In our home, we have a holiday tradition of watching the movie, Elf, the day after Thanksgiving and more times than I care to admit before Christmas. Recently, my daughter requested spaghetti with syrup, a nod to one of our favorite scenes in the movie.

I quickly pointed out that the pairing was just wrong, but fulfilling her obligation as a young, truth-seeking child, my daughter insisted and pointed out that "just because it was not how you ate spaghetti does not mean it's wrong."

I thought of that interaction when I read recent news about the investment app, Robin Hood.

Now hang with me.

Robin Hood, a popular stock-trading mobile platform that has been disrupting the entire brokerage industry with its free stock trades, now seems to be targeting the entire banking sector. According to its website, customers can now sign up for checking accounts with no minimums, no fees, and access to over 75,000 free ATMs. They also offer savings accounts that earn three percent interest -- roughly 30 times higher than the national average.

While online banking is nothing new, this combination of free banking and free trading services is enticing and is sure to draw more clients to the platform, which has already attracted six million users (valuing the company at almost $6 billion) in just five years. To put this in perspective, Fidelity has about 26 million clients, while TD Ameritrade and Charles Schwab both have about 10 million active clients.

It is worthy to note that the company has not yet received its bank charter, although its CEO has said it is coming, but accounts are still insured up to $250,000 by the Securities Investor Protection Corporation (SIPC), which insures broker dealers like Robin Hood.

So what does this announcement have to do with spaghetti and syrup? We are almost there.

The banking sector has been primed for risk-takers for years. In the past, depositing, transferring and otherwise managing your physical money was labor-intensive. Banks could provide services to customer and be expected to earn a decent fee in return.

Today, however, technology runs our monetary systems, and quite effectively and efficiently. Bank fees that were common in the past have become completely obsolete today, and yet banks continue to earn a significant portion of their revenue through charging these fees.

According to LendingTree.com, while fees only constituted about 3.86 percent of revenue in 2015, they were still equivalent to $34 billion, or roughly $107 per person in the US.

Now, banks need to make money, but the primary driver of these fees are ATM usage (accessing your own money) and non-sufficient funds (NSF), services that these days cost the banks little to nothing and are altogether annoying to customers.

Consider, for instance, that fraudulent cash withdrawals or spending over your balance were once difficult to track and ultimately very costly to banks. Today, technology has pretty much eliminated these issues -- over-drafting an account almost never happens because of instantaneous electronic transactions -- yet banks continue to inconvenience their clients with these fees at an average cost of $60 per customer.

What Robin Hood is doing is similar to what internet calling (VOIP) companies did to the telephone industry. They have entered boldly with a mission to challenge the status quo and proposed a business model that works within modern technological frameworks and customer expectations.

Back to the spaghetti and syrup.

Banking practices, like my disdain for spaghetti and syrup, is a case of "that's just how it is done," and like my daughter pointed out, this is an ineffective way to look at the world. 

I get that the analogy is not perfect, but the point is that sometimes inspiration for new ideas exist in issues we face everyday but are clouded by tradition, habits, culture and so on. Maybe the next great invention is not a technological innovation, but rather just challenging a status quo that seems to be mired in old paradigms that keep it from progressing.

As for spaghetti and syrup, while the combination might sound repulsive, consider that spaghetti is made from flour and water, just like bread, which when used for French toast becomes the perfect pairing for syrup.

And while I do not plan on making this combination a stable of my diet -- or even a cheat day -- I love the idea of using it to inspire me to challenge other paradigms.

What do you think? What other industries are prime for challenging the "that's just the way it's done" credo? Share your thoughts with me at Twitter.

Published on: Dec 14, 2018
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