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Money – it’s been around for 1000′s of years and drives most people to do things, good or bad. When you have money, you also need banks to provide a safe place for people to deposit their money. These banks then turn around and lend this money to others. This simple business model is how banks have operated for 1000′s of years and thrived on the difference of what interest they gave to depositors and what interest they received on outstanding loans. Over time, banks started to offer more and more products to generate more and more revenues. Many of these products were not that simple and in the process were given a fancy name – structured products, which just means they are customized for each customer based on their specific needs. Then BOOM, the financial markets collapsed and many of the banks faced near bankruptcy because of their loosing lending practices and their structured products which started to come undone. In the aftermath of this financial carnage a new group of “banks” are emerging in the US to get back to basics in banking.

The four that have emerged include – Bluebird, GoBank, Moven and Simple. All are pretty similar in that they have low fees, no physical locations, heavy use of technology but a couple are not actual banks. To be called a bank you need to be a member of the Federal Deposit Insurance Corporation (FDIC) which means the deposits are insured by the US Government for up to USD 250,000.

Bluebird - Bluebird is a partnership between American Express & Walmart, the distribution strength of Walmart and the credit card experience of American Express (AmEx) is what makes this offering interesting. The product is a no-fee checking account that has a debit card. The target audience is low-income shoppers who have a tough time getting a regular credit card. Bluebird is a bank since at the height of the financial crisis AmEx was turned into a bank holding company so it could accept money from the Federal Reserve.

GoBank - Green Dot first made it big with it’s prepaid cards it offered to low-income consumers, then it forayed into other parts of the banking sector. Green Dot acquired Bonneville Bank, an FDIC member bank, and renamed it to Green Dot Bank. GoBank is brand of the Green Dot Bank. The offering is similar to Bluebird in that it offers an online checking account, debit card and access to most ATM’s in the US.

Moven - Moven started out as Movenbank then changed its name because it’s not a bank. It has partnered with an unnamed FDIC member bank. Moven offers the usual banking products but really shines around the money management tools it offers. MoneyPulse is one of their tools which tells you where you are spending your money. Moven was started by Brett King who has authored several books on the future of banking, his latest book is called Bank 3.0.

Simple - Simple also started out with a different name, it was first known as BankSimple. But it also is not a bank and has partnered with The Bancorp Bank, a member FDIC bank. Early on Simple attracted a lot of attention as one of it’s early founders Alex Payne was an early employee at Twitter. Alex left Twitter to startup Simple which was seen as a stamp of approval for Simple in that it solves a real world problem. Alex has since left the company. I signed up for the service but I really don’t use it much since I don’t live in the US and most of my transactions are Rupee denominated, however the overall interface has definitely got some great eye candy.

Bottom line – Most of these new age banks are offering a convenient mobile platform via iOS and Android devices to allow consumers to interact with their bank information. In addition, most of them have spent a large amount of time and resources on the UI of their website and mobile apps. However, I still believe it’s early days with these banks and feel they need to also address the investment portfolio part as well. By adding the investment piece, it creates an end to end solution which many consumers are still looking for.

Back in November 2011, Ron Johnson head of retail at Apple moved over to JC Penney as it’s CEO. Ron had already been at Apple for 11 years and made bank as he watched the stock zoom from around $25 in January 2000 to over $375 in November 2011. It was time for him to move on and JC Penney is where he decided to work his magic and transform it into “the Apple of department store chains”. His resume reads like a Fortune 500 baller – Stanford University, Harvard Business School, Target (struck the deal with Michael Graves), Apple (created the Genius Bar concept)…jeez, JC Penney had found their savior.

Based on his past work experience it seemed like it was a slam dunk that JC Penney was going to crush all the other department store chains like Sears, Dillard’s and Kohl’s. However, after a brief 17 month stint Ron Johnson was fired this past week from JC Penney and the board reinstated Mike Ullman as it’s CEO. It ended so quickly before it even got started, but revenues fell over 20% and institutional investors headed for the exit – the stock is down over 50% since Ron was made CEO. So what really happened?

