AMA 116 – Mobile and Digital Banking in the United States with Jay Sidhu

 

 

Jay Sidhu is the CEO of Customers Bank and his bank has just come out with a new digital banking service called Mobile Bank that can be done right from your smartphone. Jason Hartman is interested in learning more about Mobile Bank and talks to Jay about how America’s banking system is riddled with inefficiencies, Bitcoin, and more on today’s show.

 

Key Takeaways:
1:40 – Customers Bank is a business bank and Bank Mobile is a consumer bank.
5:20 – What’s the difference between Bank Mobile and Allied Bank? Jay explains.
8:45 – Jay shares his thoughts on Bitcoin.
15:40 – Jay believes the FDIC definitely has the money to pay in case a crisis happens.
22:10 – Uber is great because there’s finally some competition in the taxi monopoly and the same thing needs to happen in banking.
24:00 – How does Mobile Bank make money if they have no fees? Jay explains.

 

Tweetables:
“Banks charged $32 billion dollars last year in just overdrafts alone.”

“32 billion is three times what America spends on lung cancer and breast cancer alone.”

“I think Bitcoin can replace the real aluminum coin, but it’s not going to replace the real currency.”

 

Mentioned In This Episode:
BankMobile.com

 

Transcript:

Jason Hartman:
It’s my pleasure to welcome Jay Sidhu to the show. He is the CEO of Customers Bank and we’re going to talk about digital banking, mobile banking, and the big Wall Street banks and make some interesting comparisons today. Jay, welcome, how are you?

Jay Sidhu:
Oh, thank you very much. It’s great to speak with you.

Jason:
Good to have you. Give our listeners a sense of geography tell us where you’re located.

Jay:
We’re located in Pennsylvania outside of Philadelphia and the market we serve extends to Boston down to Philadelphia.

Jason:
Okay, fantastic. How do you define yourself? Are you, for example, are you a regional bank, a mobile bank, a digital bank, how do you define your company?

Jay:
Yes, we are actually more of a business bank, it’s a commercial bank, and we’re broken into two different divisions. So, Customers Bank, which you introduced me with is a business bank where 95% of our revenues come from our businesses and then earlier part of this year we start a consumer bank that we call Bank Mobile, which is purely a digital bank and Customers Bank, which is the business bank works very few branches, so it’s not like a traditional bank, but it’s a very high growth, very high touch, very much a personal service, so we call our strategy a high touch supported high-tech. That’s at Customers Bank and we call our strategy bank mobile, which is a digital bank more like high-tech with high touch like features.

Jason:
What do you mean when you say a digital bank? If you could define that for us.

Jay:
Yeah, it’s a very good question. A digital bank to us is where you can do all your banking that traditionally you had to go to a bank branch to do such as, open an account, get some advice, talk to a person about anything that’s important for you, be able to open any kind of banking relationship all through your smart phone, your tablet, your laptop or your desktop, so bank mobile, at bank mobile, by taking a picture of your driver’s license. It fills up about 85% of all the information that’s needed to open an account, so the other 20% is you’re ask a couple of questions and your account with bank mobile is open and the account could be a single account or a joint account and we can have, you can have a checking account, you can have a high-rate savings account, on top of it you get line of credit and lots of other features. If you’re interested, we can talk about, but it’s very revolutionary because customer’s today believe that you can buy a ticket around the world in 5 minutes, but it takes you 25 minutes after you walk through a bank branch to ever do business with a bank.

Jason:
That is true, but I would submit to you, Jay, that buying that airline ticket isn’t very easy either.

Jay:
Yeah.

Jason:
Given the way the airlines have figured out how to manipulate the consumer so much, but yes, certainty you can do it online and it’s probably a lot more convenient than it used to be. I guess we can agree on that. Now, when you talk about the digital bank, would that be the same or similar to Allied Bank, because they don’t have branches, is that, is that how you make that definition or is there some other nuance that I’m not hitting on there?

Jay:
No, it would be Similar to an Allied Bank, except is not the pure digital bank. Allied Bank, you can deal with Allied Bank once you open an account and an account opening involves also some communications like sending your signatures, sending your authentication of your ID and those kind of things through the mail and Allied Bank is principally for folks who are looking for a high rate on their savings account. So, as you know, they say no branches equals high rate, that’s Allied proposition. Our proposition is effortless banking and no fee banking and no fees whatsoever as well as high rate on your money that you are keeping in a savings account plus you get a personal banker plus you get a financial consult based upon any issue that you’re facing right now, plus you get 55,000 ATMS, now that’s similar to Allied Bank, and on top of that, if you ever want to send money to your friends or what not, you can do it totally free if you only have their email address or their cellphone and the like. These are the kinds of features that you would normally expect to make your banking transitions effortless. So, we are like a traditional bank in the palm of your hand.

