A Rather Circular Way to Value a Bank

There is a certain, quiet dignity in the traditional bank. One imagines a building made of heavy stone, staffed by individuals who view a colorful tie as a radical act of rebellion, and where the most exciting event of the decade is the replacement of a slightly squeaky revolving door. In such an environment, money is treated with the solemnity of a sleeping infant. It is tucked away in a vault, given a warm glass of milk in the form of a negligible interest rate, and told not to make a scene.

However, we live in the age of the digital bank, an entity that exists primarily as a collection of very enthusiastic pixels and a series of servers located in a climate-controlled basement in Virginia. Specifically, we must discuss Mercury, a digital banking startup that has recently been valued at some five point two billion dollars. To put that in perspective, that is roughly the cost of buying enough avocados to sustain a small nation for a weekend, or perhaps the price of a single, very well-maintained used space shuttle.

What makes this valuation particularly delightful is the reason behind it. Mercury has positioned itself as the bank of choice for the AI startup. This is a masterstroke of corporate positioning. It is, in essence, a bank for people who are building machines to do the jobs of the people who used to work in banks. It is a bit like a turkey opening a very successful consultancy firm for Christmas dinner enthusiasts. One admires the sheer, unadulterated pluck of it all.

(I once spent an afternoon trying to explain the concept of a 'startup' to a very confused pigeon in St. James's Park. The pigeon, quite rightly, concluded that if it couldn't be eaten or used to build a nest, it was probably a speculative bubble. We could learn a lot from pigeons, provided we ignore their views on public statues.)

The modern fintech ecosystem has become a sort of hall of mirrors, or perhaps a very expensive game of musical chairs where the music is generated by a large language model and the chairs are made of venture capital. Mercury is valued at billions because it banks AI startups. These AI startups are valued at billions because they might one day revolutionize the world, or at the very least, create a slightly more efficient way to generate pictures of cats wearing Victorian formalwear. The venture capitalists provide the money to the startups, who then deposit it in the bank, which then uses the fact that it has all this money to convince the venture capitalists that the bank itself is worth more money.

It is a beautifully circular arrangement. It is the financial equivalent of a snake eating its own tail, but doing so with such impeccable manners and such a high-quality user interface that everyone involved feels quite good about the whole thing. One assumes that at some point, the tail will run out, but for now, the snake is enjoying a very nutritious, if somewhat recursive, lunch.

There is also the matter of 'Agentic Commerce,' a term that sounds like something a very bored bureaucrat would invent to make shopping sound like a covert military operation. The idea is that AI agents will soon be the ones doing the banking. Your personal algorithm will notice that you are low on Earl Grey tea, negotiate a bulk discount with a supplier in Sri Lanka, and authorize the payment through your digital bank account without you ever having to look up from your morning toast.

This leads to a rather surreal future where banks are essentially machines talking to other machines about money that doesn't actually exist in a physical form. It is a ghost economy, populated by spectral accountants and phantom consumers. In this scenario, the human element is merely a decorative flourish, like the parsley on a steak—nice to have, but ultimately irrelevant to the nutritional value of the meal.

(I find that my own personal algorithm is currently obsessed with suggesting I buy a high-pressure power washer. I don't own a patio, nor do I have anything particularly dirty that requires that level of hydraulic force, but the algorithm is persistent. It seems to believe that my life's true purpose is to strip the paint off things I don't own. Perhaps it knows something I don't.)

The regulatory bodies are, as one might expect, watching all of this with the expression of a man who has just discovered a live badger in his sock drawer. They are concerned about 'risk,' a word that in banking circles is treated with the same horror as a loud belch during a funeral service. How do you regulate a bank whose primary assets are the deposits of companies whose primary assets are 'potential'? It is like trying to weigh a cloud using a set of kitchen scales. You might get a number, but it's unlikely to be a very useful one.

And yet, the valuation holds. Five point two billion dollars. It is a testament to the human capacity for belief. We have moved beyond the gold standard and the silver standard, and we are now firmly on the 'Vibe Standard.' If the vibes are sufficiently innovative, and the interface is sufficiently sleek, the value is whatever we collectively decide it is. It is a triumph of imagination over arithmetic.

In the end, perhaps we should stop worrying about whether the circle will eventually break. After all, a circle is a very stable shape. It has no sharp edges to catch your sleeve on, and it looks very tidy on a spreadsheet. As long as the AI startups keep starting up, and the venture capitalists keep venturing their capital, the digital vaults will remain full of very high-quality, five-billion-dollar vibes. And really, in this day and age, what more could one possibly ask for?