I especially liked his discussion of “front book, back book“. Banks and insurers accumulate a long-term book of assets. These generate a predictable stream of income (interest and premiums). Unfortunately, this “back book” exposes them to unexpected losses. As a result, financial firms need a lot of capital.
The business model of Software-as-a-Service (SaaS) companies is also based on a back book. However, unlike banks, their portfolio of subscribers does not require a lot of capital.
In the same newletter, Rubinstein discusses the possibility of bank M&A funded by badwill, as I suggested earlier.
Sean Pawley talks about banking in East Africa on the Palladium Podcast (discussion about banks between 6:50 and 22:15). Multiple issues with banking in Rwanda and other countries in the region: economy runs on cash payments -> banks lack reliable data on borrowers -> high default rates -> unstable banks, high interest rates and fees, preference of cash over bank deposits. His solution: a narrow bank that eliminates credit risk. Provide a cellphone-based payment solution. Collect payment data. Based on the data, start making loans.