they use banks? The answers fell into one of two buckets. The first is that they wanted lending products they couldn't get, since the banks considered them too much of a risk. The second was that banks just wouldn't offer them other products even if they had nothing to do with lending. I found this second answer rather perplexing, so, I went to talk to a bunch of banks. What they told me was simple: it cost money to maintain bank accounts — serious money — and if you weren't going to cross-sell customers something, it didn't make sense to bank them.

That surprised me. The more research I did with banks, the more I realized that it was their legacy technology that led to their cost structures. Cost structures that prohibit them from banking some people. In essence, there are folks that banks don't market to and avoid banking because the banks' business models makes those people unprofitable customers.

The second experience was when I was working at Stripe. I won't go into a huge amount of detail here — I try to be careful about my nondisclosure requirements. Having said that, financial operations is a serious engineering challenge at Stripe (see CTO Greg Brockman's Quora answer and the section on financial operations). While working there, I got to see, firsthand, how difficult it was to operate in systems, protocols, and technologies that were designed and built in the 1970s.

Starting Standard Treasury: Commercial Banking API

Standard Treasury started because we experienced the difficulty of working with banks firsthand. Way before the company started, Dan and I had been thinking about why ACH is flat-file driven, slow, and seemingly from a different technological age. Having worked on issues of the underbanked, I realized the real-world impacts of legacy technologies, and working at Stripe highlighted how much of the credit card system was driven by similar technology. The same ideas were highlighted for Dan when he was working on pre-paid cards and stored value.

Standard Treasury was born.

We were focused on the problems we knew firsthand, and used the cases we understood best from our friends. In the early days, we talked to nearly one hundred folks about their banking experience. Some were running small companies, others were the treasurers of Fortune 500 companies. They all said roughly the same thing: "The technological interfaces around my commercial banking experience are terrible and limit my capabilities." Many mentioned Twilio, Stripe, AWS, and Heroku as models of what they wish their banks would be: technology platforms providing services.

From that, we started working on a white labeled commercial banking API platform. This first product was clear to us: companies, big and small, want to build financial functions — primarily on information about their accounts and cash payments — directly into their applications. In the coming months, we will finally be able to see the result of all that work as more than our Make Believe Mutual demo site: after a series of proofs-of-concept we have the option to launch our first, full production platform.

Developers, with a bank account at the bank in question, will be able to go to developers.[bankname].com and use an API platform, developer portal, and SDKs in half a dozen languages to interact with their bank accounts programmatically. Hopefully, a number of our other proofs-of-concept projects will convert into full production platforms with some of the biggest banks in the country and around the world.

Taking Steps Beyond V1.0 of the Commercial Banking API

From there, some product expansions in commercial banking will be inevitable: more information reporting, more cash payments, liquidity management via API, and other banking functions like foreign exchange and lending against receivables (factoring).

The most exciting thing that we've built, however, is an OAuth service that allows commercial customers — some of whom will have no idea what an API is — to use the bank's authorization service to delegate access to the API to third-party developers. With that service, developers will be able to build apps that access their financial information and cash payments, just like Facebook Connect allows granular, secure access to the social network. We hope that folks like Xero and Intuit will build apps, but we are starting to get to the real goal here: allowing developers to think of banks as platforms.

Broadening the Vision

In investor meetings and in candidate pitches when we got into YC, we made the idea of Standard Treasury bigger by abstractly focusing on the idea of bank software being broken. We did not really know what that meant. It was a hard-to-unpack intuition from the state of online banking, rather than something we really understood in particular. Something was wrong. We would find it, and we would fix it.

Over the last year, though, we have learned a great deal about the particulars. We have picked the brains of bankers; fund managers; treasurers of big corporations; startup founders working on finance; startup founders trying to avoid finance who, nevertheless, touch it more than they'd like; executives at our competitors; academics; journalists; experts and leaders from card networks and credit card processors; folks concerned about financial access like the Gates Foundation, Cities for Financial Empowerment, and Omidyar Network; and many more. I read the Financial Times and books on obscure parts of the financial system every day. Dan and I also went through Silicon Valley Bank's and MasterCard's joint product accelerator, Commerce.Innovated, and the NYC FinTech Innovation Lab where banks choose the companies in the program which they are going to mentor. The banks that chose to mentor us were Goldman Sachs, Credit Suisse, Morgan Stanley, and Deutsche Bank, who have been very helpful in highlighting areas of expansion for us.

