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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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      53/ There is, as of 2019, more paper, and more *required* paper, than you would think in financial services. This is decades after frontpage stories about Paperless Offices. But there has been substantial improvement, even in the last few years.

      1 reply 0 retweets 26 likes
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    2. Patrick McKenzie‏ @patio11 22 Dec 2019
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      54/ The same goes of phone calls, faxes, API-via-secure-FTP, harddrive-over-FedEx/couriers as an encrypted API transport, etc.

      1 reply 1 retweet 30 likes
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    3. Patrick McKenzie‏ @patio11 22 Dec 2019
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      55/ Costs of customer acquisition in financial services are routinely in the hundreds to thousands of dollars for *retail-facing* accounts, because they anticipate customer lifetimes measured in decades and growth in the value of those accounts over times.

      3 replies 4 retweets 47 likes
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    4. Patrick McKenzie‏ @patio11 22 Dec 2019
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      56/ When e.g. Chase paid $1,000 apiece for signups to their new top-tier credit card, there was widespread chortling by competitors, not because they thought that was unfair or unseemly but because they thought it was *unwisely calibrated*.

      1 reply 2 retweets 25 likes
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    5. Patrick McKenzie‏ @patio11 22 Dec 2019
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      57/ This is unfortunate for competitors to financial services, which want to grow explosively but want to do it on extremely light marketing budgets, relying on e.g. product quality, social amplification, and better understanding of App Store SEO to drive adoption.

      1 reply 0 retweets 36 likes
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    6. Patrick McKenzie‏ @patio11 22 Dec 2019
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      58/ Startups don't want to spend hundreds of dollars on customer acquisition with razor thin margins because then sustaining their growth ramp will cause them to lose more money every year, costing them more dilution every year.

      1 reply 1 retweet 42 likes
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    7. Patrick McKenzie‏ @patio11 22 Dec 2019
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      59/ This is as true of e.g. mattresses as it is of financial services, but startups in finance have a problem that other startups do not: in finance you can pay the cost of customer acquisition *directly to the customer* without this looking like accounting shenanigans.

      1 reply 3 retweets 53 likes
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    8. Patrick McKenzie‏ @patio11 22 Dec 2019
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      60/ Ever wondered why "Silicon Valley preferentially makes products for rich people in the bubble" is widely believed and yet Chase and Amex probably have 90% wallet share of SV participants? This is basically why.

      1 reply 0 retweets 43 likes
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    9. Patrick McKenzie‏ @patio11 22 Dec 2019
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      61/ When AppAmaGooBookSoft think of financial products they think of ones which can be distributed virtually universally over their userbase (e.g. Apple Card). When startups think of them, they often are forced to look at customer groups that Chase et al don't want.

      1 reply 2 retweets 52 likes
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    10. Patrick McKenzie‏ @patio11 22 Dec 2019
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      62/ The toothbrush test is approximately as applicable in financial services as it is for marketplaces. (The toothbrush test: no marketplace you don't use twice a day will be a massively viable business. Uber for X is a lot worse than Uber for Uber.)

      1 reply 11 retweets 119 likes
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      Patrick McKenzie‏ @patio11 22 Dec 2019
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      63/ The exception to the toothbrush test is originating extremely, extremely valuable set-it-and-forget-it transactions, ideally ones which are hugely backweighted. Unfortunately these are limited in number by nature and switching costs are extremely high.

      5:57 PM - 22 Dec 2019
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        2. Patrick McKenzie‏ @patio11 22 Dec 2019
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          64/ I think you will find many more interesting startups in financial services either at the toothbrush test or at the "giant, compounding transaction with multi-decade time horizon" than you will in the No Man's Land of e.g. credit card refinancing.

          1 reply 3 retweets 42 likes
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        3. Patrick McKenzie‏ @patio11 22 Dec 2019
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          65/ In the No Man's Land you have to pay essentially your entire customer acquisition cost over again to reacquire customers you already won, while not having them increase in value in interactions with you, and also not materially decreasing in risk or operational costs.

          2 replies 2 retweets 30 likes
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        4. Patrick McKenzie‏ @patio11 22 Dec 2019
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          Taking a break for family dinner; 35 more coming later.

          5 replies 0 retweets 58 likes
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        5. Patrick McKenzie‏ @patio11 22 Dec 2019
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          65/ Wealth management historically sells a small amount of very expensive labor (portfolio allocation math, done by expensive professionals) with a large amount of medium expensive labor (counseling delivered by a salesman with greater facility with numbers than most clients).

