A few years ago, I wrote a blog called Best Cryto to Invest. A lot of people read it, and some of them wrote back and asked questions. I got to know a few of the readers, and we started talking about ideas for investments that could be better than bitcoin or gold. Some of the ideas were terrible, but some were good.
The questions were about how online businesses should go about getting bank accounts and other services. The old way would have been to send away some cash and wait as long as it took for the bank to get around to giving you an account. This is not a very good way to run an online business because you can’t rely on the postal service to deliver your checks in time for online payments.
That’s when I realized that banks were already handling all sorts of small-time online business accounts — things like invoicing and recurring billing — so why couldn’t they handle more complicated ones? That was the start of Trellis Bank, which was designed from day one to offer high-volume banking services to internet startups.
Banks are the leading edge of the financial services industry. Technically, they’re “financial intermediaries,” which is a fancy way of saying that banks are places where money moves from one kind of person to another and then back again, most often in a computer-to-computer transaction.
A bank has to be big enough to have lots of customers, but also small enough to have a lot of information about those customers. Banks are basically giant databases. They hold enormous amounts of information about their customers’ accounts and transactions. But that’s not all banks do. Some banks offer other services, like loan services or foreign exchange services or account opening services or investment advice or insurance brokerage services or whatever you want to call them. The part that’s interesting for online entrepreneurs is the part about banking: how can you get your business banked?
The first problem that everyone has when they start an online business is where to store the money. Most of these businesses need a bank account, and banks are not very keen on letting new customers open accounts online.
Many people have this problem: they want to start an Internet-based business, but they don’t want to leave their money in a traditional bank. Having a bank account is how you pay taxes; having a bank account is how you get credit, whether to buy inventory or hire a contractor. Without one, it’s hard to keep track of your money and make sure you’re getting paid the right way.
One solution is to store your money in Bitcoin or another virtual currency of the future. Bitcoins are electronic bits of computer code that aren’t tied to any single country or corporation. But Bitcoins aren’t regulated by governments, either; instead they are created and destroyed by software programs run by private companies, who can change the rules at any time without warning or explanation. There is no central authority that regulates them; there’s no good way to audit them for fraud or theft or counterfeiting.
Another solution is to store your money in an account at one of the many companies that offer banking services over the Internet. The idea is that you can deal directly
Because banks are so slow and inefficient, people have always dreamed of being their own bank. Online banking, in particular, has been a dream that has had no shortage of investors. But now the dream is becoming reality–and it’s not a good idea.
The first thing you need to do when you start a new business is to look at your options for banking. You don’t want your personal checking account to get clogged with checks that bounce or overdraft fees or just-in-case savings accounts. You might be able to open an account at the local branch of your bank, but there’s no reason why you can’t keep a separate account at the same bank for your business as well–or at a competitor if you’re entrepreneurial enough to move to another bank.
You can also open an account online, but this is extremely risky. If the business doesn’t work out, you won’t be able to use it for your personal finances: you’ll have to close it and go to another bank. It’s also hard to find banks that will accept online deposits from businesses–otherwise known as “money-laundering” operations.
That said, there are some online banks that allow companies like yours to operate as small businesses (or “S
In the 1990s, when most banks wouldn’t give you a loan because they thought you were a start-up or a new business, this was the single best way to get money. Now that we’ve all gone online, it’s still a good idea.
The problem is that banks are too conservative. They are part of the system, and they want to stay in their assigned role. They want to be boring, uninteresting financial providers who do boring things well. There seems no point in trying to get them to take risks: none of them will take risks without a good reason. So they won’t take risks with startups.
Thus you have a few thousand micro-loans from banks that last less than a year, and no bank will take any responsibility for those loans if you don’t pay the interest or if the loan gets into trouble. And if you do find someone willing to take responsibility for your loans, it is hard to make the payments; this means that if you want to run your business on the web, you need either a) a bank account or b) some other way of paying your bills electronically. But there are no banks on the web yet, so there are no options B.
One of the main problems with online banking is that it’s very hard to know what other people are doing. Your bank keeps its customers’ data pretty closely locked up. The banks don’t want you to know they have your data, and they can’t tell you what they know.
If you’re a startup, and someone at a bank has access to your data, then it might be useful to know what that person is doing with it. That’s where the best cryto comes in: Crypto is a decentralized system with no central point of control. Cryptography is a technique for safely storing information. Many different companies use cryptography in their products. But there isn’t yet any way for them to tell each other about what they are doing.