Five years ago this month, I sent out the first edition of Net Interest. The world was in lockdown, markets were in turmoil and, after 25 years of looking at them, I remained as fascinated as ever by the role of financial institutions in shaping economic cycles. I thought it would be fun to share what I was seeing, though I had no idea how many people would follow along.
What motivated me was a curious disconnect: Finance may be ubiquitous, but studying it through the lens of the companies that provide it remains a niche pursuit. Banks and other asset managers are central to the functioning of the global economy, yet they remain poorly understood. They don’t even confine themselves to their own corner of the market – companies that on the face of it have nothing to do with finance often turn out to be financial companies in disguise. Yet many investors and commentators steer clear, deterred by the complexity.
Since then, we’ve witnessed seismic shifts that have only reinforced the importance of understanding how the sector operates: The rise of private credit challenging traditional banking, the fall of Credit Suisse ending 167 years of history, the rapid collapse of Silicon Valley Bank, crypto’s attempts to disrupt the foundational plumbing of finance, and geopolitical tensions reshaping global financial flows. Through it all, Net Interest has sought to lift the veil that the industry creates around itself.
The newsletter has grown beyond my expectations. From a standing start, we now reach 94,215 subscribers across over 100 countries. If it weren’t for churn, we’d be over 110,000. Growth has been helped by kind comments from readers and endorsements from some serious people. Subscribers include senior executives and investors at the world’s largest financial institutions as well as private investors interested in the sector, many of whom have opted for paid subscriptions (thank you!).
Along the way, Net Interest has found its voice in an abundant market for content. The newsletter format allows me to provide more analytical depth than news media while adding historical context and narrative often missing from investment research. This long-form approach seems to have struck a chord. One of my favourite reader comments captures well what I strive for:
“Your style is unique and special. It is dense and informationally rich yet easily digestible – an expert can learn, a novice can still understand. I personally don’t think anyone in financial journalism matches it.”
The Substack platform has been instrumental in this growth. The platform itself has grown dramatically since my launch – from around 200,000 paid subscriptions in early 2020 to 5 million paid subscriptions across 50,000 publishers by March 2025. This growth reflects a broader shift toward independent publishing that has created new opportunities for specialized financial analysis. According to my friend and occasional collaborator, Steve Clapham, the top 100 investing Substacks now generate an estimated $30 million in annual revenue – small relative to the traditional investment research industry, but a meaningful alternative for specialized analysis. With major banks cutting analyst numbers by 30% over the past decade, independent writers are stepping into the gaps.
If five years is a long time in finance, it is even longer in technology, and my working practices have not escaped the upheaval. One major development has been the integration of AI tools into my research process. While the core analysis remains human-driven, AI has enhanced my ability to process vast amounts of financial information and surface relevant insights. For a solo operation like mine, the impact has been profound – I once considered recruiting London Business School students for research support, but AI has largely filled that gap (sorry, MBAs). I now use AI to analyze earnings transcripts, source relevant publicly-available research, and edit my writing – all in a fraction of the time it once took, allowing me to focus more on the interpretative work that adds value.
Earlier this year, I also launched Net Interest Extra – a podcast series exclusively for paid subscribers where I interview experts in the field of finance. Recent guests have included Porter Collins (portrayed in The Big Short), Eric Rosenfeld (former LTCM partner), and macro experts James Aitken and Jim Bianco. This adds another dimension to the analysis, allowing paid subscribers to hear directly from key players in the industry.
Looking back over these five years, several key themes have emerged in my coverage of the financial sector. Each one has only grown in importance. By way of review, let’s explore five of the most significant developments that will continue to define finance in the years ahead:
The Great Disintermediation of Banking
Fifteen years ago, banks sat at the center of the financial universe. They controlled the flows of money, set the terms of credit, and intermediated most major transactions. Today, that dominance is being dismantled from multiple directions. This week’s news that Apollo is partnering with JPMorgan and Goldman Sachs to make private credit more tradeable represents just the latest chapter in this ongoing transformation.
The most visible challenge comes from private credit, which we’ve tracked from Apollo Rising to The Changing Face of Finance. Apollo CEO Marc Rowan sees a $40 trillion opportunity – essentially anything currently sitting on bank balance sheets – compared to the current $1.7 trillion private credit represents today. His firm has grown asset-backed loans from $100 billion in 2021 to $237 billion by end-2024, demonstrating the scale of this migration.
But private credit is just one front in a broader war. As we discussed in The New Power Brokers, exchanges have systematically captured control of market infrastructure that banks once dominated. They’ve consolidated clearing houses, acquired index providers, and now dictate the rules that govern trading – power that was once the exclusive province of major banks.
