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Financial innovations brought by technology (kalzumeus.com)
298 points by clessg 3 months ago | hide | past | favorite | 221 comments



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.


Monzo offers a similar thing, where you can generate a link to send someone to request money. They also have a feature where you can discover nearby users and send money that way. I've found it to be very useful for splitting bills when out with colleagues etc


But Monzo isn’t a thing that 99% of the country has access too. Tikkie and iDeal are. Every mainstream bank here supports them and are part of the organisations that manage them. Well technically tikkie is ABN AMRO but it is built on the same underlying infra so it works for all the mainstream banks.


> between iDeal / Tikkie / and bank transfers

These things are usually cartels between the local entrenched banks, and not the sort of innovation GP meant.

The idea is the existence of urls such as paynow://any-bank-at-all.com/user/endisneigh

No third party should exist.



> 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.

Isn't that just PayPal/Venmo?


The difference is it just uses bank accounts, instantly. You don't have to wait 3 days to get the money, or remember to regularly withdraw money from the app (then wait 3 days for it to arrive).


Venmo has been next day for me for years (which OP mentions in the article)


Tikkie, iDeal, and IBAN transfers (within the country) are essentially instant. Additionally they are universally supported by all mainstream banks.


It's operated by the banks themselves, rather than a third party.


> No need to use something like stripe.

Why wouldn't you consider using a third party (no idea if Stripe can actually do the example described) as true innovation in this space? With a third party layer, banks don't need to reinvent the wheel.

> Got a deposit via Venmo? It goes to X. From your work? Goes to Y.

FWIW, this sounds analogous (not exactly like) N26's closed/semi-closed digital wallets[1]. I guess if there's a use case for the example you proposed, it's not a huge leap to go from here.

Alas, I'm a very basic bank customer so I can't vouch for how good this feature is right now.

[1] https://n26.com/en-eu/digital-wallet


Third parties are true innovation for sure, but the specific examples cited in the article weren't necessarily innovative IMHO.

Crypto, (and I'm really not a fan) is at least doing some objectively innovative stuff. However it's not really linked with traditional fiat so isn't applicable broadly.


> With a third party layer, banks don't need to reinvent the wheel.

With a government mandated transfer method, nobody needs to, and all banks are interoperable.

I personally really like my bank transfers between any bank in the Netherlands being near instant.


Japan has had this since the late 1970s/early 80s.

Real time settlement isn't really an innovation. Its just something the banks fight to protect their float.


> FWIW, this sounds analogous (not exactly like) N26's closed/semi-closed digital wallets[1].

Similar, but with the vital difference that it doesn't depend on Apple, Google, Samsung and PayPal to continue working. Not to mention the trust that they will keep your best interest at heart when making future decisions.

Ownership of something that is valuable should remain in your control, not some 3rd party.


As far as I can tell, N26's "digital wallet" is just N26 itself. It's a bank account with a debit card, except they can't call it a bank account because of reasons, so they call it a digital wallet. It's nothing special, and I don't see how it lets you route based on sender.


It is incredible how simple it would be for banks to allow you to create an unlimited number of "accounts" (they are just yet another row on their database, after all), and yet how few banks actually allow you to do that without paying ridiculous amounts of fees.


> simple […] unlimited

I like how just explaining your concept makes it seems almost impossible in one word.

Otherwise, from a bank perspective having a set of legal obligations for each account it handles feels like a nightmare. If you split your 10 billions into an infinitiy of smaller 1000s accounts, is it supposed to guarantee all of them if it goes under ? Does it report and audit each single account etc.

If these “accounts” are just a virtual partition of your money and all follow the same rule, why wouldn’t you just deal with them as separate entities in your excel sheets and let the bank have it as it is now ? If you have a clear business use (e.g. those are “wallets” for your customers) there are already banking entities providing these services, it’s a matter of paying them enough to work with you.

For non business accounts there are already clear cases where you would create new accounts (money that effectively needs to be under a separate ownership, or bound to a specific legislation, rule or currency), so it’s not like there currently is a limit on account creation, the friction added to create one is actually protecting the system from abuse.


In legacy finance, when you pay someone with a check or wire, they get your account number and from then on can debit more from your account anytime they want, restrained only because you can dispute it after the fact. The obvious, reasonable way to fix this is to create a new ID number for each payment. We have computers now. The friction you like here is doing the opposite of protecting the customer from abuse.

(I think I've read about some banks offering this as a special feature.)


> and from then on can debit more from your account anytime they want, restrained only because you can dispute it after the fact.

They can, in the same sense that people can take stuff from your front yard if they feel like it.


You can’t do this in any country that I know of. I need to explicitly allow people to debit money from my account.


You can do this in the US. ACH only requires the numbers (account + routing) that are visible on every check we write.


Yes but if you are caught doing unauthorized ACH transfers it's not going to be good for you.


In the case of monthly bills and related things, you authorize them once. Don't know what that looks like at the backend and what controls there are but utility companies and the like can absolutely debit money on an ongoing basis.