Simple, the board felt that one guy could rejuvenate the company’s fortunes because it worked before for Ron. The board failed to realize it’s about the overall team and also the right market sentiment sometimes called timing or luck which most people tend to negate. Remember Jon Corzine? Goldman Sachs CEO whiz turned Senator, who became the CEO of MF Global and within a short period bankrupted the company. His strategy was to implement the same trading style he employed at Goldman Sachs, the difference is that Goldman Sachs had a risk management team in place whereas MF Global only had a single dude with an Excel sheet to manage the risk.

Ron was probably a rock star at Apple because of Steve Jobs’s unrelenting focus on products and simplicity. Even Jobs was not a one man show, he needed a designer like Jony Ive on his team to help dream up the amazing products that Apple would sell through their retail stores. When I moved to India in 2005, I was part of an algorithmic trading fund that launched a product in 2006 and we collected over Rs. 200 crores (USD 50 million) in a matter of months. I still get pitched by other algo traders wondering how we got so much money in a short period and honestly it was just timing. It was early 2006 and the Indian equity markets were headed for the moon and several private banks had started their retail banking operations. We went through the due diligence process for the banks and got some private investors to invest in the fund. Then one day we get a call from one of the banks and our algo product was approved for distribution to their clients. BOOM, that opened up the flood gates and the money just poured into the fund.

Would it work today? No, the regulatory environment is very different. Back then banks were getting 2% commissions which today is no longer allowed. In addition, retail investors are more risk averse today then they were back in 2006. Just because it worked back then does not mean it will work again.  It’s similar to the statement all mutual fund companies makes in their marketing – “past performance is not a indicator of future performance”…so, so true.

Large payments, micro payments, online payments, credit card payments…payments in general are what makes the world go around. In most mature markets the issuance of new physical credit cards has reached a saturation point. Instead consumers are looking towards newer technologies such as near field communications (NFC) to allow their mobile phone to transact a payment at a retailer. It’s pretty clear that the smart phone will become your wallet and it completely makes sense. If you lose your physical wallet you have to go through the hassle of calling all your banks and canceling your credit cards. However, if your smart phone has a password on it, then your biggest worry is which new awesome sauce phone you will buy to replace the lost one.

In emerging markets like India, the use of a credit cards never really took off because of various reasons – no credit rating system, slow legal process to go after defaulters and a large percentage of people that are not “economically viable” for credit card companies. However, it’s becoming clear that as more people open bank accounts they will want to transact and most will opt for their smart phone and not a credit card to make payments..sorry Visa and MasterCard.

Before we continue let’s run through the various payment systems available in India today:

1. Real Time Gross Settlement (RTGS) is run by the Reserve Bank of India (RBI). It deals in high value and high volume, most widely used in India.

2. National Electronic Funds Transfer (NEFT) is also run by the RBI. NEFT is more retail in nature and includes large volume but not in value. It’s a batch system and thus not real-time.

3. Immediate Payment Service (IMPS) was created by the National Payments Corporation of India (NPCI). It’s a mobile phone payment service.

4. RuPay was created by NPCI and is similar to other cards networks like Visa and MasterCard. It’s India’s own cost effective credit/debit card network.

5. Aadhaar Enabled Payment System (AEPS) was developed by NPCI in association with the UIDAI, who is in charge of the Aadhaar national identity program. It will allow for payments between Aadhaar members.

There is a lot of activity in the payment space and it’s clear by looking at the above list. Personally, I think IMPS will end up dying since setting it up is a major pain in the ass and thus most retail customers will opt for NEFT. For India to implement RuPay would be a huge win and it would bring down the transaction costs for credit cards which are currently around 3%. However, I can see Visa and MasterCard doing everything in their power to make sure RuPay never becomes commercially viable. China has their own credit card called UnionPay and it is the largest credit card issuer in the world. China has the will and ability to implement large scale projects and I believe that is where India may stumble and give in to Visa and MasterCard.