The pattern is consistent across multiple areas. In payments, fintech companies have built direct relationships with consumers. In capital markets, non-bank platforms increasingly handle secondary trading. Even in traditional lending, direct lenders are capturing market share by offering faster execution and more flexible terms.
The forces driving this disintermediation have been relentless. Post-crisis regulation made banks more expensive to operate, particularly in areas like trading and lending. Capital requirements increased while return opportunities diminished. Meanwhile, technology reduced barriers to entry for specialized players who could focus on specific functions without the overhead of full-service banking.
What makes this disintermediation particularly potent is how these new players are solving the fundamental problems that banks struggle with. As we explored in Private Lending, the challenge isn’t just originating assets but sourcing the right capital to fund them. Private credit firms have built dedicated institutional relationships and are now pushing into retail markets through vehicles like ETFs.
The scale of the shift is becoming apparent. In the US, banks now account for roughly 20% of debt capital to consumers and businesses, down from much higher levels historically. In leveraged lending, private credit funded 70% of buyouts by loan dollar volume in recent years. The migration spans from corporate lending to consumer finance.
The historical parallel runs deep. As we discussed in Drexel’s Second Coming, the current boom shares DNA with the junk bond revolution of the 1980s – both emerged from regulatory gaps and bank retrenchment. But today’s disintermediation is broader and more systematic, spanning credit markets, capital markets infrastructure, and payment systems.
Banks aren’t passive observers in this process. Many are partnering with their disruptors, as this week’s Apollo-JPMorgan tie-up demonstrates. Others are building their own platforms or acquiring competitors. The irony is that banks are often facilitating their own disintermediation: They provide credit lines to private credit firms, trade with non-bank market makers, and offer custody services to fintech companies. In some cases, they’re earning fees from activities that replace their own traditional businesses. It’s a pragmatic response, but one that acknowledges their diminished role.
Yet the pendulum may be beginning to swing back. Treasury Secretary Scott Bessent recently argued that “so much lending’s been pushed outside the regulated banking system – that tells you it’s over-regulated.” His solution: “Remove regulation so that as government deleverages, private sector can releverage.” If implemented, such deregulatory policies could allow banks to compete more effectively with their non-bank rivals, potentially reversing some of the migration we’ve seen.
A key theme of Net Interest over the past five years has been this steady disintermediation of banking. Perhaps a theme for the next five will be the reverse.
The Organizational Edge in Asset Management
When investors think about sustainable competitive advantages, they typically focus on three: superior information, better analytical frameworks, and behavioral discipline. But there’s a fourth edge that’s often underestimated – organizational structure. How you set up your firm, source your capital, and align incentives can matter as much as how well you pick stocks.
This week’s news that Dan Loeb’s Third Point Investors Limited plans to acquire reinsurer Malibu Life Re highlights how this organizational edge continues to evolve. In what amounts to a reverse takeover, Loeb is pivoting his London-listed permanent capital vehicle toward the insurance model that firms like Apollo have deployed so successfully. The move reflects a broader recognition that the structures we explored in pieces like Other People’s Money and The Ackman Discount are evolving rapidly.
The insurance model offers something that even permanent capital vehicles struggle to provide: truly patient money with a negative cost of capital. As we detailed in Other People’s Money, Warren Buffett’s genius wasn’t just in stock picking but in recognizing that insurance float could provide a cheap, stable source of funding for investments. In 35 out of 54 years, Berkshire’s cost of float was actually negative – meaning policyholders effectively paid Buffett to invest their premiums.
Apollo proved this model could be replicated at scale. Its acquisition of Athene in 2009, which we discussed in Replicating Buffett, has built a dominant position in private equity-backed retirement products. Athene just reported record quarterly inflows of $26 billion, demonstrating the appetite for products that blend insurance and investment management.
The contrast with traditional fund structures is stark. As we explored in Zuckerman’s Curse and So You Want to Launch a Hedge Fund?, traditional hedge funds face constant tension between generating performance and managing redemptions. Even closed-end funds – supposedly offering permanent capital – often trade at persistent discounts that limit their effectiveness.
Loeb’s move is particularly telling because Third Point Investors was one of the early experiments in listed hedge fund vehicles, launched in 2007 as highlighted in The Ackman Discount. But like Ackman’s Pershing Square Holdings, it has struggled with valuation discounts. Currently trading at a 25% discount despite solid underlying performance, the fund faces the perennial challenge of closed-end structures.
The insurance transformation isn’t without controversy. Asset Value Investors, which specializes in closed-end fund activism, has attacked the deal as emblematic of “appalling corporate governance.” Their opposition highlights a key tension: what’s optimal for the asset manager may not align with existing shareholders’ interests.