My bank offers this by giving you virtual accounts (called pots). They are, like you say, just partitions of the same account, but it is useful to have them in the bank as opposed to in a spreadsheet. Bills only come out of the bills pot, savings are fenced off from outgoings etc.

Salary gets automatically sorted into the pots when received.


I love how people, usually on the outside, think everything would be simple. The parent comment reminded me of the "I just learned about Bitcoin and I'm here to fix it."


The Dutch Bunq bank has described itself as a bunch of nerds with a banking license. Their plans include a large number of accounts, physical cards that can be dynamically coupled to any of them, an API, zapier integration, among many other non-traditional features. https://www.bunq.com/benefits


Their feature list certainly looks impressive, it might just be the bank I was looking for.

One thing I can't quickly glean from their pages is: can I get proper API access to my account if I'm just an individual user, with no exorbitant price hike, requirements to be a large business, or to enter into an additional business relationship with the bank?

The litmus test I have for the dream bank I'm looking for: can I have a normal account and get an API endpoint, to which I could point a script and fetch my balance and transaction history? Without being forced to go through a browser to authenticate on each request, or any other kind of interactivity?


I think that your litmus scenario should be doable with all EU banks, for PSD2 compliance.

The Bunq API allows you to do a lot more than that though. https://www.bunq.com/api


> I think that your litmus scenario should be doable with all EU banks, for PSD2 compliance.

It isn't, though.

This is my big disappointment with PSD2: it's an interoperability law for businesses, focused on enabling service providers. It doesn't help individuals directly.

PSD2 is why I can view all my accounts from different banks any one of the bank's webapp. PSD2 is why I can pay some third-party service to give me a fancy budgeting dashboard[0]. Why, were I running a nontrivial business, I could do some banking using invoicing software.

But I don't want that. They all do a shit job at this[1]. I can do better - I just need an API endpoint, preferably one that can do read-only operations and internal transfers with preauthenticated token, so I can automate most of my banking away. So my problem with PSD2 is that it didn't compel banks to give such APIs to individuals. And since it didn't, they mostly don't.

--

[0] - I could do that before PSD2, but back then, it usually involved giving them access in violation of the bank's TOS, and trusting the service won't just steal all my money.

[1] - That's not because they're bad technically, but because we have conflicting interest. The banks want me to do everything through their webapp and mobile app, because they want to upsell me more financial products. Budgeting services want me to use their UI, because this justifies subscription costs and also gives them further opportunities to surveil and monetize me. Meanwhile, all I want is to never see their inconvenient and bloated UIs. I want to run my own reports, my own analyses, my own stupid "account balance" widget, that requires no login, zero clicks, combines all accounts from all banks, and shows no advertising.

[2] - https://en.wikipedia.org/wiki/Principal%E2%80%93agent_proble...


A bank account object is tied to legal and reglatory stipulations though, as well as separate insurance and other risk mitigation policies.

It's not just a matter simply of inserting rows in a table - there is overhead and other matters to consider.


Capital One actually allows you to open several checking accounts with no additional fees. I use them as separate “buckets”.


those are typically sub accounts - not full accounts.


Depending on the bank regulator there may need to be some equity behind the accounts.


I have been dying for this. Currently I use privacy.com and their spending limits to get the most basic of functionality. I would my bank to provide an API and make this type of control and other information available. Maybe I could really dream and it would be standardized across banks.


We're building retail accounts with exposed APIs. I encourage you to send me an email (check profile) if that's something you're interested in.


Wise lets you access your account and money with API-s. You can create a personal token (and webhooks if you want) at https://wise.com/settings and you're off to the races. Api docs are at https://api-docs.wise.com

Disclaimer: I work on Wise. (We're hiring: https://wise.jobs)


Yeah I wish my credit union had more controls. I appreciate being able to set transaction limits and GPS-limited transactions, but I want daily limits and also a transaction timer. For example, I don't want more than one transaction in a single five minute period. That would eliminate all instances of accidental double-charging.


You still sometimes get transactions and fees within seconds of each other you - i.e. I had an ATM charge me the amount of cash withdrawn once and then the fee as a separate transaction.

I get that you want to stop identical transactions within 5 minutes of each other, but I have a feeling there may already be stopgaps in place for something that simple.


There aren't. I recently had to get cash back from a Wendy's after they triple-charged me in the drive-through.


I’d like to have new charges queue up like the Hey email screener for me to approve or deny.


Hacker news has a poor track record for high-ranked comments being able to correctly identify inflation though. Pretty much every iPhone was identified as a marginal improvement until people gave up claiming that in the face of overwhelming technical and market success.

New things that have never been done before are innovative. It may not knock anyone's socks off, but innovation is happening.


I, personally, would love programmable banking but, well, I'm a programmer. Large swaths of people don't remotely want to learn to program, despite the ability to.


> The future is programmable money. That's innovation IMHO.

What you've described can be done today with smart contracts on a number of blockchains.


