🧠 Banks are not disrupted.

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Here's this week's Brainfood in summary

📣 Rant: Banks are not disrupted

💸 4 Fintech Companies:

1. Coinbax - Programmable Stablecoin Transactions for Banks

2. Solveri - Private Smartphone OS for sensitive PII or finance data

3. PureFi - High-yield savings app

4. Verisoul - Fake account detection

👀 Things to Know:

1. Trump announces cap on credit card APY at 10%

2. JP Morgan becomes the new Apple Card Issuer

3. Stablecoin wallet Kontingo customer funds hacked

📚 Good Read: The next Mercury won't need a bank charter.

Weekly Rant 📣

Banks are not disrupted; they’re marginalized.

JPM just posted another monster quarter. Citi's out of regulatory jail. Basel III got watered down. If you look at the scoreboard, the banks won.

But scoreboards lie.

You could argue that Fintech, far from disrupting banks, hasn’t made a dent. 

Or has it?

Well,  if you look at the market structure, the "Universal Bank" is no longer the center of gravity.

That single balance sheet that holds your deposits, lends to businesses, and moves your money isn’t your only option, or your employers. The physics of the business model are tearing it apart.

Three new species are picking at the pieces.

A simple explanation of banking business models

Banks are incentivized to be boring and not take too much risk. To understand this (and why they are being marginalized), you have to understand the Physics of Banking.

Most businesses follow "Corporate Logic":

• Debt is bad. It’s a burden you have to pay off.

• Cash is king. It’s what you use to grow.

• The Goal: Sell as many widgets as possible.

(Image from Dirt Road substack - the very essence of 🤌, both because Luca is Italian, and his writing is three Michelin stars worthy)

Banking flips this logic on its head.

• Debt is "Inventory." When you deposit money at Chase, that is a liability for them. They owe it back to you (AKA debt). But to a bank, that debt is their raw material. It is the steel they use to build their product.

• Loans are the "Product." The bank takes that raw material (your deposit), “packages” it into a 30-year mortgage or a business credit line, and "sells" it.

• The Constraint isn't Factory Space; it's Capital.

This is where the "Physics" gets tricky. 

In a normal factory, if you have enough raw material (steel), you can build as many cars as you want. In banking, you cannot just lend out infinite money, even if you have infinite deposits.

For every "Product" (Asset) a bank creates, the regulator forces them to hold a specific amount of their own money in reserve. This is the Regulatory Price Tag (or Risk-Weighted Asset).

• Safe Products (Cash/Treasuries): Low Price Tag. The regulator says, "This is safe. You don't need much equity buffer."

• Risky Products (SME Loans/Mortgages): High Price Tag. The regulator says, "This is dangerous. You need to hold a lot of expensive equity against this."

Banks optimize around this constraint more than anything. They’ll say no to seemingly more profitable products or business lines if the risk weight is high. Understanding this is a cheat code. Once you understand RWAs, banking strategy stops looking random and starts looking very rational.

My thesis is that their own business model is unbundling them. They are keeping the parts of the factory that work for their physics (Compliance & Deposits) and outsourcing the parts that don't (to private credit and fintech). And that is creating an entirely new market structure.

Let me show you what that looks like.

The new market structure.

The market is reorganizing into three species. 

Each one is optimized for a different constraint. Each one is eating a piece of the universal bank.

Each of these is attacking a similar set of customers and revenue pools.

What separates them is their business model and risk appetite.

• The Banks: own the UX, take risk, lend, move money. But their core business model is constrained by RWAs and the cost of equity. 

• Shadow banks: Create and sell funds to investors, and buy loans or T-bills to deliver the yield.

• The UX Layer: Historically, built a UX on someone elses banking charter. Now, they are fragmenting, getting their own charters, using stablecoins, or partnering with banks more deeply.

The universal bank wins by bundling, especially for its largest clients (corporates), who will happily place their deposits with the bank in return for the most favorable lending rates or FX support. A bank’s diverse balance sheet and product set help it optimize pricing for this segment.

