On being a first time entrepreneur — and creating a new type of bank

Taking the effort out of personal financial management — introducing HUD FS - a Heads Up Display for everyday money management

This article was first published in Medium - you can read more on Fintech and other subjects here.

Banks and Fintech firms are missing out on potentially the biggest opportunity for disruption in financial services. When I could not convince anyone to act on this I decided to do it myself. HUDFS is designed to help the fastest growing most poorly served asset holders in the US — mass affluent Millenials manage their money passively so that they automatically default to best practice in money management. All the benefits with none of the effort.

I know a lot of entrepreneurs but most of the ones my age (48) are either already successful or tried and failed and went back to corporate life

I did not really mean to be an entrepreneur. I just wanted to create new things that were different, better and helped the world be a better place even if in only the smallest of ways — making a difference, however minor.

I thought at first it would be enough to have the ideas — I wrote about them on Medium, a lot. I wrote about how credit cards are commoditized and the opportunity to rethink payment cards for the digital age. How digital banks were not really as innovative or disruptive as they seem and what might constitute real change. How ignoring human psychology was creating barriers to people achieving financial security.

A lot of people read them, I got a lot of great feedback. I learned a huge amount in the process and connected with a lot of incredible new people. The process of writing and making it public was genuinely mentally and physically invigorating. You can read them here if you like.

I assumed that one of the many emerging Fintech or established Financial Services companies in the market would want to implement these ideas. I talked to many of them but never found the right home in which to make them come to life.

I also went to a lot of Fintech meetups and met many in the overwhelmingly very young crowd of Fintech entrepreneurs, those just starting out to the more established and funded. They were inspiring. If a 23-year-old can create Brex maybe I with others could create something as well, it gave me the courage to try.

Does anyone think their personal finances are properly organized?

I have long been vexed with the personal finance industry — banks, investment platforms, credit card companies, etc. I have always been interested in personal finance and have spent my share of energy managing my own. I used my Dad’s financial advisor, a small-town company that had been in business for more than 70 years. I tried a top tier financial advisor with high fees who promised the world, wore a tie and suit, spoke very well and had gorgeous offices in the city center. I tried a friend of a friend just starting out who wore a T-shirt and sneakers and promised to provide the best advice without the costs of a traditional established firm. I managed my own portfolio, diligently studying personal finance blogs and publications. I tried day trading for a while but it was exhausting and unprofitable.

I tried many new tools and strategies that promised to make it all easier, more profitable. I did active, passive and a bit of both, I consolidated, diversified and tried emerging markets and biotech. I listened to those who were already successful, I bought their books, followed their advice and share tips, I subscribed to Investors Chronicle (I very rarely read it). I actually worked for a while for a trade magazine for the financial advisor market.

Over time I found that the costs and effort were not related to performance in any way, sometimes quite the opposite. I also got a lot of really bad advice, but it only became clear it was bad advice with the benefit of hindsight.

I found it really hard to actually understand the costs and relative performance of the managers and funds I used. Their graphs were always showing them to be top performers even when the industry data said the opposite. Whenever performance was low — it was because of “market factors”, not their poor choices, but my fees were always deducted.

The same was true of banks, I was fortunate to be invited to be a premier customer of a bank, I was promised personalized service, a frictionless experience, I was a VIP no less. Whenever there was actually an issue I needed help with the process fell down and I was left frustrated that the promise of their ads was so woefully missed in reality.

Credit card ads seem to have a lot in common with perfume ads. Everyone is always beautiful and smiling and the promise of a better lifestyle is just a transaction away. Travel is such an exotic and exhilarating experience, just buying a coffee with brand “X” card is a life-affirming experience.

They always seem to offer great upfront benefits but somehow the rewards and lifestyle that was promised when I got the “X” card were never delivered. I have over 200,000 points with my credit card rewards program — it will barely buy me an Amazon Echo Dot let alone an exotic holiday in Hawaii.

Why the overpromising and underdelivering? Why is it so complicated?

In theory, achieving financial security is really not complicated

• Spend less than you earn
• Save as much as you can in a high-interest savings account
• Drip feed into a low cost diversified investment fund

It’s not as if the tools to efficiently manage your personal finances are not there — they are. However, none of these solutions solve for the work component that such a complex, fragmented industry requires of consumers.