In that deluge, several things became clear. First, we learned that bank software is a very big market. Even bigger than the number I made up with some back-of-the-envelope math for my YC Demo Day pitch!

Second, we learned that the market is dominated by large public companies that no one in Silicon Valley is aware of, much less really competing against. Banks, almost universally, have bad things to say about the technology and the pricing schemes of these vendors.

Third, we learned that API Banking is much more than a cool feature for banks to have for corporate clients: anywhere that customers interact with their banks is a place that a bank might imagine a well-built API. Banks have approached us about building white-labeled API platforms for lending, sales and trading execution, broker/dealer settlement and exception handling, prime brokerage, card processing (acquisition and issuing), custody accounts, fund administration, retail banking, private wealth banking, repo and other money markets, trade finance, know your customer and anti-money laundering procedures, risk management, and more. (What keeps me up at night is the possibility that we're passing up opportunities by not scaling much bigger, much faster.)

Fourth, we learned that as we build interfaces for external customers to access legacy systems, banks are facing internal and external pressures (e.g. stress test requirements) to build cross-functional interfaces for their own use. Some of the biggest pain points that banks face is talking to their own internal systems.

Fifth, we learned of this platform's potential impact on the world. Every week Dan and I get referred to folks who are starting financial technology companies or not-for-profits. None of them want to be in our business, but nearly every one of them would be able to make their work easier, faster, and better if banks used our products. Despite all that is happening in fintech, there is a lot of pent-up developer and technological potential — potential that would actually help banks, which their unwieldy technology keeps them from enabling.

Banking Today and Tomorrow

There are two types of common innovations happening around financial services: tools that provide some gateway into the financial system, but abstract it away (like Stripe, WePay, Plaid, Spout, WealthFront) and shadow-banking alternatives to a common financial product (Lending Club, OnDeck, Upstart, LendUp, ZestFinance).

We are doing something different: we are working to build the next generation financial infrastructure by building products, interfaces, and developer tools directly.

No matter what changes will happen in the next 10-20 years in finance, we believe that: (1) Banks are here to stay. Banks will exist in the future. The center of the financial system will include banks. (2) Banks need 21st-century technology. (3) Standard Treasury is uniquely positioned as a Silicon Valley startup focused on banking infrastructure to sell to that need.

Enabling the Next Generation of Commerce

So why does all this matter? Well, partially, it matters because I already have friends who are building mobile apps for underbanked folks that are built directly on abstractions that we're helping them with. That really matters to me; it's a huge part of what originally got me into this business. But beyond that, at a more abstract level, we care about building the financial infrastructure because banks are at the center of commerce.

Sometimes, it is easy to think that banks are an end unto themselves and all they do is extract wealth through speculation or innovative wizardry to screw their clients. They do far more than that, too.

Financial and payments systems — including the money markets, foreign exchange, credit cards, ACH, CHIPS, FedWire, debt markets — are all designed to facilitate trade. However, trade is hampered because, although we've entered the Internet age, the technology at and between banks is often in the Sputnik age.

Standard Treasury aims to improve the ways that companies and households do their financial business. We hope to enable developers of all types to build the next generation of tooling on top of banks. We want to improve the ways that clients interact with financial institutions; financial markets; financial market utilities; and payment, clearing, and settlement systems. We build systems to increase global trade, global commerce, and maybe global GDP.

That is an audacious goal and comes with a core thesis: if we improve interfaces inside banks, between banks, between banks and customers, between banks and (technologically sophisticated) resellers of financial services, and between banks and other counterparts, then we can change the very nature of trade and commerce. We can reduce friction. We can lower transaction costs: both the literal costs of transactions and just the pain that exists in the financial system. Ideas that were impossible become possible. Businesses that didn't make economic sense suddenly do. People that were unbanked before suddenly become bankable customers for someone.

Our goal is to make it easier to run businesses — online or off — in the United States or around the world. And as we serve as a data, abstraction, and tooling layer between different banking systems and between different parties that are doing banking, we become a permanent feature of the banking system. That last part is good for us and our investors, sure, but I hope it's also good for the world.

What's next

Through Dan's prodigious marketing and sales efforts, we have come to own a lot of "mindshare" around API banking. That ownership allows us to dream what I've written above: to build the coming generation of financial infrastructure.

