The things described in the article are certainly good but I don't count any of them as "innovation."
- Many countries have had free banking for decades now. The USA's banks have finally decided to stop gouging their prices, but that's hardly innovation. Overdraft fees basically are just a made up problem in order to extract money from customers. European banks have had a notion of "no money, no purchase" for ages now.
Ditto with fast transfers and lower remittance.
---
True innovation would be more control over your money. For example, you could have a bank account with $100 in it, and you allocate dollars $0-50 to be "online" money. This can mean different things, but for the sake of example let's say that means that you can go to https://bank.com/user/endisneigh and if I give you a special code that I create you can take an amount of money directly from my bank account, specified by the code. No need to use something like stripe.
Another example could be the ability to automatically change where money goes depending on its source. Got a deposit via Venmo? It goes to X. From your work? Goes to Y.
The future is programmable money. That's innovation IMHO.
> True innovation would be more control over your money. For example, you could have a bank account with $100 in it, and you allocate dollars $0-50 to be "online" money. This can mean different things, but for the sake of example let's say that means that you can go to https://bank.com/user/endisneigh and if I give you a special code that I create you can take an amount of money directly from my bank account, specified by the code. No need to use something like stripe.
This is a thing in the Netherlands, between iDeal / Tikkie / and bank transfers. iDeal is used for payments online, it depends a tiny bit on your bank but you get a QR code and you scan it, it then does a direct bank payment from your bank to their account.
Tikkie is similar but is p2p. I can create a link or a QR code and send it to people. They can then use the link or QR code and send me money. Alternatively you can just use my account number (an IBAN printed on the card) and just transfer money.
Happy to answer any questions or take requests for future issues, HN. (This is the second issue of my new weekly newsletter.)
Edit to add: Incidentally, while I’m always thrilled when my stuff ends up on the front page, I’m also a member of this community and know that there’s a limited tolerance for the same sites ending up on here on a weekly basis. In previous years I spaced out releasing essays to not annoy y’all, but I can’t do that with a weekly newsletter, so if folks can be selective in submitting these here I’d appreciate it.
Unfortunately the market-clearing price (in karma) for someone posting your article is greater than zero, ensuring that nothing short of regulation would prevent it.
Okay, so the obvious question is... crypto. Do these large institutions have any interest in opening up interfaces to the crypto ecosystem, are they skeptical as hell about the concept generally, is the technology mature enough to start seeing integration with common tasks like sending money in these popular "instant" apps (e.g. Venmo uses a stablecoin to transfer money, without even showing the crypto part to the user)?
I'm wondering if my local credit union wants to hold my BTC for me, if I wanted to do something like that.
Hey Patrick, I always enjoy reading your stuff. For this particular piece, it's a pity that you don't have a specific view on Europe. I'm sure it's difficult to know every detail. Perhaps it's a good opportunity to involve someone at Stripe who knows e.g. the European side of things? Or even how things are in Africa? (Matteo Rizzi of Fintechstage comes to mind, amazing experience in anything fintech-related in Africa).
Great post that provides an overview of recent changes in banking.
Something you should add here is that free banking is also made possible due to the economics of the Durbin Amendment of the 2010 Dodd Frank act that allows smaller financial institutions to charge a higher interchange fees on debit transactions.
Most Fintech/Neobank players like Chime fall into this bucket and they are able to fund the operational cost of the checking account with the interchange fees of the debit card.
The innovation I've been waiting for is FedCoin (digital dollar).
The details are a little hazy, but I'm expecting real instant transfers (not just between people but also between your own accounts at different institutions) and free access for everybody in the US.
Reading this segment feels like it was terminated prematurely?
> Free checking wasn’t free. Instead of most depositors paying a predictable (and relatively small) fee for their checking account, a tiny portion of the depositor base was assessed many, many $25-$35 fees stochastically based on how frequently their incomings and outgoings were temporarily mismatched.
Specifically the "depositor base was assessed many, many" part. Feels like the many before the comma is missing something. Maybe it should be times? "a tiny portion of the depositor base was assessed many times, many $25-$35 fees stochastically"
How does the best price you give for JPY->USD ($10 for $1,000 with Wise) compare with OANDA fxTrade?
I think their current posted fees are 1.4% spread-only ($14 for $1000) or 0.3% spread plus core fees. I can't quite tell from the rate sheet but looks like 550 JPY for a 100,000 JPY trade. I guess that would work out to about … $8.50 per $1000? Is that right?
