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patio11's profile
Patrick McKenzie
Patrick McKenzie
Patrick McKenzie
@patio11

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Patrick McKenzie

@patio11

I work for the Internet, at @stripe, mostly on accelerating startups. Opinions here are my own.

東京都 Tokyo
kalzumeus.com
Joined February 2009

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    1. Patrick McKenzie‏ @patio11 22 Dec 2019
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      I suppose I'll get in on the fun: 1 like = 1 opinionated thought about the intersection of technology and finance, up to a cap of 100.

      32 replies 264 retweets 2,164 likes
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    2. Patrick McKenzie‏ @patio11 22 Dec 2019
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      1/ The financial industry is actually both an industrial cluster and a pervasive infrastructure layer, much like "manufacturing" or "tech" is, and almost all statements about it are necessarily overbroad and incomplete. So, sorry in advance; it's still useful point in mindspace.

      4 replies 36 retweets 253 likes
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      Patrick McKenzie‏ @patio11 22 Dec 2019
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      2/ Geeks underestimate technical sophistication of the financial industry by a scandalous amount, largely because most of it happens below the waterline and not in retail-facing experiences. Finance probably has invested more in software, and earlier, than almost any industry.

      4:05 PM - 22 Dec 2019
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      • Rajeev Mantri Bruno Souza Cabral went viral once on tik tok Sahin cdin Neviana👩🏻‍💻🗯 Akin Jones César Alfonzo Shyam Sunder
      7 replies 84 retweets 567 likes
        1. New conversation
        2. Patrick McKenzie‏ @patio11 22 Dec 2019
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          3/ *Within living memory* every bank statement, every stock trade, every invoice, every check, every mortgage, and every purchase made at a drugstore and backed by credit required labor of multiple trained artisans to accomplish.

          1 reply 12 retweets 145 likes
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        3. Patrick McKenzie‏ @patio11 22 Dec 2019
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          4/ "We" thought that the primary use of technology in finance was going to be adding up numbers really quickly without making mistakes. This was only the first order effect. The second order of effect was enabling cheap transfer of risks over abundantly connected networks.

          3 replies 22 retweets 216 likes
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        4. Patrick McKenzie‏ @patio11 22 Dec 2019
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          5/ The finance industry has known for decades, and the tech industry has discovered recently, that the increasing complexity of the world has detractors and that lacking a vocabulary to describe complexity detractors will find a widely distributed scapegoat to point at for it.

          3 replies 27 retweets 177 likes
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        5. Patrick McKenzie‏ @patio11 22 Dec 2019
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          6/ Financial firms have natural economies of scale both for operational reasons and because scale historically functions as both a force-multiplier for distribution and because it offers first-order and Nth-order buffers against risks and the business cycle.

          1 reply 3 retweets 95 likes
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        6. Patrick McKenzie‏ @patio11 22 Dec 2019
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          7/ One of the bets for startups offering financial services is that they can innovate faster on customer acquisition to attract sufficient desirable customers from incumbents, while keeping the risks relatively constant, to overcome their lack of ability to rely on scale.

          2 replies 11 retweets 124 likes
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        7. Patrick McKenzie‏ @patio11 22 Dec 2019
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          8/ This is a bet most startups offering financial services will, bluntly, lose horribly, but that's startups for you.

          2 replies 7 retweets 133 likes
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        8. Patrick McKenzie‏ @patio11 22 Dec 2019
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          9/ Geeks both underestimate how #%()#)&ed the engineering practices of large financial firms are and underestimate how impressive they are. They make radically different tradeoffs than a startup would, including routinely spackling over technical debt with thousands of people.

          5 replies 34 retweets 282 likes
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        9. Patrick McKenzie‏ @patio11 22 Dec 2019
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          10/ One of the biggest problems in financial services qua tech is that the entire technical universe changes over every national border (sometimes within it, too) and that there is a weird goldilocks zone in terms of scalability on approaches for going international.

          1 reply 7 retweets 96 likes
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        10. Patrick McKenzie‏ @patio11 22 Dec 2019
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          11/ The goldilocks zone goes something like: you can't go international without truly massive resources, which you can never justify allocating to you in a small market.

          2 replies 2 retweets 65 likes
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        11. Patrick McKenzie‏ @patio11 22 Dec 2019
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          12/ The upper end of the zone: If you have truly massive resources, it is tempting to use the difficulties of international as a barrier to protect margins of some of your business lines (you have a lot, almost by definition), causing you to avoid international cooperation.

          1 reply 2 retweets 43 likes
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        12. Patrick McKenzie‏ @patio11 22 Dec 2019
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          13/ For this reason, historically the really interesting international businesses in finance happened when they were young and hungry. ("Who?" You can trivially name four global businesses in finance. It's surprisingly hard to count to eight. More are under the hood though.)

          1 reply 2 retweets 53 likes
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        13. Patrick McKenzie‏ @patio11 22 Dec 2019
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          14/ Finance is a much, much more regulated industry than tech is, and a surprising amount of the competitive landscape is downstream of the preferences of your polity-of-choice and their elected representatives, which sometimes look irrational. They generally are not.

          1 reply 10 retweets 83 likes
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        14. Patrick McKenzie‏ @patio11 22 Dec 2019
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          15/ For instance, the United States does not have a strong opinion on the right number of tech companies in it, but it *does* have a strong opinion of the right number of banks, and it sets that number about 100X more than Japan does or 1,000X what the United Kingdom does.

