Maybe someone will invent it one day.
Merchant fraud doesn't appear to be a big problem. Probably because the merchant requires a Dutch bank account, which requires a lot of identifying paperwork
It's pretty awesome.
Many other European companies have a similar system, and I believe there are plans to join them into one system. Let's hope the credit card lobbyist don't manage to mess it up.
Also instant 100% certainty is a bit too much in the face of fraud.
I worked in AML for a short time, and this:
> There were myriad buckets of n users who loved having a financial account designed just for them. A few examples from our own data: coparents, houses, art collectives, extended families who get along, teams, people who share livestock, churches, punk bands, weekend hustles, extended families who don’t get along, wiccans, and our team’s personal favorite, firehouses.
sounds like a compliance nightmare. Who is the beneficial owner of the wiccans collective bank account? What happens when one of the punk band member turns out to be an Iranian national? If three art collective members all deposit 5000 in one day, is that "smurfing" (splitting transactions so that they are under reportable thresholds)?
I think there is a good argument to be made that our current regulatory regime is bad, I'm not defending it. In this current regulatory environment though, "business style accounts but for informal small groups of individuals" cannot possibly make sense as a product. Their sponsor bank obviously didn't care when they were pulling minuscule numbers (10mm in monthly volume on a business account is really not very much to most banks.) Once Compliance finally decides to look at that Braid account, I'm sure it makes perfect business sense to offboard it for risk reasons. I'm shocked they didn't realize this.
ETA: If you are going to build a Fintech, please go listen to The Dark Money Files podcast first,
https://www.thedarkmoneyfiles.com/
Maybe hire them to tell you if your product makes sense. You can't "move fast, break things" with FINRA, it's NOT easier to ask for forgiveness from OFAC, etc.
To address your points:
1. The ownership of funds is mapped pro-rata to every user's contribution. If three people contribute $10, $10 and $20 dollars, and then the pool gets spent down to $10 total, the technical per-dollar ownership is $2.50, $2.50, $5. It was critical to have a down-to-the-cent mapping of individual ownership of every dollar in our system at all times. While funds availability is dictated by Federal Law (Reg CC), funds ownership was something we were allowed to establish in our own Terms of Service. It's still live and available to read here (Section 4): https://braid.co/legal/tos if you'd like. Funds ownership was not related to spending permissions, which could be decided by the pool admin (for example, maybe you want all users to be able to spend all available funds, that's up to you).
2. Every individual who signed up for Braid went through our KYC/CIP process. We had a very robust (and expensive) waterfall to verify every indiviual, and screened the entire customer base every time the OFAC list was updated. I was never on board with concept of "treat the group as a single entity" for exactly this reason. For consumers, a group is not a business or an entity, it is a group of individuals and should be treated as such. There are always false negatives and these systems aren't perfect, but if you're on the OFAC list you wouldn't be able to simply sign up for Braid and slosh money around. That's illegal.
3. We built from-scratch internal anti-money-laundering software that was designed to catch exactly the kind of money laundering that could only happen in a pooled account structure, in addition to all the standard money laundering tactics (circular transfers, flow-through, structuring, transaction frequency, and more)
4. From my perspective, a product like this makes sense within the existing regulatory environment IFF the startup (us) was willing to do the hard work to figure it out. We absolutely were and had the time and money to get it right. But yes, it was very complex and at times infuriating.
5. As noted in the piece, the bank off-boarded every fintech they had -- debit cards for college kids, small business banking apps, neobanks for different consumer groups. I know this because we had a phone chain/support group by the end of it. It wasn't about our business model, it was about getting out of fintech sponsorship entirely.
6. We've gone through detailed compliance reviews with multiple banks, and worked with a handful of well-known legal experts (at least that's how they billed). Especially by the end, we had a good sense of the regulatory constraints and what the regulators care about these days. I've met with the OCC personally a couple times and gotten their perspective as well. FINRA regulates investment products, not deposit accounts.
In sum, while there is no such thing "move fast, break things" in fintech, the idea that we shouldn't fight for what consumers want and do the hard regulatory work to make it happen is too depressing for me. I have to believe new products are possible, and still do.
Was the business model mainly going to be fee-based?
