From: Matthew J Ghio <mg5n+@andrew.cmu.edu>
Date: Tue, 18 Jan 94 09:49:32 PST
To: cypherpunks@toad.com
Subject: Re: Internet Banking
In-Reply-To: <9401180200.AA16565@runner.utsa.edu>
Message-ID: <AhD22D600awJ8Uf2Bj@andrew.cmu.edu>
MIME-Version: 1.0
Content-Type: text/plain


dwomack@runner.jpl.utsa.edu (David L Womack) wrote:

> As a recent subscriber, I'd like to ask a question or
> two regarding banking...

... a question or two... or ten...  :)

> 1.  Such a bank would clearly need to be
> offshore, and in a location with no banking
> or taxation treaties with the US.  Some of these
> are available, but, the record of quality
> accounting and regulation isn't always the best.
> What is the feeling about what depositors would
> want from such a bank before they "did business".

This is a major problem.  You'd proabaly have to make sure there were a
wide variety of products or services availiable on the net that were in
demand, to make people need to use your bank.  Maybe you could get
shareware authors and online database operators to advertise that they
accept digimoney for their services.  You could probably encourage this
by offering them free services or other incentives.

> 2.  What is the minimum list of services a bank
> should provide?  Deposit and transfer between
> inhouse accounts would be easy...wire transfer
> elsewhere would not be a problem...even handling
> some investments could be done.  On the other hand,
> things like unsecured loans, credit cards, and immediate
> access to someone in "account services" would be a lot
> more difficult to implement.

Well, I'd be happy with a simple checking account, where you could type
checks and sign them with PGP.  Unsecured Loans would be a big
problem...the bank might not be able to offer much (if any) interest on
accounts.  Of course most checking accounts don't offer much interest
anyway so that's not a bit problem.

> 3.  What minimum account size would be appropriate?
> Domestic branches of offshore banks (i.e., Union Bank of
> Switzerland) generally require 100M, but the branches are
> subject to US record keeping requirements.  Offshore,
> $1,000 or less is common.  Would such levels, in your
> opinion, work?

I'd start off with no minimum balence.  You want as many customers as
possible from the beginning.

> 4.  Statements.  Generating statements is time and
> accounting intensive.  Generating statements on
> checking accounts is NOT cheap.  Would accounts
> have to have scores of small transactions (i.e., $25
> bucks for the xyz bill), or would it be possible to
> merely feed a domestic account from the offshore
> account.

It is very cheap if it's all computer automated and statements are sent
via email on the network.  The reason checking account statements are
expensive for conventional banks is because of the physical costs, such
as paper, ink, envelopes, postage, etc...

> 5.  Currency.  US dollars?  Swiss Franks?  Other?  Foreign
> currency is a nice option, but would up the costs for a
> startup bank.

Dunno.  Probably multiple currencies, or maybe just backed up in gold.
Theoretically the bank would want to accept any form of money, if it was
a international orginization.

> 6.  Yield.  Would depositors demand a yield?  Current low
> rates at US banks seem to make this unimportant, but is it
> really unimportant?

See #2..

> 7.  Fees.  What level of fees could the bank charge?  A
> regular US checking account for a small business can cost
> $10 a month...

Hopefully none, if they can secure the use of a large amount of capital
to invest.

> 8.  Any thoughts about marketing?  Offshore banks, as I
> understand it, cannot lawfully advertise their services
> within the US.

Irrelevant.  They don't need to, if they are known on the internet.

> 9.  Other thoughts?  What do YOU think would be needed, unneeded,
> nice to have, in such an entity?  What would frighten potential
> customers away?  

The biggest problem is that there isn't much security of your money in
such an institution.  The second problem is how does one deposit money
in the bank?  Do you send them a check?  Where do you send it?  How do
you deposit cash?  It wouldn't be feasible for such an institution to
maintain many physical branch offices.

To set up such a bank you'd need a fairly high-bandwidth internet
connection, some computers and a software development team.  You might
also need to hire some customer service agents to answer email and
telephones (if you have them).  That's about it.  A small operation
could be run by two or three people, if you couldn't do it all yourself.