

Everyone knows it’s broken - uptown
http://tiltthewindmill.com/everyone-knows-its-broken/

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IkmoIkmo
This is a great article. I expect that quite a few people aren't fully aware
of the fees they pay in full. If you look at some of the statistics you'll
find the average bank account costs about $250 a year, with some customer
groups (e.g. those prone to overdraft fees, often optimized for fees by re-
ordering of transactions, e.g. see the short documentary Spent: looking for
change[0]) you typically see numbers between $500 and $1000.

It seems to be there are tens of millions of people in e.g. the US who aren't
fully aware of this, and aren't aware of the alternatives. I mean, a great
phone like a Nexus 5 with a modest data plan for two years costs about the
same as most people pay for their bank account. Yet that same Nexus 5,
combined with an elegant mobile banking app (or at some point apps built on
non-proprietary technology like bitcoin) could replace those services
entirely.

It seems it's only 2-3 years away before we see massive changes. From the rise
of internet-only banks to non-bank digital wallets, the rise of peer-to-peer
payments and even non-fiat currencies, it all seems imminent.

The big question for me is, will this be a big regulatory / dependency battle
more than anything else? Despite Paypal being digital only, it hasn't really
made huge headway outside ecommerce. It seems most forays into digital banking
is dependent on the banks themselves. Look at Apple, it created a way to store
bank (creditcard) credentials on a piece of hardware. Square created a way to
read bank (creditcard) credentials on a piece of hardware. Paypal created a
way to send money using bank credentials in software. And most of the bitcoin
ecosystem has a foundation in payment processors and exchanges that all
require a bank account.

Despite the disruption being clearly on the way, I can't help but notice that
it's all very highly integrated with banks, and quite dependent on them, too.
There's a lot of power in that to slow down disruption.

[0]
[https://www.youtube.com/watch?v=YAxL4TB6pmQ](https://www.youtube.com/watch?v=YAxL4TB6pmQ)

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drivingmenuts
One of the things about modern electronic payment systems that weirds me out
is how easy it is to lose everything.

If the government takes my money, there's process. Not always transparent, but
supposedly hewing to some legal process.

If the bank goes under then, in theory, I get back some portion of my deposits
thanks to insurance (not always the case, some banks for rich people don't
have insurance, but presumably the rich can have people killed or something to
make up for it).

But if Paypal takes my money by force or by bankruptcy ... well, so long
money. It's just gone and I'm probably not going to see it ever again.

In all cases, I probably signed some sort of contract about the deal. But
banks are offering the better contract.

The above is a gross oversimplification, but I don't think its wrong in that.
If so, please elucidate.

~~~
IkmoIkmo
> The above is a gross oversimplification, but I don't think its wrong in that

That does seem like a gross oversimplification.

First and foremost, I'd say that there is nothing inherently unique about
recourse when a bank goes bankrupt. It's merely based on conventions and
contracts. How that works is that there's an insurance corporation, the
federal deposit insurance corporation, which insures deposits at banks up to
$250k. That's all. Of course, this isn't free. It's costing all of us money,
as any insurance does.

What this means is that you can build any type of system and throw an
insurance product on top and it'd be no different. There's nothing unique
about FDIC.

Of course, we must realize also that FDIC insurance only covers about 1%, at
most 2%, of deposits. So it's only really effective when a few banks go
bankrupt. A complete systemic meltdown that we were very close to would've
made FDIC useless. Fact is, the only reason that didn't happen is because we
magically created a trillion dollars out of thin air to create magic demand
for toxic assets nobody wanted and were causing imminent bankruptcies. And
that, too, comes with a price to ordinary citizens. Nothing special about it,
and it's certainly costing us all money.

As for Paypal? It's regulated to death. In some places it's regulated like a
bank. In other places it's regulated as a money transmitter, as a money
services business, as a non-bank financial institution. All of those carry
real regulatory obligations. For example, there's a law where a money services
business can't do fractional reserve, i.e. you're by law required to keep 100%
of your custodial funds (funds from customers that you hold). There's another
requirement that requires you to separate company funds from custodial funds,
meaning if your company goes bankrupt, the customer funds are untouched. As
for Paypal simply 'taking your money', that's illegal, and you have legal
recourse. That may not be perfect, I'm not saying it is, but it's similarly
imperfect as when the police seize your funds. In both case you have legal
resource, Paypal is not unique in being above the law.

And then lastly, there's surety bonds. So in virtually every state Paypal
operates, it needs to hold sufficient surety bonds. That means, literally,
insurance. They pay every year some company which insures them, so that if say
they go bankrupt or flee the country, this company has a surety bond for the
customers to get paid out.

And lastly, a non-legal point, but just a practical one: Paypal is worth a lot
of money, the 150m users are worth a lot of money. That doesn't mean they
can't go bankrupt, but unless they're knee-deep into complex derivatives they
don't understand, like banks the past decade, I'd say the chances of them
disappearing with everyone's money is pretty slim. Not saying it won't happen,
just saying it wouldn't be a reason for me not ever use Paypal.

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danielnaab
I've never understood why people put up with the ridiculous fees banks are
charging these days. My credit union charges me one $5 fee per year, and I
have checking, savings, overdraft protection, an ATM Visa check-card, Visa
credit card, a free bill-pay service, and a smartphone app that can do mobile
check deposits. Plus, my mortgage rate is lower than any local bank offered.

All local credit unions share each other's fee-free ATMs, and I still have
several nearby branches I can visit when I need a real person. In addition,
they are rapidly growing not _in spite of_ these consumer-friendly practices,
but because of them.

Why would anyone choose a Wall Street bank other than for something gimmicky
like a rewards credit card or non-traditional loan?

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peteretep
You've probably all read it already, but the best thing about this article was
the link to the venmo discussion:

[http://qz.com/277509/read-what-happens-when-a-bunch-of-
over-...](http://qz.com/277509/read-what-happens-when-a-bunch-of-
over-30s-find-out-how-millennials-handle-their-money/)