          2 replies 3 retweets 54 likes
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        6. Patrick McKenzie‏ @patio11 22 Dec 2019
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          66/ Computers will entirely replace the first bit. The big question for the industry is to what degree the second bit ends up being provided by an app, by brand positioning, etc, and to what extent it gets provided by an actual human.

          3 replies 2 retweets 40 likes
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        7. Patrick McKenzie‏ @patio11 22 Dec 2019
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          67/ Many startups bet that there has been a fundamental shift in buying behavior around the thermocline created by "Did you grow up with the Internet?" and that people on one side of that thermocline have preferences which are *unrecognizable* on the other side re: sales.

          1 reply 4 retweets 43 likes
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        8. Patrick McKenzie‏ @patio11 22 Dec 2019
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          68/ The incumbents believe something closer to "Well, our cost base assumes that we put modestly expensive professionals in expensive real estate whether we like to or not, plus we've met young people before and heard Oh God They're Nothing Like Past Generations before, so."

          1 reply 0 retweets 28 likes
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        9. Patrick McKenzie‏ @patio11 22 Dec 2019
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          69/ Good sales people in retail-facing financial services are paid tiddliwinks by comparison to good sales people in tech, and almost everyone capable of selling mutual funds at a wirehouse should be selling B2B SaaS instead, ironically often to the same demographic.

          1 reply 10 retweets 87 likes
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        10. Patrick McKenzie‏ @patio11 22 Dec 2019
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          70/ "That won't happen, they don't understand software" say some commentators, who probably overestimate how competent in distributed protocols one needs to be to sell workflow SaaS and who underestimate the intelligence of people who have passed the Series 7.

          3 replies 1 retweet 67 likes
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        11. Patrick McKenzie‏ @patio11 22 Dec 2019
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          71/ Much like in other B2B services, at certain tiers of sales in finance, people stop calling you a sales representative. Now you're an investment banker / consultant / etc. Their productivity likely improving due to both CRMs and business processes which augment capabilities.

          1 reply 3 retweets 47 likes
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        12. Patrick McKenzie‏ @patio11 22 Dec 2019
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          72/ A large theme in investing is bringing capabilities which used to require bespoke, artisanal work and making them available to the mass affluent. Tax loss harvesting is one example. One question is whether, if you build it, they will come.

          1 reply 1 retweet 48 likes
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        13. Patrick McKenzie‏ @patio11 22 Dec 2019
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          73/ A trickier question is whether all products of the financial services industry can be offered to substantially everyone, in a way described publicly, without attracting extreme adversarial attention or causing excessive amounts of brand risk for too little revenue.

          1 reply 4 retweets 37 likes
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        14. Patrick McKenzie‏ @patio11 22 Dec 2019
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          74/ In financial services as well as in adtech, the accusation "sells your data" is made extremely frequently and accurately descriptive of a transaction extremely rarely. Imagine the meeting. "Interesting idea, but could we just take their money instead? We're set up for that."

          1 reply 3 retweets 46 likes
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        15. Patrick McKenzie‏ @patio11 22 Dec 2019
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          75/ Scaling computer systems is scaling computer systems, but an interesting limiting factor in scaling of computer systems in finance is "Does this system have rate limits controlled by human interaction?", in which case scaling from a technical perspective rounds to trivial.

          1 reply 4 retweets 43 likes
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        16. Patrick McKenzie‏ @patio11 22 Dec 2019
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          76/ That didn't used to be the case. Visa volumes used to be big numbers requiring some of the smartest engineers on the planet to use the biggest iron available. But Moore's Law compounds faster than the global birthrate does. By a lot.

          3 replies 3 retweets 52 likes
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        17. Patrick McKenzie‏ @patio11 22 Dec 2019
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          77/ There are still extremely non-trivial scaling challenges in financial systems where computers talk to computers, such as e.g. adtech (which isn't a parallel system of financial exchanges but isn't not a parallel system of financial exchanges), stock exchanges, etc.

          1 reply 0 retweets 31 likes
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        18. Patrick McKenzie‏ @patio11 22 Dec 2019
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          78/ A prediction for something you'll see in the future and think is really weird, but which is virtually inevitable given the economics: Internet celebrities are going to start offering Durbin-exempt debit cards to their tribe, enabled by an underlying platform and bank(s).