Jason:
When we talk about traditional banks, I mean, everybody has always complained about all of the little garbage fees here and there and they’re so hidden and you can’t really analyze them very well. I’m sure this is by design. What is the movement in the banking industry? I’m sure you see the banking industry or at least the consumer side of it wanting what you offer and your type of plan, but what’s going out there with this? I mean, do you feel it’s kind of scammy all these little nickle and dime fees with these big banks.

Jay:
I think it’s outrageous. To give you an example why I feel that way and why I believe you are absolutely right is one example of one fee and that’s called an overdraft fee or a bounced check fee. When you add up all the money that the banks collected from consumers including those who made honest mistakes, now here I am a bank chairman CEO and even I have bounced checks in my life and it’s because everybody can make a little mistake, but banks charged $32 billion dollars last year in just overdrafts alone. That equated to, if you look at the amount of money that they advance to their customers, they equated to about 1800 percent on the money you give to the customer when you pay their check. Now, is that fair? Is charging something like 30 times than what payday lenders charge? Is that right?

Jason:
No, it’s not. It’s not right. Yeah, so when you’re saying payday lenders, those are like outrageous, outrageous rates they charge.

Jay:
You know there’s 32 billion is three times what America spends on lung cancer and breast cancer alone. 3 times!

Jason:
Unbelievable, unbelievable. Speaking of fees and so forth. One of the things the crypto currency people like to talk about is, you know, they believe this whole monetary system will be decentralized and Bitcoin or something like that will really be the future and I would love to be wrong about this, but I think they’re wrong, because I think the powers that be are so big, governments and central banks, but what are your thoughts about crypto currencies and Bitcoin and so forth. Do you see this as any significant movement or is it just a flash in a pan.

Jay:
I think it’s more of the latter, the flash in the pan and I’ll tell you why. The technology behind Bitcoin is really fascinating and that technology is based upon the technology that’s used when you play game. It’s amazing what you can see and what can happened and you get real-time impact and you can have the little symbols on your laptop or your tablet pop up and start talking to you. It’s a similar technology so that you can actually create sort of a synthetic currency and if the other party is willing to accept that, it becomes a currency, but the fundamentals of currency go way beyond that and currency has been around for centuries based upon real value as perceived by the recipient and that value is dependent upon the economic strength of the issuing country or the issuer of that currency and that can not be replaced by technology.

So, in my view is in certain cases like large funds transfer, money transfer or in certain very small instances like admittances of $5 or $100 or $50, there is bound to be a revolution because our existing system is very inefficient and the technology that’s been developed for Bitcoin will be the technology that will be used for real-time transfers of payments, but Bitcoin replacing the dollar or the euro or any other current, I don’t think it’s going to happen in my life time and I don’t think it’s going to happen in this whole century.

Jason:
Yeah, I would have to agree with you. I don’t know what these people are thinking. It’s almost like a religion these debates I’ve had with people. They have furor, these huge belief in this, and the same is trust of the gold bugs and I don’t know why they think the governments of the world and the central banks of the world would sit idly by while one of their greatest powers is just taken away from them. These are the most powerful entities the human race has ever known. They run militaries, they control so much of the entire world, and currencies are a huge part of their power. Why would they give it up? And then they say, okay, well they don’t have the answer to that one, so you can, you can answer that one in a moment, but then they say, well look at the technology of Bitcoin, well that technology is not unique to Bitcoin, yes, maybe the block chain came from Bitcoin, but it’s open source, you know, they can make a new dollar called Dollar 2.0 and it can have digital block chain technology.

Jay:
Absolutely right. It’s a little bit like the gold rush, it’s greed that’s driving the development of Bitcoin technology and they’re hoping that they’ve built a strike gold like all the, you know, the people went to the west to strike gold in a big way or to strike oil in a big way and by the time people realized that this is not the real stuff, they already made their money and they’re out spending it some place.

So, beware to rely on Bitcoin. You can buy cars with it, you can even buy tickets to stadiums to go see a football game on Bitcoin today, but I think it’s all just to try to create a differentiation in this technological field and I completely agree with you. Certain small transactions just like coins that replaced paper currency in certain ways, I think Bitcoin-type stuff, which is a digital coin, can replace the real aluminum coin, but it’s not going to replace the real currency.