It can also be done without those things, using code and financial APIs.


I assumed APIs were ruled out when endisneigh said "No need to use something like stripe."

Are there really publicly accessible APIs I use to deploy that idea today?


You can always sacrifice speed for security. I like this design which was used to manage bitcoin: http://trilema.com/2013/mpex-tech-stuff/. Blockchain is a way of creating distributed ledgers. The rest is ideology. If you are making a publicly accessible API you can chose how to implement it. Regulations were applied to digital cash but given more run room with crypto.


It seems like Chime, Rho and a few others from the article are built on said APIs.


Paysera out of lithuania. Mr Tango. there are a few


Sometimes I'm baffled how basic functionality is considered innovation in other places. Where I live most banks allow turning online payments on and off, and you can issue a virtual card for your account and then set any limits on it. Stripe is barely used because business use their bank's acquiring and some of them allow logging in and saving payment details. Some banks have automatisation, but AFAIK it's not popular. For example, suggestions and quick buttons to do repeated patterns (like transfer X amount from my paycheck to savings account). There's even "round my purchases up and use extra to buy ETF" feature. All these things are made inside the banks and don't require fancy technology. I think western engineers in finance are busy trading stocks rather than coding some basic user interactions.


> 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.

You just described OpenBanking in the UK, SEPA in the EU and NPI in India.


"if I give you a special code" sounds similar to Blik system in Poland - sender generates 6 digit code valid for 120 sec, gives it to donor (shop, person, atm) and the founds are transfered with additional approval by sender. This way you can make payment via non-trustworthy places such as Internet coffies or withdraw money in atm without compromising chip/pin on card. Additionally, if you connect you phone to blik, you are able to receive instant blik money transfers by using phone number as destination. Really handy!


Free banking is a lie.

Banks are making money by taxing every transaction you make with your credit card. People would be shocked how much they are paying the bank for the convenience if they were presented with accumulated, monthly payments.

This is all very cleverly architected so that you, the consumer, don't have to explicitly pay for anything.

It makes sense for banks to offer "free" checking account and "free" credit cards. They don't want you to be concerned because they earn so much more on interchange fees.


True, in the US. In quite a few countries most people use national debit cards with transaction processing fees in the 1 cent range, and in EU credit card interchange fees are capped by law to something like 0.3%. such low fees also eliminate anticompetitive credit card cashback offers which are so common in the US.


> also eliminate anticompetitive credit card cashback offers

I've heard a lot about why they're bad but not that they're anti-competitive. In what ways are they?


It's basically a bribe for customers to use credit cards, forcing businesses to pay huge transaction fees. So the businesses have to raise their prices to cover those fees, which acts like a tax on both the business and consumers, especially those using alternative payment methods. And even the people using cashback credit cards don't win anything, they get their 1% back from 3% higher prices.


> 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.

> 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.

That is a check, but digital.


The 'allowing someone to take money from my account' mentality in the US has always struck me as weird framing and prone to abuse/trust issues.

In Australia, I initiate all of my payments on my side to the target account/company/etc. I am giving the money to you, not 'authorising you to take it' from my account. Having someone's bank account details only allows you to pay them, not request payments from them.


Relative to what the government/banks are doing, the cryptosphere is doing so much better.


It's so strange how much dislike HN has for crypto and "web3" more broadly, despite being so evidently ignorant of it here. They're literally circling around what has been going on for years in DeFi(and really exploding in activity right now as we speak). Their loss I guess.


Seeing the same people who argue against crypto talk about how cool programmable money is just seems crazy.

On a side note, I think a lot of comments on HN are well-articulated rubbish. I send threads of cool-looking technical discussions to close friends who research the area and usually it turns out they’re clueless and just speaking with authority. I take everything with so much more salt now than I did a few months ago.


I kinda agree and disagree I suppose.

I lived in USA in the 90's and then moved to Canada. Banking system here seemed lightyears ahead of American in terms of functionality, user-friendliness, technology. And it seemed to endure until relatively recently. By all accounts, Canada is behind truly innovative places.

So, though it's late to the game, a lot of those things are still "innovation", to USA, late-trickling as they may be.


And banking in Canada is behind many places. Lithuania, Estonia would be examples.

I lived in Finland in early 90s - they had already gotten rid of cheques. Russia with Qiwi kiosks is quite innovative.

Why did banks want to get rid of cheques and why did they stay? The settlement was fast near the end with imaging etc. Basically Free. What did we get? email transfer? fuck I worked on building that in 2000. Can't believe it is still there with shitty limits for businesses.


Innovation is inventing something new; imitating others and catching up with the rest of the world a decade late is not it.


So it’s etherium?

It’s all wrapping my electrons in a database in firewall rules. The database outputs are pegged to one social meme or another?


It's spelt Ethereum


You missed, disruptive and saleable.


> True innovation would be more control over your money.

you might like http://mikorizal.org and http://holochain.org


> The future is programmable money. That's innovation IMHO.