We have also done something that is nearly impossible: we are a seven-person company that is being paid by a bank for a product that is loved by nearly everyone we've shown it to. Tons of feedback, yes. Tons of feature requests, yes. But our potential users, nearly universally, loved its execution and, perhaps, more importantly, its potential.

Thank you, all of you, for helping to take this crazy idea and make it a reality.

Mental Health, Trauma, and Startup Founders

A conversation seems to be slowly starting about mental health and Silicon Valley, or at least mental health and starting one's own company. And in a more serious fashion than "you'd be crazy to do it". Sam Altman on Founder depression started the conversations. TechCrunch continued by noting that We Need to Talk about Depression (which also has a good list of links to other similar articles) and Founders on Depression.

In my earlier post, Founders and mental health I wrote primarily about the range of mental health issues that founders can face. We should remember that depression isn't the only manifestation of mental health challenges.

Many people emailed me, talked to me in person, and even wrote a Quora question on one particular thought from that post though: that lots of startup founders I know have experienced some trauma in their past and that that trauma is often a strong factor in their motivation. Sometimes that trauma is a root cause of depression or anxiety or motivation, sometimes it is just present and something to deal with, and obviously sometimes it doesn't exist at all.

I thought I would explain the idea a little more though.

Over the last year I have found that most startup founders had some deep personal trauma in their early lives. Not all people but more than I might expect. Glen Moriarty, the founder of 7 Cups of Tea, and I have discussed it at length but it has also come up with many folks both inside and outside the YC community. It's a topic that someone resonated as something to talk about when you're stressed out and bonding late after one of YC's Tuesday dinners.

The trauma theory made immediate sense to me as I have made a similar observation about many, if not most, of my friends and classmates at Brown. Either they had screwed up childhoods and were motivated by that somehow, or that had intensely attentive parents and were trying to live up to expectations. Either way, I did not find many settled content geniuses who found their way there.

There is a fundamental difference between schools and startups though: in one you know the goalposts and in the other you don't. At school, you are told what targets to hit for success while startups are much more chaotic and kinetic. To me, the idea that some deep, often traumatic, motivation is a powerful catalyst for success, made all the more sense in the world of startups. You have to really want it for whatever reason.

And that reason is often something from one's childhood.

Perhaps I shouldn't use such a broad brush to paint so many people with so common a set of neuroses. It's certainly not the case that everyone that succeeds in life has trauma. (And not all trauma leads to success obviously). But I wouldn't doubt the predictive power of the idea either. As I talked with new friends in YC, throughout Silicon Valley, and beyond about deeply personal topics the theory seemed more accurate. Or at least I had more data supporting the idea. (Although this could all be a selection bias).

In my case, my parents had me when they were incredibly young and promptly got divorced. I lived with my mother, an alcoholic, until I was ten. At that point, we had gotten in so many drinking related car accidents together, that my step-father was asking for a divorce and child welfare agencies demanded I move to live with my father. I didn't see my mother again for eight years.

You know, perhaps if my startup succeeds my mother-of-1997 will treat my ten year old self better? I'm partially joking and partially not.

Dan, my-cofounder, his father died when he was one. His mother was in a coma for some time and had to learn how to talk and walk again. Hopefully his father will be proud of his first billion dollar company.

Time and time again, there are similar stories that come out from co-founders I meet, mostly because I can be candid about my background and this theory. Some with less intensity perhaps but no less motivating to the individual. Some with a lot more intensity but with less motivation. I don’t necessarily feel empowered to share their specific stories here but they're often there, serious, and touching. The speed and positivity with which folks, many profoundly publicly successful, respond to this idea further suggests that it hits on some truth about the startup community.

Ultimately, I spent years of my college life in a path of depression, crisis, and then renewal that have made me stable, happy, and sure of who I am. In many ways I am fortunate that that happened so early in life and not when the consequences of my errors affected many people beyond myself. But at other times I wonder if I lost a little something. Something that people who haven't faced down their demons still have. After all, I was amazingly productive and won many collegiate awards in 2007, all the while self-destructing.

This is correct in the sense that what I do now is no longer compulsive (i.e, unconscious). I was succeeding out of an unconscious drive or push. Now that I have awareness, I can see that I still have this same drive and push, but I can choose where to focus it. It isn't compulsive now.

A number of friends and many people who emailed me after the last post asked me about my experiences through depression and therapy. That write up will be my next post.

Founders and Mental Health

Last week Sam Altman wrote about Founder Depression. Catherine Shu followed on, among others, with a candid telling on TechCrunch of her struggles with depression. I applaud them both.