This seems like too general of advice. If you are profitable without raising, that in itself is a gift. Why take on debt if you don't need to? This might apply to fast-growth ventures that need to outpace competition to have a chance at existing, but not every company is structured like this or is in a market that requires this.
> A regulatory rug pull can and will outstrip any early traction or compliance gold stars that you think might save you.
Interestingly, this reminds me of all the apps built off Facebook's APIs in the early days. They would regularly remove one feature that was catastrophic. It's difficult to base your existence on some whale's whims, but in some ways often inevtiable too.
> A critical third-party informed us that they’d changed their mind on a key technical decision.
I'm so curious who. I got sick of dealing with Plaid's ceaseless API changes and ended up writing my own scraper for Wells Fargo transactions. I doubt they were using Plaid though XD.
Overall a really interesting writeup and I'm thankful to the author for sharing.
Raising money insulates against death by starvation of funds. Of course, the game becomes different; you need to keep growing. But those are the two alternatives, and of the two, sustained growth over 8 years seems like a better general strategy.
I’ve been a founder, so I know that raising money is all about telling a story about the future, and the time to raise is when your graph supports that story, or before you have a graph. If a week later, everything is different, well, that’s start-ups for you. But I think it’s good to be able to take a step back from this and recognize how bizarre it is, and that a business doesn’t have to be structured this way.
> What we found, instead, was every additional partner had the potential to break big, important parts of our stack.
Sounds like a, literally, very expensive lesson to learn
And the other side of this is also worrying, I wouldn't put it past Braid being one of the biggest customers of this 3rd party, (unless it's a big one like AWS) and then you shoot yourself in the foot with a non-planned deprecation making your customers migrate.
I learned this through osmosis at one financial-adjacent company I worked for. Every senior technical manager was extremely hostile to any third-party integration. I personally saw several product driven initiatives completely dropped because it would require even the slightest lock-in.
When I see posts on HN or Reddit where the startup mentions a tech-stack built entirely on third-party services, I cringe. That is one of my main frustrations with the current AI wave - where most businesses are only viable with a quality of AI that is available only through third-parties. I believe in 3-5 years we'll be reading a lot of blog posts just like this one telling the same story about how their AI startup was forced to fold due to some locked-in provider changing policies.
I also echo some other top comments here - payments and banking is very highly regulated, and for good reason. The base concept seems extremely ripe for fraud.
These folks suffered an extreme case of Early Adopters being unlike the majority, but anyone who gets this advice should read Crossing the Chasm (one of the 2 or 3 non-worthless business books, even if it's really only a single drawing).
Basically: consider the bell curve of a product's life span: First early adopters, then the early majority (your volume customers once you really have PMF), then on the other side of the midpoint: late majority and then the laggards).
The think is your early traction is on early adopters: people with special needs (not usually fraudsters :-), who find your product so valuable that they can put up with its bugs and lack of features to get value out of it, or just people who like the latest thing.
The features the early adoptors want not only are rarely what the majorities want, they could work against what the majorities want. The gap between the early adopters and the majority is a "chasm" -- huge, hard to get across and, as with Braid, often something a company falls into and dies.
No seriously, the smarmy voice and vocal fry is meant to be annoying -- it's spot-on parody of geeky video game tutorials. And it's well worth pausing and reading the hilarious dialog in the chat logs! But be careful not to accidentally open up your Space Inventory.
I like "World Quester 2" the best, and I recently showed "Pretend Gas Station" to Will Wright:
https://www.youtube.com/watch?v=0Gy9hJauXns&list=PLCD3AF7C1B...
(Edit: That's a playlist with all of them, from long ago. I really wish they would review some new games now, there are so many ripe for parody!)
One person is the admin of the collective or company bank account, and repays people as needed using Venmo.
If all of that has to be free - no transaction fees, etc - then there is no business there to build. I wonder if revenue wasn’t also a problem for this startup.
There's a bunch of B2B fintech you might be less aware of because it doesn't advertise to the general public. I spent 7 years at one, Duco, that specializes in reconciliation - comparing data flows from different entities in the finance industry, making compliance with regulations easier.
I really want the Anniversary Edition.
Except I didn't believe it would shut down. It hasn't :)
reminds me of another exciting and hip big fintech-adjacent industry
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