You think? I can't imagine a situation in which programmable money would be an advantage.


I have to respectfully disagree that this isn't innovation. I would very strongly argue that innovation is doing something that the established players believe to be impossible.

From the article: >>The financial industry thought, for many years, that the customers added or retained by these improvements would be disproportionately expensive to service and low-revenue. Cash App has experimentally disproven that.

The fact that there are players in the financial field doing what the incumbents wouldn't and being profitable doing it is a pretty good indicator that innovation is happening in the industry.

>>True innovation would be more control over your money.

I won't argue that a higher bar might be for you to have more control over your money. But the article very much addresses this very thing. The innovation you may be missing, is that there are many unbanked individuals in the US (>5% based on a quick search), and this article claims this demographic is finding it easier to become banked, with less predation. This is probably a much greater increase in their control over their money than the marginal increase programmable money is going to have for your control.


Most of the things in the article were possible in the 2000s via credit unions, just not banks in the USA. I honestly don't think it's innovation in any meaningful sense. That's to say nothing about the rest of the world.

Alliant for example has had same-day ACH for a while. Many credit unions also removed the ability to overdraft by default (technically this was always possible with a bank if you called).


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.


> I'm wondering if my local credit union wants to hold my BTC for me, if I wanted to do something like that.

They'll do that now with a piece of paper in a safe deposit box, no? Other options for their holding your BTC, including ones that let them make money off it and so offer interest to depositors, seem like they'd open up the same risks as existing relatively-reputable exchanges.


A piece of paper in a safe deposit box is, unfortunately, not risk-free. There have been some incidents where, for example, the owner of box #1343 loses his key and asks the bank to drill the box, so they drill box #1434 and give him the contents (hopefully your paper wallet does not say "MILLIONS OF DOLLARS IN UNTRACEABLE EASY-TO-STEAL CRYPTO" at the top!) Also, floods have resulted in box contents being destroyed (a bigger problem in some cities than others.)


Not to mention most safe deposit boxes are insured for a few hundred dollars max unless you've specifically bought additional insurance. So if the bank does screw up and give your box contents to someone else, you can only recover a very minimal amount of the value.


At that point you might as well buy insurance directly and skip a step


You mean a system built on Proof of Waste where it takes minutes to confirm transactions using large amounts of energy purely to guess random numbers, that's literally designed to get harder and generate more waste the more it's used, and is full of scams and treated purely as a highly volatile commodity with limited realized practical use, where blockchain "technology" is so poor that you can only put a URL in a block, so NFTs aren't connected to anything (and used for many scams), and where each news article about smart contract failures is somehow more hilarious than the last? I sure hope banks don't navigate into this space.


I'm hardly a crypto-stan, but I get tired of the same recycled complaints.

There's a move towards PoS, crypto is not synonymous with PoW.

You'll be displeased to know that scams occur with fiat as well as crypto.


Buy a nft. See if that changes your perspective.


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).


Not to be super cynical, but it would be embarrassing and reveal that there is not really any innovation. I kept cringing and thinking “didn’t they do this in Europe (Netherlands) decades ago?”


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.


I believe he mentioned that in the first newsletter!


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.

Like crypto, but with real money.


Central Bank Digital Currencies are a dystopian nightmare. They permit all kinds of financial shenanigans like automated negative interest rate, demurrage, financial censorship and control.

Cryptocurrency already is real money. Its more real than anything the state can print from nothing.


Most of the advantages cryptocurrency fall into one two categories.

1. Speed improvements over the legacy infrastructure e.g. instant transfers without a middleman. Itself, mostly a problem just in the USA. 2. Bypassing various international and national regulations.

Central bank digital currency retains #1 while rejecting #2 which is important for a nation's sovereignty.


Don't forget (the primary reason Bitcoin was invented) 3. The lack of ability for central banks to inflate the monetary supply.

"The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust." --SN

3. is important for ensuring you don't have the time value of your savings destroyed by inflation.


"The lack of ability for central banks to inflate the monetary supply."

I am not clear how this helps. If bitcoin/ether becomes the dominant currency, 2008 crisis is still possible, but the recovery is not. So it seems like it would make things worse, not better?

Countries used to go to war over gold and silver, it does not seem to be economically beneficial to have a deflationary currency.


Being deflationary isn't the problem there. Stealing gold/silver happens because they are small physical objects with objective value that can be stolen from people guarding it with enough people with guns. Stealing crypto-assets is much different and given competent security policy, seems much harder to do. These assets are not guarded in vaults by people, but in computers by strong access controls and encryption algorithms.


You would not give up your (hypothetical) bitcoin wallet password even if mafia put a gun to your head?

https://xkcd.com/538/


I would, but that is a different problem, not specific to deflationary currency. It can happen whether I have dollars, gold, diamonds, crypto-assets. But with crypto-assets, being non-physical, it is possible to easily hide them and also hide who owns them, and then mafia has a very hard time figuring out who to hit with the wrench to get them.

