Fidor Bank License As A Service model changes the Full Stack Bank Debate

This tweet by Marc Andreessen in February ignited a debate:

@cdixon @JackGavigan @Kwdmiller @aweissman I am dying to fund a disruptive bank.

“Disruptive Bank” is a vague term and that maybe deliberate phrasing from Marc Andreesseen (he does not want to pre-empt the innovation out there that is working). Accepted terms include “full stack bank” and “Challenger Bank”. They all indicate that the venture can offer all the same services as a “traditional” bank. My instinct is that disruption happens at the edge from those excluded from the current financial system. For example, this explains the disruption from M-Pesa among the 70% of the world that is Unbanked and the disruption from Alternative Lending for Small Businesses. That “edge model” indicates that Challenger Banks with their all-inclusive offerings and frontal assault on the incumbent Banks is not the winning model.

What I am seeing at Fidor Bank in Germany forces a rethink.

My first post on this blog in June, envisaged a new Financial stack emerging, in the same way that a stack emerged around the PC revolution and Wintel, with different players at each layer. I called that the “Programmable Bank”. I had no idea at the time that Fidor Bank would accelerate this transformation so much.

If you go to the main Fidor site, you will see a German Bank for German customers without any interest in reaching out to customers in other countries.

The first thought is, “nothing very new here”. There are Challenger Banks in every country. In China, the big tech companies are even launching banks.

If you want an English explanation, watch this video from the Chairman of Fidor Bank. The pitch sounds like many other Challenger Bank; you could imagine Richard Branson delivering this pitch. There is a reason that this site and the video is in English. Fidor is offering an API.  It is the standard pitch to developers:

“Hey Devs, we are on ProgrammableWeb, please follow our API there ProgrammableWeb is a repository for new mashups, Web 2.0 APIs, and delivers news on the Web as Platform.”

However, the big difference is in this little sentence:

“Fidor is the first bank to be listed there.”

Fidor is a regulated bank. They are regulated in Germany, but that “passports them” into Europe and there is no reason why they cannot seek banking licenses in America, China, India or anywhere else. In the traditional model, Fidor Bank would get those licenses. That is the traditional vertical stack. It requires deep, deep pockets; that is why there are so few genuinely global banks.. Fidor is doing it differently. They are basically offering all the capabilities they have through an API. Because Fidor Bank is a regulated Bank, that includes all the features that a traditional bank can offer.

I am still getting my head around this, but it strikes me as revolutionary. It means anybody can innovate on top of the Fidor stack, in the same way that an ISV could innovate on top of the Wintel stack. Of course that entrepreneur is not limited to the Fidor API. They have access to APIs from Lending Club and all the other Fintech ventures that want to amplify their reach by offering an API. AFAIK, Fidor is unique in being a licensed bank offering an API.