• Money is left in checking accounts that pay little or no interest.
• Money sits in poorly paying savings accounts where access is restricted
• Credit cards that promise high cashback and rewards but somehow never seem to deliver them
• Investments are made in January (New Year resolutions) or when the market is at its height
• Investment managers charge high amounts but deliver market levels or worse performance.

It’s just too much work, too complicated and requires too much effort to properly manage on an ongoing basis. It's also boring and monotonous, this is not the Wolf of Wallstreet and the payback for most is decades in the future. We just are not mentally equipped to deal with it.

The impact of this is that to all practical purposes its impossible to optimally manage personal finance making achieving financial security harder to achieve for all. In the process, we have collectively helped create an extremely large and profitable industry. The 6 largest banks in the US made record profits last year, over $100bn. That’s over $300 for every adult in the US — every single year.

The costs of these traditional banks are equally staggering. The same few banks spent over $10bn in marketing last year. Why is this necessary if their products are for our benefit? The largest 6 banks employ over 800,000people between them! Wasn’t a new class of Fintech company meant to be tearing this down and bringing more efficiency and new and better products and services to market, giving back some of these profits to the consumer?

The solution has to solve for the work

In solving for the work component involved in personal financial management we solve the largest single barrier for the problem of how to effectively manage personal finances and achieve financial security as efficiently as possible.

That’s the goal we set ourselves with HUD FS.

We approached this problem by firstly asking ourselves some really fundamental questions about the way the industry was structured and how products are managed.

Why do we have separate checking and savings accounts?this creates friction in having to move money from one to the other, meaning you can never get maximum interest on all your cash.

Why do we have a credit and debit card? that’s like having a smartphone for local calls and another for long-distance, it makes no sense. Its simply an artifact left over from an industry that has evolved over the last 50 years but not adapted to the digital age. It adds cost and complexity with no incremental benefit.

Why are spend limits fixed? sometimes years in the past. My spend limit from 5 years ago does not reflect my current situation, the bank knows this they have all the data and yet I have to go through the trauma of trying to talk to a call center.

Why is my total financial life not taken into account whilst a credit assessment is made and why do all the banks approach it in the same way? We have been doing it the same way for decades, is there really not a better way to do this?

Passive income and low costs are the cornerstones of long term financial security so why is it almost impossible to track either? You can’t manage what you can’t measure.

Why does no one feel confident that their personal finances are in the optimal state (that includes me BTW)?

Because they aren’t.

Introducing HUD FS

When a consumer opens a HUD ONE account they automatically default to best practice in personal financial management without any effort. It’s done for them, day in day out for as long as they are with us.

HUD ONE is 3 accounts in 1 — Save, Spend and Invest

100% of your cash gets a savings level of interest 100% of the time it’s in the account but you have access to your money and all the functionality of a traditional checking account as well.

We have created a new type of credit card — firstly we look at you as an individual to asses spend limits, and these are adjusted dynamically. Secondly when you need it to act like a debit card e.g. at an ATM, when you are doing a cash advance it automatically defaults to act as a debit card so no expensive fees. You pay back your spend on a rolling basis so no big monthly bills.

Finally — it's not going to be a metal card. We think those are expensive, heavy and a meaningless marketing device. We would rather give you the customer that value in something meaningful like higher cashback, interest or lower fees.

We believe that for the majority of people robo financial advice, delivered at very low cost and providing a range of diversified funds is the best investment platform approach. With small investments made frequently, spreading market timing risk. HUD ONE does this for you with transaction rounding, cashback, deposit interest and a monthly contribution all being made for you into the investment account.

By working with best of breed financial and technology partners we can build and manage HUD FS at extremely low cost. This means more money can be given back to consumers in higher interest, cashback and rewards as well as lower fees (e.g. for the investment platform). We want to turn the traditional financial services economic model of high margins and high costs on its head.

Sounds good? So when will HUD ONE be available?

We are working on that but a lot has to do with consumer feedback and support. We are currently raising seed funding. One of the things Venture Capital funds look for is market feedback and demand. We need to prove that consumers are not satisfied with their current state of personal finances and will act and move to something better to achieve financial security faster.

If the above seems attractive please visit www.hudfs.com take our quiz “Find out how much more you could earn with HUD ONE” and register your interest.

We hope we can create a real revolution in Financial Services together and help more people achieve the financial security they want faster.

Thank you

The HUD FS Team