Jason:
I just want to say that everything I just said about Bitcoin, I hope I’m actually wrong about it, but I’m not. I would love to be wrong about that, by the way, I just want to say that for the record. So, is there any difference in terms of the safety of ones money in a physical bank or a virtual bank?

Jay:
Not at all, not at all.

Jason:
Because it’s all virtual, really, in the final analysis isn’t it?

Jay:
It is all virtual, you know, when you put your money in a regular traditional bank. It gets shipped out of there, it’s kept in a safe, and it’s shipped out of there for the reserve or some place else and it’s moving around, it’s all a virtual currency. The main thing is that now rather than you have to go the bank, with an aide of a smartphone, the bank can come to you and you can conduct your banking. It’s a whole lot safer than relying on a postman delivering all the information about you including your name, your address, your account number, your signatures, where you spent the money the last 30 days, all the checks written behind it, and when you get the credit card statement where all you spent all your credit card transactions. Imagine somebody following that mailman and picking all of that up. That is a threat. Over here, all that information is coming to you in a secure way, in your hands, without a threat of anybody taking stuff out of your mailbox and compromising it.

Jason:
Yep, you’re absolutely right. No question about that. So, speaking of safety though, during the financial crisis, the FDIC increased insurance limit to $250,000 per account investing. If, and this is a huge question obviously, but if there is, and many people think there will be, a banking crisis in the future or a financial crisis or a Wall Street collapse or a dollar collapse. There’s so many flavors of this, but it certainty will all affect the banks in one way or another, whether it be a huge inflationary or deflationary crisis or whatever happens. If something happens and if a lot more banks insolvent, the FDIC doesn’t have the money to pay. Now, granted, the government can turn on the printing press and bail out the FDIC, but what are your thoughts on that?

Jay:
I think first of all FDIC definitely has the money to pay it because FDIC is owned by the United States government. If the United States government in this case of FDIC or in the case of all the consumers goes totally bankrupt, like you said, they can still control the printing press and so I think I would be absolutely clear that there should be no American who has any account in an FDIC insurance institution who should lose any sleep over the safety of their money whatsoever, because the day an American consumer loses their money, you might as well forget about living on earth.

Jason:
The faith in the system will be destroyed, of course, if and when that ever happens, but interestingly though, and yes, they could turn on the printing press, but if you look at it from the actual, and I can’t remember the numbers at all, the amount on deposit and the amount the FDIC has, and then I’ve read some articles where it’s compared to other types of insurance and other insurance companies and it’s been said by some that any other type of insurance would require a much higher reserve ratio to pay claims, right?

Jay:
I think they are misinformed and there is no other insurance company that is has the United States government behind it and the monetary system behind it and the monetary fund behind it. You’re talking about the dollar which is the international reserve currency. That’s why I think they’re just using scary tactics and there is no truth to it whatsoever because I know in 2009 we had a customer come in who took out a million dollars and we asked him what are you doing with it and he said, I’m going to dig a hole and put it underneath it, and guess what, that money was stolen. It’s kind of stuff is nonsense and very extremely irresponsible and there is no better place to keep your money than in a FDIC insured guaranteed bank and the reserves can be tremulously changed and (#17:50?) and they are based upon the risk profile that the government saves and that is the way the insurance system works, but the largest and the strongest insurance company in the world is the federal departed insurance corporation.

Jason:
Well, okay, so I agree with you there in terms of the backing by the government, but I was without a bailout. That’s what I was addressing, without a bailout, okay. You don’t need to be defensive about it. I mean, I’m not saying you are.

Jay:
This is a fact though. I’m sorry, but when I’m passionate about it, when people try to..

Jason:
Let me make a distinction though and this is what I was going to say, okay, is that I had Peter Schiff on the show and we all know where he stands and he’s been wrong massively. I will remind you Peter Schiff, I remember when candidate Obama was running for president the first time, Schiff said that there’s going to be massive inflation and gold is going to be $5,000 an ounce by the end of Obama’s first term. Well, he was so wrong about that, it’s not even funny, but he did say something kind of interesting about the FDIC when he was on my show and this was a while back and he says, the FDIC will give you your money back. You’ll get your money back, you just don’t know what it’ll be worth, because if they do turn on the printing press to cover claims, if there’s a crisis and all of these things are huge ifs, I completely understand that, but since you’re a banker, I wanted to ask you about it, then the money would be inflated, it wouldn’t be debased, that’s all.