Yet the trend seems unstoppable. Beyond Apollo and now Third Point, KKR bought Global Atlantic for $4.7 billion, Blackstone acquired Allstate’s life business for $2.8 billion, and others have explored similar moves.
The power of organizational innovation isn’t new. As we discussed in Trillions: The Rise of Passive, Vanguard’s success stems largely from its unique mutual structure, where fundholders own the management company. This eliminates the fundamental conflict between maximizing profits for shareholders and minimizing costs for fund investors – a structural advantage that has endured longer than any investment strategy.
The broader lesson is that organizational innovation often matters more than investment innovation. The structures that dominate today – from Berkshire’s conglomerate model to Vanguard’s mutualization to Apollo’s insurance strategy – weren’t obvious when they were created. But they’ve proven more durable than many brilliant investment strategies because they solve fundamental problems about how to source, price, and retain capital.
As the financial landscape continues to evolve, expect more experimentation with organizational forms. The firms that get the structure right often find that everything else – performance, growth, valuation – follows naturally.
The State as Financial Architect
This week, Donald Trump posted on social media about Fannie Mae and Freddie Mac:
“Our great Mortgage Agencies...provide a vital service to our Nation by helping hardworking Americans reach the American Dream. I am working on TAKING THESE AMAZING COMPANIES PUBLIC, but I want to be clear, the U.S. Government will keep its implicit GUARANTEES.”
The message perfectly captures a fundamental truth about modern finance: the supposed divide between public and private is largely illusory.
As we’ve chronicled extensively – from Financing the American Home to The Trump Trade – the financial sector operates as an extension of state power, carefully architected to serve policy objectives. The Fannie and Freddie model epitomizes this: nominally private companies that socialize losses while privatizing gains, all in service of a political goal (homeownership) that transcends normal market economics.
This arrangement reveals the asymmetric relationship between state and finance. Financial institutions are private on the way up, public on the way down. When interests are aligned, shareholders stand to benefit, but when they are not – whether during financial crises where bailouts are required, or when banks must serve as instruments of sanctions enforcement or pandemic relief distribution – the public interest prevails. As we discussed in Financial Warfare, when Russia invaded Ukraine, the West deployed banks rather than armies, demonstrating just how integrated financial institutions are with state apparatus.
The evidence of this integration is everywhere. Entire sectors exist only because of government backing. As we explored in Government Sponsorship and the Student Loan Crisis, student lending became a trillion-dollar market through government sponsorship. Similarly, the 30-year fixed-rate mortgage that defines American homeownership wouldn’t exist without government guarantee programs. These aren’t market failures being corrected – they’re policy successes being implemented through financial intermediaries.
Even when banks retreat from certain markets, it often reflects deliberate policy choices. As we noted in Deglobalised Banking, the decline of cross-border banking flows since 2008 reflects not just market forces but regulatory decisions to prioritize financial stability over global integration. Post-crisis capital requirements didn’t accidentally push lending elsewhere – they were designed to make banks safer, with migration to non-banks being an acceptable trade-off.
The relationship extends beyond crisis management. Financial institutions serve as the primary transmission mechanism for monetary policy, the main enforcers of anti-money laundering rules, and increasingly the implementers of climate policy through ESG lending standards. When central banks want to cool an economy, they work through banks. When governments want to counter terrorism financing or enforce sanctions, they deploy the financial sector.
Trump’s Fannie and Freddie post illuminates this dynamic perfectly. He promises privatization while guaranteeing government backing – having it both ways. It’s the same model that’s dominated American finance for decades: socializing the risks that make certain products viable while allowing private actors to capture the upside. The arrangement persists because it serves everyone’s interests: politicians can claim they’re not expanding government while achieving policy goals, private actors can profit from government-backed business models, and citizens get access to products (like 30-year fixed mortgages) that pure private markets wouldn’t provide.
This isn’t about to change. If anything, the financial sector’s role as a policy tool is expanding. From climate stress tests to central bank digital currencies to coordinated sanctions regimes, we’re seeing more sophisticated coordination between state and finance. The true question isn’t whether the financial sector is public or private, but how effectively governments can wield this hybrid system to achieve their objectives.
The Maturation of Fintech
Buried in Chime’s S-1 filing is a telling declaration: “Chime is a technology company, not a bank.” The statement perfectly encapsulates the identity crisis that has defined fintech for over a decade. As the company prepares for its IPO – a journey I first charted in Net Interest in December 2020 – it represents something larger: the coming of age of an industry that promised to revolutionize finance but has often ended up replicating it.