But the shadow banks are building an alternative to the bank balance sheet, and the UX layer is becoming the default for consumers and businesses. 

How they’re doing so means examining their business models too.

Shadow Banking (Private Credit and Money Market Funds)

Shadow banks are specialists, stripping the balance sheet down to a single function.

Shadow banks win because they don’t have the "Conglomerate Tax." They don't have to balance a safe deposit base with a risky lending book. They just pick one side of the trade and optimize it perfectly.

Two categories matter here (there are others, but for banking, these are relevant).

A. Private Credit Funds 

• The Players: Apollo, Ares, Blackstone.

• What they do: They purchase risky assets (BNPL, auto, or SMB loans) issued by non-bank lenders such as fintech companies or auto dealers and sell them to investors as funds.

• Why it works: A bank has to hold 10-15% expensive equity against a risky loan because they are protecting insured depositors. Apollo doesn't have depositors; they have investors who signed up for risk.

Private credit funds can lend where banks can’t. They aren't "Shadow Banks" in the derogatory sense; they are efficient risk transfer machines. They have taken the "Lending" function of the bank and moved it to a balance sheet that is actually designed to hold it.

When Affirm needs to fund $10B in BNPL loans, they don't have to go to Chase. They go to Apollo. Apollo packages those loans into a fund and sells it to pension funds hungry for yield. The bank never touches it. The risk moves from a regulated balance sheet to investors who signed up for it.

B. Money Market Funds (and Stablecoins)

• The Players: Circle (USDC), BlackRock (MMFs), Tether.

• What they do: They purchase safe assets (Treasuries, Reverse Repo) and sell them to corporates, consumers or stablecoin issuers (who in turn use them as backing for stablecoins).

• Why it works: Banks treat deposits as "Inventory" to be lent out. These players treat deposits as "Storage."

  • Money Market Funds (MMFs): Are eating the "Savings" function of banks by offering higher yield (passed through directly from the Fed) without the bank overhead.

  • Stablecoins: Are eating the "Payments" function by offering higher velocity. They are effectively "Narrow Banks"—holding 1:1 reserves—which makes them useless for lending but perfect for moving money.

Money Market Funds store value for consumers and businesses, often at a higher rate than bank deposits. They don’t have the same protections as a bank but are regulated and priced accordingly. Cash and assets are held in bankruptcy remote trusts or structures, providing an extra layer of protection from the issuer's insolvency, a feature appealing to risk-averse institutional clients.

Today, corporations set up a “waterfall” for their assets. 

• Cash: Bank deposits often pay a lower yield but can be transferred to anyone immediately. 

• Tier 1: Money market funds, T-bills, repo. Similarly low-risk like cash, but higher yield. However, T-bills or repo have to be sold first before they can be used to pay suppliers or payroll. Tier 1 needs to be available within 1 to 12 months.

• Tier 2: Certificates of deposits, corporate, and government bonds. Higher yield than tier 1, for surplus cash often not required for 12 months or more.

• Tier 3: Stocks, PE, venture capital. Rarely used by corporate treasuries outside industries with specific requirements. 

The business model of the shadow banks is to create funds and sell them. Here, "Corporate Logic" applies where success is measured by selling more "widgets" (funds/loans for Shadow Banks). 

The Fintech UX Layer is Evolving

This is the layer everyone sees—the app on your phone or the dashboard on your CFO’s screen. It competes on Workflow and Experience.

Historically, the business model here was simple: "Rent-a-Charter." You built a nice interface, partnered with a small regional bank (BaaS), and split the revenue. The bank held the charter (and the regulatory headache), and the Fintech owned the customer. Banks like Lead, Coastal, and Bancorp support programs like Chime, Robinhood, and Ramp. 

That model is breaking. Regulators cracked down on "Partner Banks," and the economics of splitting revenue are getting squeezed. As a result, the UX Layer is no longer a monolith; it is fragmenting into three distinct strategies based on how they want to monetize.