But most interesting is AEPS, as more of the population gets an Aadhaar number (India’s equivalent of a social security number) it will allow 100′s of millions of people to make payments. Remember many of these people getting an Aadhaar card never had a bank account and now are becoming part of the banking system. Teamed up with a smart phone they can now transact via their phone whereas before all their payments were made in person. The perfect storm of – low cost payment systems, national identity card and smart phones will create a whole new market for many startups and allow commerce to flow easier in India.

I have a very bad habit of looking at everything through the lens of a business model. Places of worship are absolutely the last place you want to try and rationalize a business model to. However, over the last several years I’ve had the chance to visit the insanely popular Tirupati temple located in Andhra Pradesh and started to think through its business model.

Like any other business, Tirupati offers various services depending on how much money you shell out, in this case a donation to the temple. And, like any other place of worship they also provide free prayer offerings. Tirupati also offers differentiated classes of service, like the airline industry does with its first, business and economy class segments.

The differentiated classes of VIP service is what probably brings in the bulk of the money. Like a freemium business 80-90% of the people visit the temple for free and the rest of the VIP attendees pay to keep the lights on and allow Tirupati to continue with its charity work. With each passing year that I have visited Tirupati I’ve noticed the lines getting longer and longer for the general admission prayer line and I get the sense it was designed that way.

Its better to have more and more people visit the temple because it increases the likelihood that a small percentage of the attendees will pay for VIP access to the temple in order to skip the long lines. Essentially the attendee has converted from the free product to the paid product. The product is the same but getting access to it has been made easier. The reality is that religions for 1000′s of years have had a freemium business model in place, its just in the last 100 years we have started applying it to other products and services.

One of my biggest pet peeves is when someone expects me to write down the same thing over and over again when they are are providing a service to me. An example of this would be the medical system in India. I’ve visited the same hospital about 4-5 times and everytime I use their service I end up writing down my name, address and etc.  And, this is even after they have given me a customer ID which has all the information already. When I question them, the response is always the same “sir, that is the way our system is.”

For the medical system to be so antiquated in this day and age is a shame. Everyone is so busy we don’t have time to keep on repeating the same thing over and over. Writing down my name is actually the least of my concerns, what is more alarming is that certain things slip through the cracks.  If a persons entire medical file was put online, the doctor and/or hospital could constantly monitor what is happening and throw up any red flags if a certain medicine was given for a prolonged period of time. Or a new doctor could instantly have access to the entire patient history file online and quickly get up to speed about the patient.

Over the past 4 months, I’ve been on Storvas (a cholesterol reducing generic of Lipitor) and have had to get my liver functions tested every month as the doctor adjusts my dosage of Storvas (20mg, 10mg, 5mg…). It’s the same racket every time – I fill out a form at the hospital, they take my blood, after a day or two I pickup the results and then go see my doctor.  Could this process be automated? Of course. In an ideal world I would have given my ID, they take my blood and my results would have come via email as a PDF attachment. Then I could have forwarded the results to my doctor. (Of course, my doctor is 85 years old and I can’t see him screwing around with the latest version of Adobe Reader to view my blood results.)

Another example is when I get my car serviced by the same company that sold me the car. They already have all my information in the system but yet they will always ask me to fill out a form. And yes, the form has the basic information such as car, plate number, address, etc… Luckily, they do keep track of the work done to my car. I asked if I could get access to that historical information and of course it’s a closed system…not surprised.

Writing things down for your personal benefit is fine, the problem is when you are in a commercial setting is where things break down. In India, the writing things down system (WTDS) is super cheap and thus if someone has to write down the same thing 10 times it’s okay. It takes real money to modernize a system and I’m assuming as businesses get more competitive in India, they will have look at technology to up their game.