Deflationary currency would be bad for the current inflationary system and the small group of extremely rich people, but could be good for most people, who don't want to be in debt their whole life.


The tradeoff is lack of controls and ridiculous price volatility. The fed may not be perfect with the USD, but at least it's stable and supports global economies.


> it's stable

In what sense? We are observing massive devaluation, no?


>massive devaluation

No, we're not. USD is stable in the sense that it's not volatile like bitcoin and supports global economies.


So, it's stabler than bitcoin or stocks. But can you see the hike in May 2021? [1]

[1] https://ycharts.com/indicators/us_inflation_rate


I think you forgot the most important advantage: zero trust by design. Short of a 51% attack, you do not need to trust any other entity while still being able to transact freely.

Even transactions for physical goods are possible with a neutral third party facilitating escrow (zero-trust unless there is a dispute).


"Central Bank Digital Currencies are a dystopian nightmare. They permit all kinds of financial shenanigans like automated negative interest rate"

We've had that for years, all banks can adjust interest rate and block accounts.


But you could change the bank or use some alternative. If legacy currency is sunset in favor of centrally controlled currency (where the bank has no latitude and just does what central bank says), all those alternatives may disappear.


> free access for everybody in the US.

As long as you're not previously convicted, registered sex offender, poor credit score or otherwise a "lower" human.

> Like crypto, but with real money.

"FedCoin" (a digital currency operated and maintained by a central authority) sounds like the opposite of a cryptocurrency.


I agree completely- the overhead of bitcoin and other crypto is only useful if we don't trust our governments / banks. As we trust them exactly as much as we do, we may as well have a blockchain run by the Fed / BoE and just have zero margin cost per transaction.

I am slightly terrified of the short term consequences but it's a good idwa


It's supposed to be centralized, no nothing like crypto-assets. More like tighter FED/government control of the "new dollar".


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"

Not certain though.


It is an odd piece of grammar, but I've heard it fairly often. I'm not sure if it's proper English or not.

"many, many" is a different way of emphasizing the word "many". So "assessed many, many fees" implies that there were more fees assessed than if they had just stated "assessed many fees".


Interesting, thanks for the heads up.


Some of the depositors were assessed "many, many $25-$35 fees."

Could have been rewritten as "repeatedly assessed $25-$35 fees" but it's understandable to me.


I'd agree with that rewording =)...

Just was a bit of a mental hiccup when I was reading which is probably why I picked up on it.


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?


If one has to do this frequently and in size the best way I’m aware of is Interactive Brokers, but for most customers doing $1k transactions (like me back in 2004 to pay my student loans) $8.50 and $10 are the same number but the $60 the best option cost back then (GoLloyds, now operated by Shinsei, if anyone is curious) was not.


This is key I think. Paying a couple extra dollars for convenience to avoid getting screwed by retail rates on $1000 or so once in a while is an easy yes.

OTOH, if you are even at 5-6 figures regularly you start paying attention to all the fractions, and bit more pain in the ass interface is fine. At one point I used to do this directly with a FX desk which was a bit fiddly but saved me a bunch over a few years.


It's true when I was routinely repatriating income with a forex trading desk the experience was not totally streamlined and paying attention to the spread and rates pretty closely. But also I got out "lucky" by exiting at 1 GBP/1.62 USD (moved home a while back), and the timing mattered a lot more than the rates


Oanda uses Western Union in its back end. They gave up their license for money transfer a while back due to regulatory issues.

Stellar blockchain is trying to do something innovative in this space but is slow to get volumes.


You left out fee-free stock trading which is commonplace now. Maybe you were intentionally focused more on the banking side.


Is the innovation in this space for the individual trader or for the other firms that are buying the trade order data to frontrun the market?


I didn't know about this. I'm intrigued.


Just let the market decide ;)


What about security? A number of innovations seem to overrely on new options which could offer potential for breach.


> “ 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.


A major purpose of writing these is to eventually convince folks who love cheap mortgages and well-funded pensions but hate CDOs that they have an incomplete model of how the world works and an inconsistent preference set.


Do you have a better answer than "you just don't understand"?

I am also under the impression that much of "high finance" is problematic, the industry seems to be often parasitical and rife with problems such as insider trading and market manipulation.


Consider this a pre-commitment to write someday, at excruciating length, why many of the features that Americans take for granted about mortgages depend on a) mortgage securitization (CDOs) and b) the U.S.‘s quixotic policy to massively subsidize the supply chain for homeownership and, thereby, homeowners.


While the details of the connection would of course require a long article to discuss, I think the basic observation involved is simple. Just compare these two facts:

(1) Americans expect to be able to get 30 year mortgages at rates around 3 percent;

(2) Americans expect to be able to invest their retirement savings in stocks and bonds with a long term rate of return of 8 percent or more.

These two facts make no sense when put together unless somebody is putting a massive thumb on the scales somewhere. In a free market such a situation would be impossible, because nobody would have any incentive to lend money for 30 years at 3 percent when they could just invest it in stocks and bonds over the same time horizon and get 8 percent.