A. The Vertical Integrators (Get a Charter)

• The Players: Mercury, Nubank, Revolut, SoFi.

• What they do: They start with simpler “wrapper link” products but eventually apply for their own banking license to become a full bank (now more possible in the US)

• Why it works: It’s a volume game.

  • If you have $100M in deposits, renting a charter is fine.

  • If you have $10B in deposits, the "Rent" you pay to your partner bank (in lost Net Interest Margin) and payment fees is astronomical.

The Logic: By becoming a bank, they capture the full spread on deposits and eliminate the middleman. They accept the RWA constraints (Species 1) because the economics of owning the deposit base are too good to ignore. They are effectively "Banks with Software Margins." Mercury’s bet is the margin expansion they get from cutting out the sponsor bank is worth the added regulatory overhead.

B. The Software Wrappers (Over-The-Top)

• The Players: Brex, Navan.

• What they do: They double down on not being a bank. They build sophisticated software that sits "Over-The-Top" (OTT) of the banking rails, controlling the context of the spend (expense management, travel booking, procurement). They even partner directly with the banks.

• Why it works: They can work across multiple banks to solve complex customer workflows.

The Logic: Why take on the regulatory heaviness of a charter (RWAs) if you don't have to? They monetize through SaaS fees and Interchange (swipe fees). Their bet is that the value isn't in storing the money (Banking), but in directing how it is spent (Software). Brex doesn’t want to compete with banks, they want to be the CFO’s operating system.

C. The Bypass (Stablecoin Rails)

• The Players: Dolar App, Altitude, Daktoa

• What they do: They integrate with Stablecoin Issuers (Species 2B) to move value instantly, 24/7, bypassing the traditional correspondent banking network.

• Why it works: It solves for Velocity and Global Reach. Stablecoins create something that could feel every bit like a deposit, and lending set of products from smaller component parts.

The Logic: Traditional banking rails (SWIFT/ACH) are slow and operate during business hours. If you are a global internet company, that friction is a cost. By using stablecoins as a rail, they can settle transactions in seconds for fractions of a penny. Stablecoin Neobanks aren't trying to be the bank; they are trying to render the bank's payment rail obsolete.

The New Competition - Fintech, Stablecoins & Asset Managers vs Universal Banks

The most interesting thing about all of these new actors is that they’re an ecosystem. Private credit funds work with Fintech companies. Money Market Funds support stablecoin issuers. 

And that prompts interesting new questions like:

• What’s the best yield for your cash? Banks vs. Money Market Funds vs. Stablecoin wallets. If a stablecoin is cash-like, but gives money market fund like yield, where do you allocate? 

• What gives better protection? A stablecoin, money market fund or deposit? Being 1:1 backed is not the same as being FDIC insured. Both have failure modes. SVB was FDIC insured. Tether's reserves have been... sus. Where is your personal or corporate risk appetite? Which would you rather have? An SVB like risk, or some sort of blow-up of a stablecoin?

• Who owns the CFO relationship? The bank with the credit facility? Or Brex with the expense dashboard they use every day?

The universal bank used to win by bundling. Now it’s not so simple. 

Banks aren’t disrupted, they’re eroding.

So, looking back at the scoreboard: Did the banks win?

Sure. Some banks are richer than ever. JPM is a fortress.

But look at the map.

• The Lending (Risk) is moving to Private Credit.

• The Savings (Yield) are moving to Money Market Funds.

• The Interface (Customer) is moving to the UX Layer.

• The Rails (Movement) are being challenged by Stablecoins.

The "Universal Bank" is becoming the Utility Layer.

It is the federally insured, highly regulated core that holds the system together. It is essential, profitable, and safe. But it is no longer the sole engine of the economy. It is the pavement. It's not surprising to see JPM and others now getting into private credit and driving growth through their payments franchise. The “universal bank” model has to evolve. 