If you have a local bank that allows foreign depositors to exchange at 0.3 JPY/1 USD, does that mean you pay about $2.50 to convert 1000 USD?
> “ Free checking wasn’t free. Instead of most depositors paying a predictable (and relatively small) fee for their checking account, a tiny portion of the depositor base was assessed many, many $25-$35 fees stochastically based on how frequently their incomings and outgoings were temporarily mismatched.”
In Australia this became illegal at some point. Maybe 10~ years ago. I believe the specific regulation was something about the fee must represent the cost associated. And obviously, the bank doesn’t actually incur any cost to reject a payment. Most definitely not $35 worth.
But they could argue they incur some cost related to a negative balance. They’re lending the customer money. So CommonwealthBank (CBA, major bank, and likely many others) gave everyone a $500 over draft on their “checking account” (colloquially not referred to as “checking” in Australia).
So now your account didn’t go negative, or reject payment. Overdrawing your account was a feature, and you paid for it.
Having an overdraft feature was free. You were charge a fee each month based on how much you used your overdraft, plus interest if you carried a negative balance. 1-100 of overdraft was $9. The full 500 was $27 or $35.
So effectively they reimplemented a very similar fee structure as a product.
While the outcome was similar, this feels a lot less scumbagy.
Sort of same here in the NL, at some point over a decade ago they introduced overdraft mode for your account. It was 800 euro initially, and now it's tied to your income somehow. It's free but there's interest payment on the overdraft. And you're not allowed to be in overdraft continuously for over 3 months.
It's always been opt-in, you have to enable it for your account.
> If you say the words “financial innovation” many people incorrectly believe it is largely negative (or at least risk-taking) or not happening. This is incorrect. The world is actually getting better, within our own lifetimes.
I think what may be going on is that "financial innovation" is being used to refer to different things. I think when people say "financial innovation" is negative, they're referring to "high finance"/Wall Street type stuff like CDOs, but this article mostly talks about retail bank accounts.
It's interesting to think that before Bitcoin, money really had no digital form that could exist independent of a bank. Like I can store cash in my wallet outside of a bank, and give it to someone else without going through a bank. That concept didn't exist electronically before Bitcoin. Services like PayPal made for a similar experience, but it was only an abstraction over bank to bank transfers.
So cool now that we actually have a fully distributed and digital form of money. So much innovation is happening right now to explore all possibilities of this new capability we have.
Already moving Bitcoin compared to an ACH or Wire Transfer is night and day. Much faster with no limits or constraints, or even having to pass money through a bank as an intermediary step.
A bit disappointed the Fed’s instant payment system (FedNow), going live in 2023, wasn’t mentioned (although Zelle and private wallets like Venmo and Cash App were). The knock on effect from this will be a decline in neobanks (Chime, for example) funding themselves from interchange fees, necessitating free deposit account support through policy (as commercial banks don’t want to provide these accounts at a loss and interest income would be insufficient to be self sustaining).
54 other countries already have instant payment systems, and utility priced (ie very cheap) instant payment infra is the innovation. America is just catching up the the developed world, financial services speaking. After deposit accounts and instant payments are solidified, the remaining innovation is…lending (securitize all the things, real estate, autos, factoring, float, etc).
The remittance cost piece was spot on though wrt to Wise. Surprised we haven’t seen more copycats, but it turns out culture and management are the hard parts, not the tech.
The EU's SEPA Instant Credit transfer is another example as is the UK Faster Payments network.
On the flip side if you need an example of stifiled innovation with no near future improvements on the horizon, just look at Canada's pathetic excuse of a banking system.
The author seems to be deliberately conflating "free banking" with "no overdraft fees", which is extremely misleading.
I have had "free" banking for over 20 years, by going through credit unions instead of banks. Credit unions are identical to banks, with the exception that they are (usually? always?) non-profits and generally do not charge fees for having an account. There are limits on withdrawals, transfers, and fees for things like wire transfers that do not affect the average family. They also have some condition of membership but these days, living, working, or going to school within their service area suffice. Almost every area in the US has a credit union. There is no reason to open an account at a commercial bank. Every time I have opened a checking account (for temporary business purposes) at a bank instead of a credit union account, I have regretted it.
Now, overdraft protection fees. These are a completely separate topic that is applicable to both banks and credit unions. These are completely optional, by law. If you have a habit of regularly withdrawing more than you deposit, you can call up your bank/CU right now and tell them to take it off of your account. The tradeoff is that your checks will bounce. Either way, the solution is simple: Keep track of your balance and don't overdraw.