Many startup founders I know aren't depressed though. They are anxious.They are on the spectrum of anxiety disorders. Real existential concern about whether they'll make it. Whether they're doing the right thing. Whether they'll raise money. Actually that last one isn't anxiety: strictly speaking anxiety is generalized and unfocused fear. A lot of people who are running startups fit that bill though, they have terrible unspecified fear (of failure). You can get pretty far down the anxiety spectrum and just seem like a founder who cares. That is dangerous.

Highlighting depression is useful but also limiting. It can demarcate people who have had certain problems without highlighting others. I believe our community — Silicon Valley, Y Combinator, startup founders, or all ultra-high-functioning professionals — should be having a conversation about mental health more generally, about the sources (sometimes quite dark) of our motivations, about pathologies, about depression, about anxiety, and about other problems. Or, at least, be more comfortable having those conversations privately.

I know founders who are on the depressive spectrum too, which can range from the blues to deep clinical depression. I have a history of depression myself. I have not had a serious depressive episode since I took a year off from college and invested in intensive therapy, but most people don't have that luxury — or they are not comfortable taking that much time given how taboo mental health can be. I remember when I was in the depths of my depression spending eighteen hours in bed with a dreadful sense of melancholy. That's a serious case — I couldn't have run a startup when I was depressed — but depression hits people in different degrees. Someone who seems fine often isn't.

Depression and anxiety are just two examples of the challenging mental health that startup founders can have. Anxiety and depression are often described as opposites, which is too simple a story, and they need not be opposites in our mind. Either can be dangerous and destructive. We need to talk about both. The names of anxiety and depression can sometimes just obfuscate things more: We need to talk about much more too. I know a few (medicated or not) bi-polar founders. I know a few diagnosed with OCD.

No matter the diagnosis or the name, founders can feel isolated by their mental state. They can feel alone, which can make them more depressed, more anxious, more obsessed or whatever. But whatever your particular problem is, I promise you, other people have it. People in the community have gone through it. Many people have gone through it, in fact.

Over the last year I have also found that many startup founders had some deep personal trauma in their early lives. Glen Moriarty, the founder of 7 Cups of Tea, and I have discussed this idea at length and it has come up with many folks both inside and outside the YC community: startup founders insatiable motivation often comes from trauma.

We are all unique but most of our problems are not. Startup founders are so often a community that helps one another with introductions or advice. I hope that in time we can all be as comfortable talking about our mental health. That we could be as comfortable giving advice about our depression or our anxiety as we are about fund raising.

I might write a lot more about this soon. I don't know. Some of my friends, colleagues, and investors have cautioned me against being too public about my own history and my own traumas, but any founder should feel they can contact me, if no one else, whether they're depressed or anxious or something else (or use 7 Cups of Tea).

APIs, App Stores, and the Era of Mass Customization in Banking

Banks have a nearly one-size-fits-all product model which leaves value on the table. For instance, when a bank releases a new online or mobile banking system, it will often be an identical system, with the exact same interface, for all clients of a particular segment. But oil companies like Chevron have different banking needs than do retail companies like Home Depot, even though they may be the same size. This type of mass standardization and lowest-common-denominator mentality applies even more to the retail customers — usually there are just two online and mobile banking options: one for normal customers and one for private wealth clients.

Technology that is new to banking is ushering in an era where mass customization is feasible, safe, and profitable.

Banks of all sizes have spent the last half-decade cleaning themselves up in the wake of the financial crisis. They have been implementing new requirements from the European Banking Authority, the United States Consumer Financial Protection Bureau, and other regulators, as well as adapting to Basel III and other new capital requirements. Many have built new risk management and compliance frameworks in response to sector-wide malfeasance.

Now, though, banks are refocusing themselves on growing top-line revenue. Many banks have organized new teams focused on revenue growth through “the innovation agenda” and “customer experience”. Technology is understood to be a potential driver of the sought-after revenue growth. One such technology will be “API banking” – a concept that, though it seems to have achieved buzz-phrase status, represents a new and revolutionary way of thinking about bank services and how to deliver them to customers.

API refers to the Application Programming Interface: the standards and protocols which allow outside software developers to build applications on everything from Apple’s iOS platform to Facebook’s social graph. This technology and the attitude of open development that goes along with it are now second-nature at Silicon Valley’s leading companies. Apple, Facebook, Amazon, and others capture the imagination and skill of tens of thousands of software developers through an open platform and simple profit-sharing.