Founded in 2012 by former Green Dot executive Chris Britt, Chime epitomized the early fintech playbook: identify an underserved market (the 75% of Americans earning under $100,000), partner with a small bank to access infrastructure, build a sleek mobile app, and eliminate the fees that traditional banks used to monetize lower-income customers. It was classic Coasian Finance – unbundling banking by exploiting regulatory arbitrage and reduced transaction costs.
The strategy worked brilliantly. Chime now serves 8.6 million customers, with 67% using it as their primary bank – a penetration rate that eluded most challenger banks. Revenue hit $1.7 billion in 2024, driven largely by interchange fees that benefit from the Durbin Amendment’s small bank exemption. While JPMorgan earns roughly 0.05% on debit transactions, Chime captures around 1.5% through its bank partners.
Yet Chime’s filing reveals the fundamental tension at the heart of fintech. Despite generating $251 in annual revenue per user – impressive for a “free” service – roughly 80% still comes from interchange. The company’s recent push into lending through products like MyPay (earned wage access) and SpotMe (fee-free overdrafts) drove 54% growth in platform revenue, but also increased transaction and risk losses to 24% of expenses. The challenge, as we discussed in our coverage of challenger banks, is that credit losses don’t show up clearly in revenue metrics – they lurk beneath the surface, ready to derail unit economics just as growth accelerates.
The evolution reflects broader patterns we’ve tracked across fintech. From Revolut’s journey to become Britain’s Newest Bank to the Battle of the Challengers between Starling and Monzo, successful fintechs inevitably face a choice: remain narrow technology companies or evolve into full-service financial institutions. Nearly all discover that customer acquisition costs spiral as they compete for the same demographic, while compliance costs increase non-linearly once they reach a certain scale.
The path forward has been remarkably consistent. Revolut secured its UK banking license and now offers everything from mortgages to crypto trading. Klarna pivoted from buy-now-pay-later to a comprehensive financial app. Even Robinhood has expanded from commission-free trading into banking services. The pattern is consistent: technology companies discover that sustainable unit economics in financial services require the very bundling and cross-selling they initially sought to disrupt.
The costs of this evolution are becoming apparent. Chime’s S-1 filing acknowledges that “partnerships between banks and financial technology companies have been the subject of increased and evolving scrutiny from regulators,” warning that this could “impose additional compliance costs” and affect bank partner relationships. As we explored in Coasian Finance Revisited, the banking-as-a-service model that enabled fintech’s rapid growth has proven more expensive than anticipated once compliance costs are properly accounted for.
The distinction has become increasingly strained. Chime insists it’s “not a bank” while offering checking accounts, savings products, credit building, and lending – essentially everything a bank does. Like many fintechs, Chime has discovered that the fundamental economics of finance – balancing risk and return, managing regulatory capital, pricing credit accurately – don’t disappear just because you have a better app.
This convergence reflects the gravitational pull of financial services. Chime began by serving customers banks didn’t want; now it’s trying to build the very financial superapp that traditional banks have struggled to create. Whether that transformation succeeds will depend less on technology than on execution of age-old banking fundamentals.
The IPO market will provide the ultimate test. Early investors valued Chime at $25 billion in 2021; today, comparable companies like Dave and SoFi trade around 7x revenue, implying a more modest $12 billion valuation. The fintech premium has evaporated as investors focus on sustainable unit economics rather than user growth. Chime may insist it’s a technology company, but it will be judged by banking metrics: cost of capital, credit losses, and the ability to profitably serve customers that traditional banks have always found challenging to monetize.
The Blurring Boundaries of Banking
A discussion broke out on the pages of the FT this week about the nature of a bank. It stemmed from a debate about stablecoins, which we have talked about here before, most recently in The New Money Market. Some commentators think that stablecoin issuers look like banks; others vehemently disagree. The best definition I have is that a bank is a firm that issues deposits. And deposits are financial instruments that are issued by a bank. But to avoid the tautology, Dan Davies provides a useful chart:
There are a lot more than finance companies hanging out in the permissive squares of the chart. Dan highlights frequent flyer programs – which we touched on in The Points Guy. Starbucks points can be assigned there, too, and cruise line deposits and other financial products we explored in Banks in Disguise. One of the outcomes of growing financialisation in an economy is that more companies become financials. Understanding who is really operating as a bank – and who might become one – will only become more important as these boundaries continue to blur. If there’s a reason to stay subscribed to Net Interest, this is it. The next five years promise to be fascinating – please follow along.
Your Substack is tremendous. Thanks for all your work these last 5 years - looking forward to the next 5!
That’s a great summary of the current status of the industry, thank you