The author also thumbs his nose at paper checks, but most traditional small businesses in the US don't have much of a choice: checks are how money moves because they leave a paper trail. Which is important because the security of the whole US banking system is based on after-the-fact audits. This is a double-edged sword because while it allows (some kinds of) fraud, it's also easier to clean up. If someone steals Gradma's check book, most banks will bend over backwards to help her because they want to keep her as a customer. If someone steals Grandma's bitcoin wallet, she is just simply fucked and that's the end of that.
I agree that the ACH system is largely a dumpster fire, though.
Local commercial banks can have a similar experience to credit unions (at least until they get bought out).
FWIW "overdraft fees" and "overdraft protection fees" are two different things. If you do not sign up for "overdraft protection service", then when a check bounces, your account will generally get charged an "overdraft fee", and the person trying to deposit the check will generally get charged a similar fee for the checking having bounced. Hence businesses (that still take checks) having notices about passing their banks fee back to you if you write them a bad check. If you try to use your debit card, the card will be declined, since it is an online transaction.
If you do sign up for "overdraft protection service", then the bank will extend you a small line of credit. When a check would bounce, the bank will honor the check but charge you an "overdraft protection fee". This fee is usually the same amount as an "overdraft fee" would have been, but depositing the check will have been successful, saving the fee on the other side. However, I think that such services tend to also apply to debit card transactions, so if you swipe your card and overdraw your account, the transaction will go through but you'll get dinged with that fee.
Whether it benefits you to sign up for such a service will thus depend on your expected usage and the banks specific terms. Which back to the general point about banks attempting to create revenue by nickle and diming customers with an arbitrary fee structure - this is just another facet you need to know about to avoid them. I've never paid a monthly or punitive bank fee in my life, so I started off a bit skeptical of the article. But I've still had to deal with the existence of such fees, whether by double checking transactions, making sure to keep a minimum balance, or having to get management to remove erroneously assessed fees. The increased share of large online-only (or online-first) banks has created a good amount of competition that has driven the prevalence and dollar amount of such fees down.
FWIW last time I did a comparison of the large online banks, I saw that Capital One has an (optional) feature whereby if you overdraft your account, it's treated as a regular line of credit with a reasonable interest rate and no fees. This is probably the best option for someone concerned about regular overdrafts. The trade off is that their customer service sucks.
If you think your banking is free just because you don't explicitly pay for your credit card or your checking account you are seriously deluded.
Banks have injected themselves into the stream of payments for goods and services and are now getting cut of almost every your transaction. They have architected entire process very cleverly so that you, the consumer, do not need to be aware of the amount of money you are paying and the merchant, service provider has no way to protest.
It makes sense for them to reduce the visible part of the cost to 0 just to get you lulled into sense of everything being free. Banks want you to think so. Most people are inept at how banks are making money and for banks this is how they like it to stay.
In reality, you pay hefty tax on every purchase you make with a credit card which is costing you way more than you would accept if that sum was to be paid in monthly installments.
I have been working for banks and credit card companies for the best part of the last two decades.
IMHO, The financial innovation is not happening in the tradfi space. No charge checking accounts, yawn.
Tradfi is barely struggling to keep up with a rapidly inflating fiat. The tiny interest being paid is no incentive to keep funds with the traditional banks. We don't need banks to hold that dirty fiat, we need digital, tradable, state-intervention and censorship resistant assets we can custody and try hold on to some value.
The fact that the author doesn't seem aware that in the future all of money will live on public immutable networks makes me think he's either out of touch or we're still really early.
Fun fact - most of these "innovative" banks (Chime, Mercury, Rho, etc.) are just "skins" on top of legacy banks that built out APIs (which in itself is probably innovation). I'm not aware of any classic "bank" that does the old boring retail stuff that Chase, BoA, etc. do but add in APIs, free wires, etc.
As technologically advanced as many aspects of life in the US seem to look like for an outsider, I am baffled that the finance overlord of the world somehow came 10-15 years late to next-gen banking.
I went to an African un-recognized state in 2009 and people already were using SMS-based mobile phone money transfers to conduct daily business or send money to their contacts. I also live in the Nordics.
If a country with an advanced national ID system and a developing country with barely a government could both leap into the next generation of personal finance, what took the US so long?
If I built my house 20 years ago, it would be up to date as of 20 years ago. Someone who builds their house today would have a house up to date as of today.