Jay:
It’s always a possibilities, but that has nothing to do with losing your money. Does economic inflation and deflation has nothing to do with reserves of FDIC. So, that’s why I think inflation and deflation are the policies of the federal reserve to really avoid deflation into a worried inflation and there are controls installed by the governments of the different nations and especially the one that’s in the United States. Every body was talking about that the money supply surged that we had in the last recession or the great recession would cause a high level of inflation, well, guess what the biggest problem in the world today is deflation, risk of deflation, not inflation. So, it’s amazing, It’s amazing. Things do work! You know, in our systems and the trust in the government of the United States.

Jason:
It’s certainty not in the government’s interest to have problems or defaults or anything like that, so I completely agree with you. I’m just asking a few questions here. So, back on to the subject of whee you are, I mean, do you see, your service has been called the Uber of banking, okay, and Uber has revolutionized an industry obviously and it’s been a great thing and all of the other companies out there like Lyft and so forth that are in that business are just doing great things for people, do you see the big banks coming into this market. I mean, they must be, right?

Jay:
Yeah, I think they are saddled with inefficiencies, so the reason why Uber is doing so well and I think there’s a need to have Uber-like experiences in banking is because the Taxi medallions by having a control on the supply created a value of a medallion like in New York to be somewhere between $800,000 to a million dollar. That is like a monopoly.

Jason:
That’s unbelievable. Russian guys own all the medallions in those cities.

Jay:
Yeah, so whenever you have a monopoly like that and you have a control on the supply rather than a free enterprising system, you artificially hike the prices and you need the competitive forces to come in and make it balanced and provide the kind of benefits. So, here it is, somebody can drive a brand new clean car for five to six hours a day, provide an exceptional service to the customer and the driver who drives from six to seven hours a day he also buys his own car and he makes two times as much money as a driver off a taxi cab.

Now, that’s the benefit of technology and that’s the benefit of Uberization of the taxi field and that’s what’s needed in banking. It’s the biggest ripoff that exists in our economy that the banks are ripping off consumers because they didn’t know how to attract consumers, so they’ve built all these branches in the most expensive street corner and now they don’t know what to do about it because in their wisdom they signed leases for 15 years, guess who’s paying for it? It’s the customer’s who are paying for it. It’s the baby boomers who are paying for it and the middle income American’s who are paying for it.

I would love to see the research dollars going into cancer and into breast cancer and into vegetables and health of the country be doubled and tripled and quadrupled without any debt being going to the country rather than having the most inefficient banking system in the world. In Africa you can do more mobile banking, but mobile banking in the United States is still considered like, wow, that is crazy. That’s why we started Bank Mobile with the idea that we want to create a new revolution and we’re going to charge no fees whatsoever. That forces us to use technology to make the customer experience fantastic and provide and guarantee them if you bank with us if you don’t feel like you’re getting the top notch experience, you gotta find some place else, but you should never be charged a fee.

Jason:
It’s unbelievable. I mean, it’s awesome. So, Jay, let me ask you though, for your bank when you do the mobile banking, I mean it’s a great vision you have, when you do that, how does the bank make money? Is it simply on deposits and loans? I mean, there’s no fees at all? It’s just a clean, completely simple thing, right?

Jay:
The principle is you keep your costs low. The costs of running a bank can be very low if you don’t have branches.

Jason:
I was at a Wells Fargo branch just a few days ago and I even commented to the woman there. I said, you have all this real estate. I mean, you’ve got branches everywhere. There’s just too many of them. You don’t need this many branches. You walk in and these branches are huge and there’s no body in them. What do they do with all of this real estate? My God.

Jay:
I know Jason, they just keep charging more and more fees. They’re charging more and more fees, they’re paying less and less interest. Now, here we are as a bank, Bank Mobile pays 75 business points on savings and JP Morgan, Chase, and Cities of the world and what not, they one to five business points. What is the difference? That’s billions of dollars. The difference is it’s not just the fees, but they’re paying for the branches by paying consumers less on their savings by charging more for their loans and by charging fees. Now, is that good for the economy? No.

Jason:
You’re absolutely right. It’s just going to a very small group of banksters. Absolutely. Well, Jay, this has been a very en lighting discussion. I appreciate your passion. Give out your website, tell people where they can find out more about you.

Jay:
Okay, well it’s BankMobile. That’s an app on the app store or on Google store and BankMobile.com

Jason:
Yeah, fantastic. Jay Sidhu, thank you so much for joining us today.

Jay:
I appreciate it so much, Jason. Thank you.

Announcer:
This show is produced by the Hartman Media Company, all rights reserved. For distribution or publication rights and media interviews, please visit www.hartmanmedia.com or email [email protected] Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network Inc. exclusively.

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