The “Regional Bank” risks becoming an NPC.

Too big to be small, too small to be big. Eat or be eaten. Regional banks are just sort of, there. Like an NPC with poor dialogue trees. 

If they try to compete on lending risk, they face the Shadow Banks. If they try to compete on UX, they face the Fintechs. Their once-comfortable middle ground is now a highly contested space, forcing them into a desperate search for scale through M&A or a high-risk pivot into a niche specialty (Some, like Fifth Third, have pulled this off elegantly).

The “Community Bank” is becoming a specialist (e.g., a sponsor bank or a lender in sectors such as solar), or facing its own existential crisis. 

The squeeze is real: Regulatory overhead (the fixed cost of being a bank) remains high, while their core product—the local relationship—is being digitized and fragmented by the three species. They cannot afford the scale required to compete with Universal Banks on technology, nor can they strip down their balance sheet like Shadow Banks. 

It’s a great time to be a bank. It’s a terrible time to be complacent.

Sometimes a slow-moving crisis gets ignored, accepted, and never addressed. Like national debt, water shortages or biodiversity loss. There’s no moment to be outraged at. No, working over the weekends to switch the mainframe back on urgency.

The reshaping of the financial market isn’t that kind of shock like an earthquake. It's more like continental drift. The gradual remaking of the world. Except its playing out over 10 years instead of 10 million.

The smart banks see it. JPM is pushing into private credit. Goldman wants to be a transaction bank. Some universal banks are adapting because they have to.

The regional banks? They're the ones I worry about. Too big to be nimble, too small to compete on technology. Some will find a niche (like 5/3). Many will get acquired. A few will disappear.

If you're building in this space, the question isn't "will banks survive?" Of course they will.

The question is: how will they adapt? 

And where does that leave you?

ST.

4 Fintech Companies 💸

1. Coinbax - Programmable Stablecoin Transactions for Banks

Coinbax adds a programmable rules to any stablecoin transaction for escrow, reversing a transaction or fraud checks. Banks and FI’s can use the rules to enable lower operating costs vs wires or ACH, offer escrow as a “feature” to its clients and do so without committing to any particular chain or 3rd party. 

🧠 The use cases a bank can offer have a very clear pitch here. Stablecoins are faster than ACH, cheaper than wires and can have more sophisticated fraud controls baked in. This is ideal for things like supplier payments and treasury management. Banks are often the ones providing that to enterprises and mid-market. 

2. Solveri - Private Smartphone OS for sensitive PII or finance data

Solveri allows companies, sovereigns to setup an OS that works alongside iOS or Android with a unique technology that allows multiple operating systems to run side-by-side simultaneously. This prevents private messages from being vulnerable to attack by exploiting (for example) Android vulnerabilities.

🧠This team was funded by ETH Zurich and its initial use case is government and enterprise BYOD, but this could be much broader. Imagine a separate operating system for your financial life. (Yes I know this isn’t strictly a Fintech but it’s worth highlighting because its fintech adjacent)

3. PureFi - High-yield savings app

PureFi advertises its 6% yield rate (vs 3.8% from SoFI), “zero remittance fees” with FDIC insurance “coming soon” with their partner bank (?!). Their no remittance fees applies up to $500 per month.

🧠 My guess is this is a stablecoin-infrastructure-based Neobank. Probably pre-launch. So I can’t be too harsh. But I can’t help but look at all of these and think we’re about to live through another Synapse / Fintech winter in a few years time. Pet peeves like weak disclosures and not pointing out the differnece between FX fees, and FX spread are appearing more often.

4. Verisoul - Fake account detection

Verisoul aims to catch bots, duplicates and AI-based fraud with device fingerprinting. It can look for VPNs, Proxy’s and Geolocation indicators to spot if a new account sign up is suspicious.

🧠They have some interesting, non finance clients as a base. Which makes me think the GTM isn’t primarily for Fintech. And fake accounts for AI companies themselves, who offer the 1 month free trial periods is becoming a major form of a abuse.

