Financial intermediaries, like banks, exist because of a market need. Pure economics. Someone a long time ago, saw a need in the marketplace for a financial intermediary, hung a shingle, and began the first savings and loan institution.
The market need that a bank fills is two-fold: to reduce information costs and to reduce transaction costs.
A bank reduces information costs by:
- reducing the search cost by bringing borrowers and savers together,
- conducting independent valuations to reduce adverse selection (aka price discovery), and
A bank reduces transaction costs by:
- providing denomination intermediation ( apparently doesn’t),
- providing maturity intermediation,
- providing a payments system
- diversifying risk
- hedging risk
- providing liquidity
By providing these services, banks lower the interest rate that borrowers pay and raise the interest rate that savers make. The bank makes money by setting these two rates slightly apart, thus “banking” the spread.
Now please tell me, where on that list is: “Charge usurious fees”?
We here at RevenueLoan work with small businesses who are all kind enough to show us their dirty laundry, giving us access to their bank statements. I am floored by the frequency (sometimes every couple of days!) and high cost ($75, $135 even $175!) of bank overdraft fees.
It is well documented that over the last 30 years Wall St has lured the best and brightest away from Main St by paying them huge bonuses for inventing new ways to charge fees to savers and borrowers and to increase the velocity of transactions to almost continuous.
Instead of workers innovating in the fields of medicine, education, manufacturing, design or engineering, our society has rewarded them for strangling those very industries they should be working for by adding complexity on top of an industry that at its foundation is a very simple one. The saying is about brain surgery and rocket science, not banking.
RevenueLoan is different. Wall Street got greedy and over-levered the country into the worst credit crisis we have every experienced.
We want to repower America’s small businesses and offer them credit. We want to do it a different way. Without all the fees.
For more information on financial markets in theory and in practice, RevenueLoan, why banks suck, and denomination intermediation (just fun to say), feel free to contact me.
 Dr. Alan Hess. “Effects of Information and Transaction Costs on a Financial Market”. 2000.