Ooh, can you tie in the final abandonment of the gold standard, the introduction of the IRA/401(k), and the relationship between insane over-leveraged derivatives markets and American consumer financial health?

Afaik, the successful tying of the consumer investment (and especially retirement) account to the performance of the financial market (rather than to the parts of the market that manifest themselves in more physical ways) has created a situation where any large-scale decision that might improve the material lives of Americans but would harm the 'market' (via lowering the value of the USD or certain fund share prices) has become untenable.

Millions of voters can be controlled by trotting out "never hurt the market because then what will happen to your investments?" whenever something interesting comes along. I'm certain that the enormous subsidization of the housing market and the associated treatment of housing as a primary investment vehicle for those same voters is related.


What you describe is mostly a political decision that effectively subsidizes the mutual fund, broker and financial planning markets and the broader equities (and to a lesser extent, fixed income market) to the benefit of...you guessed...people who already own it. Pension funds invest in many of the same things everyone else invests in, directly or indirectly.

The difference is now you have millions of amateurs with small sums versus a few hundred professionally managed institutions. Either way, the little guy loses.


> Millions of voters can be controlled by trotting out "never hurt the market because then what will happen to your investments?" whenever something interesting comes along.

The 401k has served as a clever trick to get large numbers of laborers to support policies that mainly benefit rich capitalists and to oppose many policies that would help themselves.


That is precisely my position. It is a scam; producing very little value that didn't already exist for Americans while enriching the owners of the 401(k) portfolios beyond nearly anyone in history.


> mortgage securitization (CDOs)

I don't think those things are synonymous. You can have mortgage securitization without CDOs.

IIRC, the issue with CDOs was they were used to "innovatively manufacture" "low risk" investments out of high risk assets. They were so complicated that sophisticated professional investors lost track of the underlying situation, made decisions based on a flawed model of them, then got caught with their pants down when their model failed.


Any argument against a CDO is implicitly an argument against a mortgage backed security. In fact, CDOs by their nature can be _more_ decoupled from systematic mortgage risk. So while you could theoretically have securitized mortgages without other kinds of CDOs its largely not something that makes mortgage securitization less risky.


> Any argument against a CDO is implicitly an argument against a mortgage backed security. In fact, CDOs by their nature can be _more_ decoupled from systematic mortgage risk.

I'm skeptical because it was CDOs that blew up, not more typical mortgage backed securities.

I think the key phrase there is "can be." Complex software can be reliable, but it also can be a buggy mess or reliable except for that one bug that literally kills you. The complexity creates a situation it too much trouble to really understand it, so people treat it as a black box and just hand-wave and believe whatever they want. It seems CDOs had a similar problem, while perhaps regular MBS are simple enough that they don't.


CDOs and insider trading are orthogonal. The issue with CDOs is not the concept or the engineering but the implementation thereof. The banks (or underwriter) took risky loans and labelled them as safe; and the whole idea of CDOs is about pricing risk for mortgages. So it blew off.

> the industry seems to be often parasitical

Most industries are. Oil, Pharmaceutical, Weapons, Government bureaucracy, etc... The list is really long. I'd say that Finance is one of the most regulated areas; but you are unlikely to notice other rip-offs (ie: oil leak that cost the tax payer and the citizen)


>> the industry seems to be often parasitical

> Most industries are.

Yes. Are you defending the issues in finance because of this? That this means that corruption and insider trading are ok?


"incomplete model of how the world works and an inconsistent preference set"

This is unfair, do you have complete model of how the world works while basic questions in economics remain unanswered, like how exchange rates work, how growth works of even on the nature of money?

"There is little agreement on a definition of money or what assets serve as money, much less on the nature of the private and social costs and benefits of a money economy"

https://en.wikipedia.org/wiki/List_of_unsolved_problems_in_e...

Even if we fully understood impact of financial policy, this is a political topic and requires involvement.

It's far to easy to deflect criticism by pretending that the finance system is like a well-oiled machine, carefully put together, all pieces humming in harmony, and the plebs shouldn't meddle with it.


I think there's a difference between CDOs and other instruments as a financial tool in general, and between turning them into speculative investments.


> Most of what we think of innovation is really business model innovation, rather than technology innovation. We are more easily amused and excited by the latter, but what changes our lives more often is the former. Business model innovations rarely capture the imagination of the masses or present well on short time-horizon focused mediums, say Twitter, but they matter.

https://www.readmargins.com/p/jokes-you-invented-bad-jokes


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.


From my POV, the issue in USA is that there's no incentive[1] for ACH to be made better once banks could go nationwide and compete for clients that way. Making ACH better made sense when banks were more fragmented and couldn't just lock customers in.

[1] ACH is private institution started as better clearing house between banks, unlike systems like Poland's ELIXIR which is under aegis of polish equivalent of Fed


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.