I can update my house to be up to date now but it’s going to cost a lot of money on top of the money I already spent building the thing. I might wait another 5 years first so I have the improvements discovered in the next 5 years.
You can’t be constantly up to date. It’s too expensive. You have to up to date in cycles.
I think the answer is that the pain wasn't enough in the US to encourage the kind of innovation you saw in Africa. The marginal benefit of paying with your phone instead of card in your wallet is actually pretty small for most Americans, and much of it can only can be realized until you can leave your wallet at home. Similarly for other innovations where the incumbent was "good enough," ubiquitous, and already built.
What is it that seems technologically advanced about life in the US? Last time I visited (5+ years ago admittedly) this was not the feeling I had. Buildings and transport resemble the 1970s or earlier, and phone / internet / payments is way behind the rest of the world.
I remember reading about mPesa back in the day, and the article was talking about how there wasn't really any choice but to do SMS payments because there wasn't infrastructure for anything else. It's next gen, but also kind of the opposite of that...
I'm also sure that in 2009, there was population the size of the Nordics that was using mobile payments in the US, but the US is a large place.
> ACH payments historically operated on a daily or twice daily batch processing, and they’re (importantly) “negative confirmed.” This means that you do not get immediate reliable feedback that an ACH transfer or withdrawal has succeeded. The association’s rules require financial institutions to report errors (via even more batch processing) within 5 business days, and given that errors are expected in the ordinary course (most commonly, insufficient funds, since funds availability is not and cannot be guaranteed at transaction time), businesses and banks have to make decisions on what degree of risk they’re willing to tolerate.
A colleague of mine years ago told me a story about check clearing in the "old days". Northern Trust in Chicago handled a large percentage of check clearing for the entire US. Their back office building had a heliport because they had a twice-daily cargo flight from O'Hare filled with all the checks that needed to get cleared. I almost feel like the batch processing was because of the scheduled delivery of the physical checks to these processing centers around the country.
So many people are still ignorant of the space, especially Stripe who's business will suffer if crypto really takes off.
Those who say there is no innovation simply haven't looked deep enough, everyday i see cool new ideas in crypto, infact today I saw a 'streaming payments' service, so you can get your salary streamed to you constantly as opposed to a monthly payment - how cool is that?! Love all these ideas! Seems things move faster in the crypto space, as people are less concerned with formalities and processes. Sure this will lead to some big failures, like the occasional defi hack, but it also leads to brilliance in some areas, so to just say 'there's no innovation in crypto' is complete ignorance imo.
The reason I stopped reading HN (looking deep into the mirror) is that all the smart people here generally have a negative sentiment to something that's math based. It's a head scratcher but easy for me to move on after 14-ish years of being here.
Yeah its happening because fintechs are getting around the rules that were introduced on the traditional banking system. Anti money laundering, KYC, loan regulations, rules to open branches in certain demographics, dodd-frank etc - all this stuff isn't free, the traditional banks are drowning in rules and regulations. I know I used to work there.
Of course you can create a simple service that ignores all those rules and it'll be cheaper.
The difference between fintech and traditional banks is that former treats tech as revenue driver and latter as cost center and it feels in literally every step.
I currently work for a fintech and i can argue we're not getting around the rules, we're just able to move faster on it. We have invested a ton of resources into things like AML, KYC, and ensuring compliance. The only difference between us and a bank going through this is that we get to generally work w/ newish systems and minimal bureaucracy. Meanwhile banks have to work w/ much more antiquated systems and bureaucracy that makes it harder for them to move at all.
I see a few comments saying "this is stuff the rest of the world has had for a while now."
That's probably true to some extent. But it undersells the value being reported on, because the US market is a valuable one.
'Surprise! The richest, biggest economy in the world had banking/financial systems that were inefficient in X, believe it or not -- but that's in the progress of being fixed, which means Y is now more possible/profitable.'
I suppose the surprise is how long it has taken; here in the UK banking has been free for a long time (in fact, non-free banking is viewed as innovative!) and faster payments has been in place for over a decade.
This praise of financial innovation absent regulation is ridiculous. These are changes on the margins after decades of borderline criminal anti-consumer behavior.
You want innovation? Regulation mandating open APIs among all the banks would be unleash an innovation tsunami. Don't believe the propaganda, regulation is essential for competition and innovation.
I started reading the this article but then half way through the second section I realised I'd be much better of reading about financial innovations in India.
I agree the US is also a big country and has made lots of efforts to bring banking to every citizen.