With their new compliance and risk management systems, banks are now positioned to open themselves up just as technology companies have. They can build similar platforms for innovation and customer-facing customization. These financial innovations will not be used to obscure risk (as most innovations of recent years have done) but rather to improve how customers, both commercial and retail, experience banking.

We are entering an era of technologically customized banking. Trusted risk-and-regulation-sensitive financial institutions will provide the core financial services via APIs. Then they will leave many of the last-mile implementation details to trusted partners and software developers. Millennial bank customers could have their customized mobile banking with special tools focused on paying down their student debt, while Boomer customers would have an entirely different online banking suite, which could be focused on either building up or spending down their retirement, depending on individual circumstances.

Developers, and the technology that they bring, can make the unprofitable profitable for the platform provider. Just as it might not be profitable for Apple to build and then acquire customers for a variety of bird-focused games — Angry Birds, Flappy Bird, Tiny Wings, et al. — it is also not profitable for banks to build the skill sets necessary to acquire and optimally serve every potential customer. With API banking, specialized third-party developers can profitably provide services that banks couldn’t afford to build, by giving both banks and the new developer companies access to swathes of the banking market, including the underbanked.

As in the Apple App Store, bank clients will be able to find and experience banking in the manner that makes the most sense for them, in a co-branded and protected environment. Customer satisfaction increases with a more personalized user experience, and revenue increases as banks are able to target and display their offerings more precisely.

Crédit Agricole and Deutsche Bank are the only major banks with APIs and app stores in the market right now. But APIs are one of the best and most talked-about ways to increase top-line revenue in the face of decreasing fee and interest income. Many banks are working toward releasing their own this year.

Amid this renewed focus on innovation and customer experience, using APIs and the mass customization they foster is just the first of many lessons that banks will learn from technology companies in the coming years.

Republished from BankInnovation.Net.

Startup Banking's Looming Leviathan

“The skill of making and maintaining Commonwealths consisteth in certain rules, as doth arithmetic and geometry; not, as tennis play, on practice only: which rules neither poor men have the leisure, nor men that have had the leisure have hitherto had the curiosity or the method, to find out.” ― Thomas Hobbes, Leviathan

Jack Gavigan wrote a blog post yesterday titled "What would a disruptive bank look like?" Read it. It is well worth the time.

I basically have the same blog post written. I actually also have the same blog post written as a detailed fifteen-page business plan ready to pitch Marc Andreessen. I outline the technology needed in a bank, the product offerings and their rollout, the legal structure I'd use, the capital structure, relevant bank regulations. Ah and therein lies the rub.

Regulation. I know I am supposed to be a big, bad startup entrepreneur who spurns restrictions of all kind. Particularly those restrictions put on me by the government. But that's just hard to do in this case since you need a license to operate.

Banks don't often fail. They don't often fail because there are real limitations on who can buy a bank and how one can run a bank in the US. Those two ideas – hard-pressed to fail and deeply restrictive operations – are two sides of the same coin.

So, how does that manifest directly for the bank-running entrepreneur?

  1. Maddening capital and other ownership restrictions;
  2. Deep restrictions on personnel and hiring;
  3. Writing a initial seven year business plan and sticking with it for seven years; and,
  4. Deep restrictions in the operations of a bank.

The key problem of restrictive category number (4), and why I walked away from spending so much time on building a bank, is that regulators artificially restrict a bank’s growth rate. The number one historical indicator of a shady bank is rapid, radical growth. Very good lawyers, regulatory advisors, and current regulators at the FDIC, Fed, and the FFIEC have all told me that any new bank would be restricted from growing more than 25% a year. Is that enshrined in law? No. However, latitude and discretion is.

25% a year. A good startup grows 25% a month for years.

I think you're left with four choices then:

  1. Figure out how to bring technology into the banking sector in a high-margin, fast-growing way (that's Standard Treasury);
  2. Build a bank and hold it for a long-time or buy an already big bank (despite all I've said, several investors have approached us about this);
  3. Build a bank someplace in the developing world that has less restrictive laws and then port it back to the US later (ready to talk when you are Marc); and,
  4. Avoid banking, per se, altogether. Build out different parts of banking like lending (Lending Club, SoFi, Capital Access Network, On Deck) and payments processing (Stripe, bitcon startup du jour).