When Tryggvi and Haukur the founders of Indo reached out to me more than 2 years back and said they wanted to launch a new bank, I immediately jumped to work with them. Banking as a function is broken if you have not noticed, individual banks are fine. They will continue to be fine because of Lindy Effect.
Indo just announced the closure of their Seed Funding, more importantly they are out of stealth mode and are in the middle of getting their banking license approved by the FME. You can sign up to join #teamIndo. Iceland Venture Studio is one of the early investors in Indo. We are very impressed with the speed and execution of the team. They have quickly built the technology infrastructure that integrates with the financial backbone of Iceland. They have also integrated with a debit card provider to offer their first product, simple, easy to use debit card and interest wallet. This wallet will be mobile first and operates like all bank accounts but with a current user-interface and also offers the best interest rate that is available irrespective of what balance is held in the account.
Banks have differential pricing and differential service offering, they do that for a reason. Bank’s main business is lending i.e. they aggregate deposits from a lot of people and lend it to a business with interest. The interest rates that they charge for loans is usually much higher than what they pay to their deposit holders. The margin allows banks to employ people, own the building they operate from and to pay the bills to run the day to day operations of the bank. Given the above business you can understand why a bank would like to attract someone to deposit more money by offering them a better interest rate than someone with lesser money. With the above business model banks have already stated that they value customers who have more money in deposit say $1,000,000 than say someone who has $1,000.
The above model works and it will continue to work, but most people don’t need all the sophistication and complications that the banks embody now. You don’t believe me? All you need to do is walk into the Risk Management or Credit Management or Market Operations departments of the banks. They embed so many risks and they employ so many people to manage that risk. It will make you wonder what does a bank do these days. It usually looks like a command center for the space program. Here is a picture from the Bank of America trading floor in New York
Banks have morphed into these institutions that have become too big to fail, the situation is no different in Iceland or Ireland or any other country. Banks form the core of the economic engine. I think when things become complex, they also become fragile i.e. every shock breaks it and hopefully you want to believe that it makes it stronger but I am not sure. We need to rethink banks, Indo is the first commercial bank license that will be issued by the Icelandic authorities after the 2008 financial crisis. They are starting with a very simple offering and the advantage is that the entire banking function is built ground up with technology to support digitization of money.
I am excited to see how we can change the banking landscape in Iceland through technology and some brand new thinking. The Indo team is building new technology that operates the banking function, because we rely on technology, the cost of scaling accounts is almost zero because we don’t have buildings, branch offices or credit manager or risk managers or anything that traditional banks need to have. Indo does a simple function, take the over-night rate offered by the Central Bank of Iceland and democratize that privilege to all their customers. The mission of Indo is to do to banking what Amazon did to retail. The principles are the same and I think the timing could not be more perfect.