India, though quite far from having at least one bank account for every single citizen, is leaps and bounds ahead of most other economies in terms of fintech and innovation in the field of mass banking.
Be it, the post office savings account scheme, way before banks had moved to computers, or the current wave that's happening with UPI and the aadhaar ecosystem.
My point is, if you want to read about financial innovations brought by technology ("fintech"), read about things happening in India (and also China).
Moving to Canada from Belgium, one of the most frustrating things is the banking ecosystem. It feels so far behind on what I'm used to, from the banking apps to transferring money to having had to use actual _cheques_ to rent a condo.
EDIT: Like paper cheques, I didn't have to use those in my 30 years in Belgium prior.
I'm close friends with a relative of yours who has worked for several major space companies, and we talk about your writing pretty frequently. Your articles on salary negotiation, life in Japan, and how to build side projects have proven extremely consequential for both of us--thank you so much for putting your thoughts down as frequently as you do.
Do you think dramatically increasing the speed and lowering the cost at which people can participate in financial transactions (as appears to be the mission of Stripe and the overall theme of your post) will have any effect on the current astronomical prices of small-scale international shipping? The costs involved in international financial transactions and international shipping for small customers seem to be closely coupled, but I'm not entirely sure how.
Logistics like international shipping are both a financial infra problem and an infra infra problem. I do think that the cost of small-scale shipping is going to come down to approach the ratable cost of volume in a shipping container (which, as you are aware, it is orders of magnitude higher than now), which will likely come from improvements primarily on the infra infra side.
Two companies to keep an eye on in this stack are Flexport and Shippo, among others.
Could you tell a bit more regarding international payments from where to where?
From POV of EU citizen (though extra biased due to Poland just using IBAN numbers), international payments are pretty fast - personally the biggest issue is when I need to figure out IBAN/BIC codes because receiver doesn't know them. Payment for SWIFT transfer and currency exchange can be still annoying, which I mitigate by having currency accounts, but still not as big as it could be.
[+] [-] endisneigh|4 years ago|reply
- Many countries have had free banking for decades now. The USA's banks have finally decided to stop gouging their prices, but that's hardly innovation. Overdraft fees basically are just a made up problem in order to extract money from customers. European banks have had a notion of "no money, no purchase" for ages now.
Ditto with fast transfers and lower remittance.
---
True innovation would be more control over your money. For example, you could have a bank account with $100 in it, and you allocate dollars $0-50 to be "online" money. This can mean different things, but for the sake of example let's say that means that you can go to https://bank.com/user/endisneigh and if I give you a special code that I create you can take an amount of money directly from my bank account, specified by the code. No need to use something like stripe.
Another example could be the ability to automatically change where money goes depending on its source. Got a deposit via Venmo? It goes to X. From your work? Goes to Y.
The future is programmable money. That's innovation IMHO.
[+] [-] Dobbs|4 years ago|reply
This is a thing in the Netherlands, between iDeal / Tikkie / and bank transfers. iDeal is used for payments online, it depends a tiny bit on your bank but you get a QR code and you scan it, it then does a direct bank payment from your bank to their account.
Tikkie is similar but is p2p. I can create a link or a QR code and send it to people. They can then use the link or QR code and send me money. Alternatively you can just use my account number (an IBAN printed on the card) and just transfer money.
[+] [-] patio11|4 years ago|reply
Edit to add: Incidentally, while I’m always thrilled when my stuff ends up on the front page, I’m also a member of this community and know that there’s a limited tolerance for the same sites ending up on here on a weekly basis. In previous years I spaced out releasing essays to not annoy y’all, but I can’t do that with a weekly newsletter, so if folks can be selective in submitting these here I’d appreciate it.
[+] [-] tl|4 years ago|reply
[+] [-] TameAntelope|4 years ago|reply
I'm wondering if my local credit union wants to hold my BTC for me, if I wanted to do something like that.
[+] [-] simonebrunozzi|4 years ago|reply
[+] [-] umeshunni|4 years ago|reply
Something you should add here is that free banking is also made possible due to the economics of the Durbin Amendment of the 2010 Dodd Frank act that allows smaller financial institutions to charge a higher interchange fees on debit transactions.
Most Fintech/Neobank players like Chime fall into this bucket and they are able to fund the operational cost of the checking account with the interchange fees of the debit card.
[+] [-] tantalor|4 years ago|reply
The details are a little hazy, but I'm expecting real instant transfers (not just between people but also between your own accounts at different institutions) and free access for everybody in the US.