That's the argument he's making. Checking is only free because it's being paid for by people who who run up fees, and these people tend to be poor.

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.


no, fees are pure profit in most cases. loans made with deposits more than pays for operating costs of checking accounts. banks that say different are fibbing.


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.


> Free-as-in-beer banking

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.


Yes, we are still early. patio11 is very aware of cryptocurrency, he has rejected it for as long as he has known about it.


I mean, confidence counts for something but probably insufficient to predict the future. Considering $130M just walked off a defi lender today and there is no recovery possible, I'd say you have a while to go.


When you think about this too much it starts to seem inevitable, but I agree those types of predictions can be off by multiple decades


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?


It’s not baffling at all to me.

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 watched HBO streaming on a domestic GOL flight in 2019 - a Brazilian low-cost airline. I couldn't do that on the United flights which took me SFO -> IAH -> GRU. I figure United installed/contracted for their solution 10+ years ago. GOL introduced in-air Internet in 2016: https://www.zdnet.com/article/brazilian-airline-gol-offers-i...


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.


A whole article on financial innovation, and not one mention of crypto or defi? Not even Bitcoin?


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.


> you can get your salary streamed to you constantly as opposed to a monthly payment - how cool is that?!

Enjoy prepping your tax returns :3


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.


None of the objections to cryptocurrency have anything to do with the fact that it's "math based". Traditional money is also in fact based on math.


It doesn't seem you are being very intellectually generous to the smart people who have come to different conclusions. Crypto doesn't meet my needs but I understand how someone with strong views on monetary policy, government, institutional trust, etc will see value there.


Making an appeal to math doesn't mean something a well designed or even a competitive solution.


Yet you're still here commenting.


move to where?


Crypto is not financial innovation.


How can any serious person with knowledge of the subject say this with a straight face?

There are entire classes of financial instruments in use today that could not exist in the tradfi ecosystem. Pretty sure that's "financial innovation".


> There are entire classes of financial instruments in use today that could not exist in the tradfi ecosystem.

Such as?



Flash loans couldn’t exist in the traditional system


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.


I worked for both, you're wrong.

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.


Don't forget the massive bureaucracy at traditional banks. I worked at a small company that was building a payments platform for a large US bank. The amount of turf-protecting between the different payment types within the bank was mind-boggling. Everything was highly compartmentalized and it could take weeks to get a config setting changed on a test server. It was an interesting experience for me watching from the outside.


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.


(Man I've liked these first couple of articles).

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.


Wow, it's a patio11 thread with only 8 comments.

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.


Wow, small world. (Give M my regards?)

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.


Will do, and thanks for the leads.


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.


Can you call it innovation when much of the world has had it for some time? Good, no doubt, but innovative?


A more accurate headline would have been: "American legacy financial institution innovation is actually happening"


If you haven't moved people to crypto, you're enabling the problem.


I've seen the most innovation in this space happening for business checking accounts. We recently switched over to Mercury, which truly has no fees I'm aware of (even international wires are free); which is wild for us coming from PNC, which wanted monthly fees to send over $5k in ACH transfers (try running a business on that).

I'm still waiting to see an identically flexible account for personal use, not just business, though.


interersting. does mercury support bill pay? can you get a cashier's check? how long do deposited checks take to become available for withdrawal?


Bill pay is generally just ACH, so yes. I'm not sure if they do cashiers checks though; their tradeoff is that they are electronic only, so physical checks and cash are not well supported.


Let's keep in mind that these micro revolutions apply mostly to the archaic US system and have been somewhat standard in other parts of the world.


Highly US-centric article, would be good to be labeled as such.


Since 1995 everyone has a basic right to possess a free basic bank account in Germany (the EU?) including "partial citizens" (e.g. asylees), since it's so crucial to societal participation.

The fact the author sells this as innovation speaks volumes about the usual treatment of people deemed (near-term) useless to the (US) apparatus.


UPI in India handles > 1 trillion USD (46 Billion transactions) of instant payments per year for free. With UPI, you can make P2P or P2M payments, govt subsidies and business payments can come to you directly and instantly. Bank account opening with KYC is fully digital, online and instant. All Indian banks give basic free savings account with zero fees. Credit landscape is rapidly changing. Overdraft was never really popular in India.

This is real change enabled by technology and brought about with really stunning cross-functional collaboration between some really good techie volunteers and bureaucrats behind the scenes and politicians through appropriate regulation, good consortium partnerships and just really good timing luck.


> 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

This is a really great point which had never occurred to me.

Free current accounts (as we call them in the UK) are the norm. We had - or still have? (I haven't kept up) obscene overdraft charges too. If my memory serves me right, people paying £10-40/mo in overdraft charges wasn't uncommon. I feel our situation is/was even worse because free accounts were the norm.

When paid accounts did get introduced, but they came bundled with things like extra interest, insurance etc, so you kind of broke even (not so much now).


> If you say the words “financial innovation” many people incorrectly believe it is largely negative

Hmm. I'm not sure I agree. I'd say instead that most people are doubtful that financial institutions are playing nicely, and/or that "fairness" is increasing.