Things to know 👀

1. Trump announces cap on credit card APY at 10%

In a post that read the president is calling for “a one-year cap on Credit Card interest rates of 10%.” From January 20th, the one-year anniversary of the administration.

🧠 Interest rate caps don’t make lending affordable; they push borrowers to loan sharks. If a customer isn’t profitable at 10% APY, a bank won’t lend to them. Trump is calling for a giveaway from the banks. Will it work?

🧠 How will the banks react? It’s not clear if this has any legal grounding or if Trump is looking for some show of support from the banking lobby from the bully pulpit. If they get a watered-down BASEL III, and no open finance, a one-year hit to profits could be the price.

🧠 Quite how any bank is supposed to implement this with 11 days’ notice is another matter. Is this on all existing credit card portfolios? And from what billing cycle? Can they even re-program their mainframes and T&Cs in time for this to be legal?

2. JP Morgan becomes the new Apple Card Issuer

JPMorgan takes over Apple Card. Goldman exits after ~$7 billion in consumer banking losses. The $20bn of balances are being offloaded at a $1bn discount. Apple said that the transition will likely take up to 24 months. Goldman Sachs said that for the fourth quarter of 2025, it expects a $2.2 billion provision for credit losses related to the program.

🧠 When Apple Card launched in 2019, Goldman CEO David Solomon said it was "the most successful credit card launch ever." 

🧠 By 2022 Goldman's loss rate hits 2.93%, the worst among major issuers. With ¼ of cardholders having sub-660 FICO scores.

🧠 In 2023, Loss rates spike to 6.2% and Goldman begins quietly shopping for an exit.

🧠 Goldman built a premium-looking card with aggressive underwriting. Apple wanted growth. Goldman said yes. The result: A card marketed as premium, held disproportionately by subprime borrowers. No late fees + high-risk customers = predictable outcome.

🧠 What next for JPM? Expect them to tighten standards and quietly transition out the riskiest customers. That's their playbook. JPM is already behind Amazon Prime (~$20B in balances). Now Apple Card too. The largest consumer bank gets larger.

🧠 The lesson? Investment banks can do a deal to get consumer distribution. They can't buy consumer credit expertise overnight

3. Stablecoin wallet Kontingo customer funds hacked

Fresh from last week’s controversy of being de-platformed by JP Morgan and Checkbook, stablecoin wallet Kontingo had 1,000 customer wallets attacked and $340,000 stolen. Kontigo stated that it had “immediately isolated the systems involved” and assured users that “100% of the impacted amounts” will be reimbursed. Only to be hacked again days later, this time saying their authentication provider was at fault.

🧠 This is weeks after their $20m funding raise, where they said, “Jamie Dimon, we’re coming for you.”

🧠 And the hack is just days after the information was reported, Checkbook and JP Morgan had exited the relationship due to fraud and sanctions risks. 

🧠 I find this frustrating because I genuinely believe stablecoin neobanks are the next dominant category of Fintech. And it’s quite likely this is a team with positive intentions trying to serve users to the best of their ability.

🧠 This has to be the worst run of events a start-up has had since its launch I can remember. Fintech is hard folks. Do not underestimate it.

Good Reads 📚

1. The next Mercury won't need a bank charter.

This is an incredible piece by Stephan from Squads that really pushes the idea that stablecoins are the new banking-as-a-service and a better option. Because once you decouple finance from a bank account, it becomes modular.

🧠Do yourself a favor and read this. It gets into the hard problems of privacy, compliance, and self-custody UX. It’s honest, it's complete, and it's valuable.  

Tweets of the week 🕊

That's all, folks. 👋

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(1) All content and views expressed here are the authors' personal opinions and do not reflect the views of any of their employers or employees.

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(4) A team of researchers has not rigorously fact-checked this. Please don't take it as gospel—strong opinions weakly held

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