Like crypto, but with real money.
[+] [-] Folcon|4 years ago|reply
> Free checking wasn’t free. Instead of most depositors paying a predictable (and relatively small) fee for their checking account, a tiny portion of the depositor base was assessed many, many $25-$35 fees stochastically based on how frequently their incomings and outgoings were temporarily mismatched.
Specifically the "depositor base was assessed many, many" part. Feels like the many before the comma is missing something. Maybe it should be times? "a tiny portion of the depositor base was assessed many times, many $25-$35 fees stochastically"
Not certain though.
[+] [-] mherdeg|4 years ago|reply
I think their current posted fees are 1.4% spread-only ($14 for $1000) or 0.3% spread plus core fees. I can't quite tell from the rate sheet but looks like 550 JPY for a 100,000 JPY trade. I guess that would work out to about … $8.50 per $1000? Is that right?
If you have a local bank that allows foreign depositors to exchange at 0.3 JPY/1 USD, does that mean you pay about $2.50 to convert 1000 USD?
[+] [-] frogpelt|4 years ago|reply
[+] [-] axg11|4 years ago|reply
[+] [-] mdp2021|4 years ago|reply
[+] [-] RileyJames|4 years ago|reply
In Australia this became illegal at some point. Maybe 10~ years ago. I believe the specific regulation was something about the fee must represent the cost associated. And obviously, the bank doesn’t actually incur any cost to reject a payment. Most definitely not $35 worth.
But they could argue they incur some cost related to a negative balance. They’re lending the customer money. So CommonwealthBank (CBA, major bank, and likely many others) gave everyone a $500 over draft on their “checking account” (colloquially not referred to as “checking” in Australia).
So now your account didn’t go negative, or reject payment. Overdrawing your account was a feature, and you paid for it.
Having an overdraft feature was free. You were charge a fee each month based on how much you used your overdraft, plus interest if you carried a negative balance. 1-100 of overdraft was $9. The full 500 was $27 or $35.
So effectively they reimplemented a very similar fee structure as a product.
While the outcome was similar, this feels a lot less scumbagy.
[+] [-] tinco|4 years ago|reply
It's always been opt-in, you have to enable it for your account.
[+] [-] tablespoon|4 years ago|reply
I think what may be going on is that "financial innovation" is being used to refer to different things. I think when people say "financial innovation" is negative, they're referring to "high finance"/Wall Street type stuff like CDOs, but this article mostly talks about retail bank accounts.
[+] [-] trixie_|4 years ago|reply
So cool now that we actually have a fully distributed and digital form of money. So much innovation is happening right now to explore all possibilities of this new capability we have.
Already moving Bitcoin compared to an ACH or Wire Transfer is night and day. Much faster with no limits or constraints, or even having to pass money through a bank as an intermediary step.
[+] [-] toomuchtodo|4 years ago|reply
54 other countries already have instant payment systems, and utility priced (ie very cheap) instant payment infra is the innovation. America is just catching up the the developed world, financial services speaking. After deposit accounts and instant payments are solidified, the remaining innovation is…lending (securitize all the things, real estate, autos, factoring, float, etc).
The remittance cost piece was spot on though wrt to Wise. Surprised we haven’t seen more copycats, but it turns out culture and management are the hard parts, not the tech.
[+] [-] digianarchist|4 years ago|reply
On the flip side if you need an example of stifiled innovation with no near future improvements on the horizon, just look at Canada's pathetic excuse of a banking system.
[+] [-] bityard|4 years ago|reply
I have had "free" banking for over 20 years, by going through credit unions instead of banks. Credit unions are identical to banks, with the exception that they are (usually? always?) non-profits and generally do not charge fees for having an account. There are limits on withdrawals, transfers, and fees for things like wire transfers that do not affect the average family. They also have some condition of membership but these days, living, working, or going to school within their service area suffice. Almost every area in the US has a credit union. There is no reason to open an account at a commercial bank. Every time I have opened a checking account (for temporary business purposes) at a bank instead of a credit union account, I have regretted it.
Now, overdraft protection fees. These are a completely separate topic that is applicable to both banks and credit unions. These are completely optional, by law. If you have a habit of regularly withdrawing more than you deposit, you can call up your bank/CU right now and tell them to take it off of your account. The tradeoff is that your checks will bounce. Either way, the solution is simple: Keep track of your balance and don't overdraw.