          1 reply 4 retweets 68 likes
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        19. Patrick McKenzie‏ @patio11 22 Dec 2019
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          79/ The reason this doesn't happen in the status quo is because it requires too much bizdev by too many people but fundamentally the financial industry wants to facilitate this transaction if you can move 100k of anyone or 10k of the right people to use plastic with you on it.

          1 reply 0 retweets 30 likes
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        20. Patrick McKenzie‏ @patio11 22 Dec 2019
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          80/ Settlement times, much like interest rates, have a natural lower bound of zero... and we will quickly discover that that lower bound wasn't real. In the case of settlement times, it is because you can use T-X settlement as a marketing differentiator w/o all that much risk.

          1 reply 1 retweet 27 likes
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        21. Patrick McKenzie‏ @patio11 22 Dec 2019
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          81/ We're starting to see that from some challenger banks (e.g. Monzo), and the natural response from incumbents is to spend 3 years not noticing it in surveys, 2 weeks doing SQL queries, and 18 months doing a product cycle, then deploying it to 100 million people simultaneously.

          1 reply 7 retweets 59 likes
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        22. Patrick McKenzie‏ @patio11 22 Dec 2019
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          82/ There are substantial opportunities available both within traditional finance and within startups to become a domain expert at the other industry and explain/advocate/plan/etc within one's own industry. (Some folks will end up doing white elephant projects, but not all.)

          1 reply 0 retweets 34 likes
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        23. Patrick McKenzie‏ @patio11 22 Dec 2019
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          83/ Every startup offering financial services has both an integration with their partners and then named people on speed dial who they can call when the integration breaks. Sometimes this by necessity means a lot of people in a lot of places.

          1 reply 3 retweets 31 likes
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        24. Patrick McKenzie‏ @patio11 22 Dec 2019
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          84/ This goes in the other direction, too, and it's both terrifying and sort of beautiful. If a tiny bank in, I don't know, Ireland has a backhoe hit their Internet connection, it is moderately likely that the 1st person in outside world who notices is a little fish in big pond.

          2 replies 0 retweets 14 likes
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        25. Patrick McKenzie‏ @patio11 22 Dec 2019
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          85/ (The general contents of the first phone call would be "Hey, this is your account manager at $COUNTERPARTY. I was just checking and it doesn't look like we got the upload for today... any color for me? Resubmit window closes in...")

          1 reply 0 retweets 16 likes
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        26. Patrick McKenzie‏ @patio11 22 Dec 2019
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          86/ Because large financial firms have competing fiefdoms and organizational subcultures in much the same way that large tech companies do, it makes a lot of difference to strategy and day-to-day operations which fiefdom the CEO/etc came up in, just like in tech companies.

          1 reply 3 retweets 31 likes
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        27. Patrick McKenzie‏ @patio11 22 Dec 2019
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          87/ @cperciva pointed out that I missed two items and duplicated another one, which brings up an important point: despite being the canonical use case for ACID databases, almost all financial firms aspire for (and achieve) "eventual consistency, almost all of the time."

          4 replies 3 retweets 72 likes
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        28. Patrick McKenzie‏ @patio11 22 Dec 2019
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          88/ Financial firms are likely to slightly, but not much more than slightly, lag enterprise SaaS with respect to adoption of sales and account management via webinar and 1:1 videoconferencing. This can 5X utilization of advisor while having them be in a cheaper city than client.

          1 reply 2 retweets 26 likes
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        29. Patrick McKenzie‏ @patio11 22 Dec 2019
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          89/ The most interesting thing which is widely deployed in Japanese banks that I haven't seen in US banks, but which will inevitably be deployed in US banks, is phonebooths with videoconferencing software and ID-reading hardware connected to a call center.

          5 replies 4 retweets 47 likes
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        30. Patrick McKenzie‏ @patio11 22 Dec 2019
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          90/ This will be generally good for customers who want more human touchpoints, and will bring down the OPEX of account opening and servicing substantially. It will, less fortunately, further cause deskilling of the branch-based bank employee, which has been ongoing for decades.

          1 reply 0 retweets 34 likes
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        31. Patrick McKenzie‏ @patio11 22 Dec 2019
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          91/ (The availability of backoffice doesn't by itself make branch bankers less capable; it means a business process which historically trained them to answer the range of everyday to sophisticated financial problems encountered by anyone in their area doesn't need to exist.)

          1 reply 0 retweets 18 likes
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