          4 replies 12 retweets 95 likes
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        15. Patrick McKenzie‏ @patio11 22 Dec 2019
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          16/ Strong opinions on the polity for the number of banks are downstream of opinions as to what degree the financial industry should be an executional instrument for policy preferences. Saying that outloud in as many words is uncommon, but the industry is that, too.

          2 replies 5 retweets 75 likes
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        16. Patrick McKenzie‏ @patio11 22 Dec 2019
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          17/ (We appear to be in the early stages of a societal debate, conducted largely via misunderstood proxy questions, as to what degree the tech industry should be an executional instrument for policy preferences.)

          2 replies 29 retweets 158 likes
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        17. Patrick McKenzie‏ @patio11 22 Dec 2019
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          18/ There is a tension between bundling and unbundling in financial services. These are generally thought of on a services level, but you can also think of them in terms of customer segments and subsegments, which is probably more illuminating.

          2 replies 5 retweets 51 likes
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        18. Patrick McKenzie‏ @patio11 22 Dec 2019
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          19/ Because the most important thing for large financial services firms is distribution to customers and the cheapest customer to reach is one you already have, firms who might have once had a core product for a core customer now offer many, many non-core products to them, too.

          1 reply 13 retweets 64 likes
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        19. Patrick McKenzie‏ @patio11 22 Dec 2019
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          20/ Startups said "Aha, here is an opportunity. If there is a 100x100 matrix of broadly consumed financial products and potential customer segments for them, we can compete on product for one cell of that matrix, win by utter domination, and then start expanding from there."

          1 reply 5 retweets 68 likes
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        20. Patrick McKenzie‏ @patio11 22 Dec 2019
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          21/ Startups which did this found, much like the finance industry did, that it is rare one can build a freestanding business (and extremely rare that one can build one on the venture growth trajectory) by chipping off a few percent of one of those cells.

          1 reply 3 retweets 91 likes
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        21. Patrick McKenzie‏ @patio11 22 Dec 2019
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          22/ This is further complicated by incumbents being able to both dynamically alter their allocation over that 100x100 matrix and also being able to dynamically alter their pricing, because they *also* read Innovator's Dilemma, thank you, and didn't get this far by not mathing.

          2 replies 6 retweets 144 likes
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        22. Patrick McKenzie‏ @patio11 22 Dec 2019
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          23/ Which is not to say there are no opportunities and no obvious opportunities, but I think I feel comfortable with "there are almost no obvious, popular, consensus opportunities."

          1 reply 3 retweets 77 likes
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        23. Patrick McKenzie‏ @patio11 22 Dec 2019
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          24/ One "obvious, popular, consensus opportunity" is "Gee, wouldn't it be swell if we just had a no-fee bank account made for folks in economic precarity. There's lots of them; clearly this is a business worth being in." If only banks had good people who are good at math, right.

          2 replies 6 retweets 81 likes
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        24. Patrick McKenzie‏ @patio11 22 Dec 2019
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          25/ (Though, on that exact subject: Square's Cash App is one of the most impressive product innovations I've ever seen, because it managed to basically deliver a thing that the industry thought rounded to impossible by making it a side effect of a bigger, better opportunity.)

          4 replies 10 retweets 127 likes
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        25. Patrick McKenzie‏ @patio11 22 Dec 2019
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          26/ Let's talk discount brokerages, which I've talked about at length before. https://www.kalzumeus.com/2019/6/26/how-brokerages-make-money/ … This is a case where startups had interesting product innovations for 3~5 years and then incumbents said "Cool ideas. We will yeet these into being, as you cool kids say."

          1 reply 5 retweets 87 likes
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        26. Patrick McKenzie‏ @patio11 22 Dec 2019
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          29/ The opportunity that most startup brokerages are really going for, and it usually isn't messaged as this (probably for talent management reasons), is: "We're building a book of business to a point where it is attractive enough to warrant integration and digestion costs."

          1 reply 3 retweets 52 likes
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        27. Patrick McKenzie‏ @patio11 22 Dec 2019
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          30/ A lot of the interesting bits in brokerages are actually a layer beneath, in e.g. custody, routing, KYC, etc etc, sometimes caricatured as being "arms merchants" or in the "selling shovels in a gold rush" business. This lets more firms experiment with marketing/UX cheaply.

          4 replies 4 retweets 54 likes
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        28. Patrick McKenzie‏ @patio11 22 Dec 2019
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          31/ It also opens the intriguing possibility where someone might successfully launder better internal X systems into Schwab (or similar) by making them indispensable to a particular distribution engine and, hopefully, winning argument on which system survives acquisition.

          1 reply 2 retweets 32 likes
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        29. Patrick McKenzie‏ @patio11 22 Dec 2019
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          32/ Deposit pricing is, like taxes, one of the largest line-item bills on a household or business, and this is underappreciated because of how the bill is delivered to you and the relative level of sophistication required to understand that there was actually a bill.

          2 replies 6 retweets 56 likes
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        30. Patrick McKenzie‏ @patio11 22 Dec 2019
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          33/ Geeks who grok this the first time often think of deposit pricing as being, if not outright theft, theft-adjacent, but partly it's tradition for how financial services are priced and partly it is a progressive cross-subsidization of some customers by others.

          2 replies 3 retweets 38 likes
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        31. Patrick McKenzie‏ @patio11 22 Dec 2019
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          34/ One of the issues in finance to have an opinion on is whether increasing velocity of money, and ease of allocating it via a swipe (or, in B2B, by a computer doing it for you) will cause most deposits to migrate to cheap-to-the-customer places or not. Not obvious, either way.

          2 replies 4 retweets 43 likes
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        32. 68 more replies

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