The author also thumbs his nose at paper checks, but most traditional small businesses in the US don't have much of a choice: checks are how money moves because they leave a paper trail. Which is important because the security of the whole US banking system is based on after-the-fact audits. This is a double-edged sword because while it allows (some kinds of) fraud, it's also easier to clean up. If someone steals Gradma's check book, most banks will bend over backwards to help her because they want to keep her as a customer. If someone steals Grandma's bitcoin wallet, she is just simply fucked and that's the end of that.
I agree that the ACH system is largely a dumpster fire, though.
[+] [-] Plasmoid|4 years ago|reply
It would be more fair for everyone to pay the same for a service, but banks decided it was "better" to get 10% of the population to pay for it.
[+] [-] mindslight|4 years ago|reply
FWIW "overdraft fees" and "overdraft protection fees" are two different things. If you do not sign up for "overdraft protection service", then when a check bounces, your account will generally get charged an "overdraft fee", and the person trying to deposit the check will generally get charged a similar fee for the checking having bounced. Hence businesses (that still take checks) having notices about passing their banks fee back to you if you write them a bad check. If you try to use your debit card, the card will be declined, since it is an online transaction.
If you do sign up for "overdraft protection service", then the bank will extend you a small line of credit. When a check would bounce, the bank will honor the check but charge you an "overdraft protection fee". This fee is usually the same amount as an "overdraft fee" would have been, but depositing the check will have been successful, saving the fee on the other side. However, I think that such services tend to also apply to debit card transactions, so if you swipe your card and overdraw your account, the transaction will go through but you'll get dinged with that fee.
Whether it benefits you to sign up for such a service will thus depend on your expected usage and the banks specific terms. Which back to the general point about banks attempting to create revenue by nickle and diming customers with an arbitrary fee structure - this is just another facet you need to know about to avoid them. I've never paid a monthly or punitive bank fee in my life, so I started off a bit skeptical of the article. But I've still had to deal with the existence of such fees, whether by double checking transactions, making sure to keep a minimum balance, or having to get management to remove erroneously assessed fees. The increased share of large online-only (or online-first) banks has created a good amount of competition that has driven the prevalence and dollar amount of such fees down.
FWIW last time I did a comparison of the large online banks, I saw that Capital One has an (optional) feature whereby if you overdraft your account, it's treated as a regular line of credit with a reasonable interest rate and no fees. This is probably the best option for someone concerned about regular overdrafts. The trade off is that their customer service sucks.
[+] [-] lmilcin|4 years ago|reply
If you think your banking is free just because you don't explicitly pay for your credit card or your checking account you are seriously deluded.
Banks have injected themselves into the stream of payments for goods and services and are now getting cut of almost every your transaction. They have architected entire process very cleverly so that you, the consumer, do not need to be aware of the amount of money you are paying and the merchant, service provider has no way to protest.
It makes sense for them to reduce the visible part of the cost to 0 just to get you lulled into sense of everything being free. Banks want you to think so. Most people are inept at how banks are making money and for banks this is how they like it to stay.
In reality, you pay hefty tax on every purchase you make with a credit card which is costing you way more than you would accept if that sum was to be paid in monthly installments.
I have been working for banks and credit card companies for the best part of the last two decades.
[+] [-] rfd4sgmk8u|4 years ago|reply
Tradfi is barely struggling to keep up with a rapidly inflating fiat. The tiny interest being paid is no incentive to keep funds with the traditional banks. We don't need banks to hold that dirty fiat, we need digital, tradable, state-intervention and censorship resistant assets we can custody and try hold on to some value.
[+] [-] unknown|4 years ago|reply
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[+] [-] delaaxe|4 years ago|reply
[+] [-] mbesto|4 years ago|reply
[+] [-] originalvichy|4 years ago|reply
I went to an African un-recognized state in 2009 and people already were using SMS-based mobile phone money transfers to conduct daily business or send money to their contacts. I also live in the Nordics.
If a country with an advanced national ID system and a developing country with barely a government could both leap into the next generation of personal finance, what took the US so long?
[+] [-] thrashh|4 years ago|reply
If I built my house 20 years ago, it would be up to date as of 20 years ago. Someone who builds their house today would have a house up to date as of today.
I can update my house to be up to date now but it’s going to cost a lot of money on top of the money I already spent building the thing. I might wait another 5 years first so I have the improvements discovered in the next 5 years.
You can’t be constantly up to date. It’s too expensive. You have to up to date in cycles.