Current government treatment of finance and big business (and free trade, and neo-liberal policies generally) is pretty unpopular among voters for either major party. Whole thing's regarded as a bunch of self-serving bullshit for the ultra-rich and the wannabe-ultra-rich, of zero or negative value to normal folks (I'm not claiming that's correct, mind you).

It's one place where there's a huge gap between the average voter and either major US party's platform, and certainly between the average voter and actual laws & enforcement. It's why a certain lately-prominent political figure made the tactical decision to ignore their party's platform and court voters directly—and it worked.


"ACH moved to same-day settlement (rather than next-day settlement) in 2018" Thailand, and most of Asia has had instant transactions and no concept of over draft fees. And since 2017, nearly all bank to bank transactions are free, and irreversible*. So why is the US behind?

Seems one of the biggest hurdles for US banking are the guard rails on financial products. The ability to pull back funds and reverse transactions creates the excess fat that keeps banking expensive and processes slow. 'Get paid, stay paid' as seen in blockchain, resolves this.


> nearly all bank to bank transactions are free, and irreversible ... 'Get paid, stay paid' as seen in blockchain

A key difference here is that if you screw up your payment in Thailand, you have legal recourse to reclaim your funds. If I fat-finger my rent to the wrong Khun Somchai, and he thinks he wants to keep it, I can use the legal system to get the money back from him (and he knows that), and what's more I know full well that his bank will know who he is and where he lives.

If I send money to the wrong Bitcoin address, nobody can help me with that.


This is simply false. Legal recourse is always available, whether sending money using Bitcoin, or any means whatsoever (by mail, by dropping a suitcase full of cash). Your legal rights don't vanish just because you used one medium over another.


No they're right. How would you have legal recourse against someone you don't even know?

Bitcoin addresses are anonymous. Sending to the wrong address is not sending to a wrong KYC bank account. There are no mechanisms in place to rectify that with Bitcoin, which is a bug, not a feature.


Bitcoin addresses are pseudonymous. There are ways to make transactions safer for all parties involved such as escrow and social recovery.


Yes, which means Bitcoin addresses are anonymous as far as this conversation about disputes is considered. It's even being generous considering the probability that it could accidentally go to a dead address and be lost forever.

Third party escrow isn't unique to bitcoin, and on top of not being competitive can be painful.


> A key difference here is that if you screw up your payment in Thailand, you have legal recourse to reclaim your funds.

The legal systems are pretty important pieces of technology that solve real practical problems.

> If I send money to the wrong Bitcoin address, nobody can help me with that.

Bitcoin is a bit like introducing an electric car without seats, seatbelts, or a windshield. Sure there's some innovative bits there, but the hype forgets it's missing very important features. It's even more astounding that the hype men sometimes try to spin the lack of those features into a selling point.


> The ability to pull back funds and reverse transactions creates the excess fat that keeps banking expensive and processes slow.

For the victims of, say, Madoff, the ability for the authorities to intervene was very much not "excess fat".


This is just the "think of the children" argument.

Think of credit card fraud and the $25 billion lost to it every year(half a Madoff). Then countless start ups, engineers and customer service employees that all deal with the excess fat of correctly routing payments. All these resources to put guard rails on a flawed process, funded by the 3% skim off the top.

Blockchain for finance demands high user accountability, a refreshing change for anyone who's been on the other end of a reversed payment.


The entire justice system is a "think of the children" argument. I do not in fact find "high user accountability" "refreshing" any more than I would find the necessity of defending myself if robbery were legalized "refreshing".

Yet again: I would like to see a defense of cryptocurrency that doesn't require me as a precondition to subscribe to the policy positions of the Mises Institute.


More like fixing the basics of banking that are decades overdue.


Banks should be required by law to expose an api.

Plaid is a billion dollar web scraper and privacy violater that works around this omission.


> Banks should be rewuired by law to expose an api

Like health insurance business transactions, there should be mandatory standards for both the data structures and operating rules for such an API as well. (But they should not be as horrible as the standards and operating rules adopted for healthcare.)


That's what the EU's PSD2 regulations are about.


> Zelle was, in large degree, a response by banks to avoid being disintermediated by the payment apps

Curious what the HN crowd thinks about this ... was this a good or bad thing?


Why does a free basic checking account mean some some depositors are being subsidized? Is it the interest? The cost of storing an extra record in a database?


Same-day settlement is cool but how about instant transfer between different banks? Brazilian Pix has it for almost a year.


If financial innovation means more nickle and diming people for every single transaction, I want to say NO THANK YOU.


Most of the article is specifically about how financial innovation has resulted in less "nickel and diming" people for transactions.


at least in europe, all of these things were the results of regulation (SEPA , card fees etc). Neither banks nor big tech would lift a finger from their money makers otherwise.

And tech brought us a lot of "innovations" such as silencing organizations and punishing sex workers via defunding




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