~~~
rthomas6
I'm 27 and identify more with the over-30s. Then again I've never really
grokked the new wave of smartphone-based social media. I never use Twitter, I
deactivated my Facebook, and I consume 99% of my internet time at a desktop
computer.

I feel like an old fogie and like I'm missing out on something. I like text
messages and wish everyone would go back to using AIM -- it worked better than
most social communication apps do _now_.

~~~
a_c_s
I agree with you there: AIM was great and more solid than many of the new
services.

I'm still a bit puzzled as to how re-inventing instant messaging (WhatsApp)
can be the hot new thing worth billions of dollars.

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hapless
This isn't as complicated as it looks.

The services around time deposits (providing a checking account, processing
transactions, balance inquiries, ATMs) are not that expensive to provide
relative to the profits made lending that money back out.

The reason for the explosion of fees is that retail banking in America, as an
industry, lost its mind in the 2000s. Every bank brand massively increased its
numbers of branches while simultaneously marketing ever more elaborate
"private banking" services. Branches are expensive. Marketing to the 1% is
expensive. Actual _banking_ is cheap.

This expansion was all funded by cross-subsidy: Banks used to charge huge fees
to a small number of consumers who got caught in various traps, e.g.
"overdraft protection." A small number of people subsidized services to
everyone else. Regulation made a lot of these abusive "services" into opt-in
measures, so now retail banks are scrabbling to find new revenue sources to
support their bloated, overwrought retail bases.

A more rational system will see the number of retail bank branches fall
precipitously. Bank firms that have fewer, more central branches will earn
higher profits with fewer fees. Consumers are likely to flee to low-cost
offerings. It will take time, but if nothing else, new accounts won't be
opened with high-cost banks as often as low-cost banks.

You can already get a preview of the world of tomorrow (and yesteryear) --
credit unions. Small numbers of branches. Lots of ATM sharing. Low fees.

~~~
Spooky23
What is the thought process behind the expansion of branches? I work in a
downtown business district, and there are two storefronts that have banks that
literally have zero foot traffic.

Both are relatively new entrants to the market, but their account terms/fees
are so poor that I cannot imagine why anyone would bank with them. (And
judging by foot traffic, nobody is) So why do these branches exist?

~~~
danjruss
It depends on if you're talking about brokerage or retail branches. Brokerage
branches exist for the one guy who comes in and makes a bunch of large
investments or reorganizes his portfolio. Yes, this can be done online, and
probably more cheaply, but those of a "certain" generation are more
comfortable working with another person on the other side of the desk when it
comes to their money.

Retail banking, on the other hand, I totally agree with you. Basically
everything that can be done in a branch can be done on your phone, faster. And
the stuff that can't be done on the app can be done by calling in, which still
takes a fraction of the time of going to the branch. I've personally had great
experience with bank customer service, and routinely have 5 minute calls with
them, whether it's to authorize a charge on my card or change my ATM limit.

Banks definitely see this change coming. It's just a question of when they
draw the line between catering to the subset of their customers who prefer in-
person interaction and the cost of running a branch (especially when compared
to the kind of overhead that comes with running an app).

I'm more curious to see how ATM's evolve.

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grayarea
Also keep in mind that this is clearly American banking which is often quite
behind the rest of the world(this is due to the fragmented nature of the
banking industry in the US compared to other countries). I mean checking
account? I have never had one of those. Paper statements? I haven't seen one
of those in I dont know how long... 10 years?

~~~
nitid_name
There are some strange regulations on savings accounts in the US. You're only
allowed a set number of transactions on them per month. Checking accounts
don't have these limits.

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sachingulaya
In regards to monthly statements...yes, I e those all the time for getting
financing, accounting, proof of residency, etc. I need them. Others need them.
Most web portals offer "all transactions" or "since last statement views".
Just because months are arbitrary doesn't make them useless.

~~~
salgernon
Purchasing a house recently, I offered a CSV of 6 months banking transactions,
but they would only accept a paper statement from the bank - clearly showing
fees charged in order determine if I had any insufficient funds charges. The
bank provides explicit PDF images of statements, even though they don't send
them, so I was ably to comply (actually sending the pdfs to the mortgage
broker to print for the underwriter.)

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PhantomGremlin
The article made a very important point:

    
    
       Modern bank customers ... want their banking
       history, in escrow, stored by a third party
       where it acts as inarguable proof.
    

Without paper statements, if you close a bank account for whatever reason,
then you lose access to your banking history for that entire time. Poof, gone.
How long will a bank continue to allow you to log into their system once you
are no longer a customer?