[+] [-] mattnewton|4 years ago|reply
[+] [-] bigbluedots|4 years ago|reply
[+] [-] ksdale|4 years ago|reply
I'm also sure that in 2009, there was population the size of the Nordics that was using mobile payments in the US, but the US is a large place.
[+] [-] OldHand2018|4 years ago|reply
A colleague of mine years ago told me a story about check clearing in the "old days". Northern Trust in Chicago handled a large percentage of check clearing for the entire US. Their back office building had a heliport because they had a twice-daily cargo flight from O'Hare filled with all the checks that needed to get cleared. I almost feel like the batch processing was because of the scheduled delivery of the physical checks to these processing centers around the country.
[+] [-] kebman|4 years ago|reply
[+] [-] deepvibrations|4 years ago|reply
Those who say there is no innovation simply haven't looked deep enough, everyday i see cool new ideas in crypto, infact today I saw a 'streaming payments' service, so you can get your salary streamed to you constantly as opposed to a monthly payment - how cool is that?! Love all these ideas! Seems things move faster in the crypto space, as people are less concerned with formalities and processes. Sure this will lead to some big failures, like the occasional defi hack, but it also leads to brilliance in some areas, so to just say 'there's no innovation in crypto' is complete ignorance imo.
[+] [-] jamesshamenski|4 years ago|reply
[+] [-] unknown|4 years ago|reply
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[+] [-] wiseowise|4 years ago|reply
[+] [-] zz865|4 years ago|reply
Of course you can create a simple service that ignores all those rules and it'll be cheaper.
[+] [-] wiseowise|4 years ago|reply
The difference between fintech and traditional banks is that former treats tech as revenue driver and latter as cost center and it feels in literally every step.
[+] [-] sarora27|4 years ago|reply
[+] [-] mr_luc|4 years ago|reply
I see a few comments saying "this is stuff the rest of the world has had for a while now."
That's probably true to some extent. But it undersells the value being reported on, because the US market is a valuable one.
'Surprise! The richest, biggest economy in the world had banking/financial systems that were inefficient in X, believe it or not -- but that's in the progress of being fixed, which means Y is now more possible/profitable.'
[+] [-] ErrantX|4 years ago|reply
[+] [-] downWidOutaFite|4 years ago|reply
You want innovation? Regulation mandating open APIs among all the banks would be unleash an innovation tsunami. Don't believe the propaganda, regulation is essential for competition and innovation.
[+] [-] kapad|4 years ago|reply
I agree the US is also a big country and has made lots of efforts to bring banking to every citizen.
India, though quite far from having at least one bank account for every single citizen, is leaps and bounds ahead of most other economies in terms of fintech and innovation in the field of mass banking.
Be it, the post office savings account scheme, way before banks had moved to computers, or the current wave that's happening with UPI and the aadhaar ecosystem.
My point is, if you want to read about financial innovations brought by technology ("fintech"), read about things happening in India (and also China).
[+] [-] Insanity|4 years ago|reply
EDIT: Like paper cheques, I didn't have to use those in my 30 years in Belgium prior.
[+] [-] quacked|4 years ago|reply
I'm close friends with a relative of yours who has worked for several major space companies, and we talk about your writing pretty frequently. Your articles on salary negotiation, life in Japan, and how to build side projects have proven extremely consequential for both of us--thank you so much for putting your thoughts down as frequently as you do.
Do you think dramatically increasing the speed and lowering the cost at which people can participate in financial transactions (as appears to be the mission of Stripe and the overall theme of your post) will have any effect on the current astronomical prices of small-scale international shipping? The costs involved in international financial transactions and international shipping for small customers seem to be closely coupled, but I'm not entirely sure how.
[+] [-] patio11|4 years ago|reply
Logistics like international shipping are both a financial infra problem and an infra infra problem. I do think that the cost of small-scale shipping is going to come down to approach the ratable cost of volume in a shipping container (which, as you are aware, it is orders of magnitude higher than now), which will likely come from improvements primarily on the infra infra side.
Two companies to keep an eye on in this stack are Flexport and Shippo, among others.
[+] [-] p_l|4 years ago|reply
From POV of EU citizen (though extra biased due to Poland just using IBAN numbers), international payments are pretty fast - personally the biggest issue is when I need to figure out IBAN/BIC codes because receiver doesn't know them. Payment for SWIFT transfer and currency exchange can be still annoying, which I mitigate by having currency accounts, but still not as big as it could be.
[+] [-] truculent|4 years ago|reply