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Comment by pjc50 | Hacker News Reader

Modernising the US banking system into the 19th century.

> The move puts the USPS in direct competition with the multibillion-dollar check-cashing industry, which operates storefronts to allow unbanked or underbanked residents to cash their paychecks.

I mean, great, but why are there all these unbanked people in the first place? Why are they having to pay a whole six dollars for something that could be a free instant direct deposit?

Edit: I've just realised that the magic word may be resident. Let me guess, there's a significant fraction of (mostly nonwhite) US residents who can't produce enough proof of nationality to get bank accounts?

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It can be surprisingly difficult to get an account in the US between KYC rules, credit checks, balance requirements, and limitations on funding sources. The fees banks charge can be really significant to a low income and it’s often not worth risking your food or rent budget. The fees are often tailored to be very aggressive in low income or heavily minority areas. Even if you get an account open, many banks are super aggressive about closing accounts with low or no activity.

There are “millennial” banks which are very customer focused but to get accounts there you have to have a computer or a phone with a data plan — and believe it or not those are still luxury items for many in the US.

Living in rural areas where you only have a post office box or rural route address often excludes you from credit and banking products.

The benefits of a bank account are also pretty small... There used to be great interest rates, but now a bank account for many is just an easy way to get into debt by accidentally going overdrawn, or doing things with a high fee attached.

For those who can get paid cash and spend cash, the downsides of a bank account probably outweigh the upsides.

I know people who deal with thousands in cash every month. They have no account and really never should. I am not even going to suggest to them to get one. They have extremely poor money management skills. Banks can be quite merciless if you are riding the line. They need the physicality of cash in hand to see they are spending too much. To me a 30 dollar fee is 'well that sucks'. To someone who is riding the line 30 bucks can mean a cascade of borrow from peter to pay paul, or 'well skip the power bill this month'. Which then makes the problem worse.

This is not even a 'class' thing I have seen many highly paid, very smart people who just do not grok less out than in. Also do not spend it before you have it (I am getting paid tomorrow so I can borrow X and pay it off), one way ticket to massive credit card debt that old gem is.

Not to mention that a single bank fee can wipe out a decade of interest.

I had an account with Chase that I only used to cash paychecks drawn on Chase. The money was then wired to my actual bank [0].

Someone managed to get my ATM card details and ran up a $100 overdraft. Chase didn’t care, charged me another $500 or so.

[0] Paycheck was from a shady employer who frequently made “mistakes” in the amount of the check. Had I given them direct deposit access, they could have yanked money out of my pay with the excuse of accidental overpayment. By wiring the money I firewalled it somewhat.

At the low end, bank accounts come with fees, and more importantly, the risk of fees. Many young people just starting out struggle, at least briefly, with keeping a balance above zero, and that's assuming they have an account that doesn't charge a monthly fee for existing below a certain minimum balance.

For those of us who have no trouble keeping positive balances, these issues might seem silly, but to people living at or near the edge, these are reasons enough to not even try to have a bank account. The check cashing place may be a ripoff, but they're never going to take my balance below zero. They will only take a piece of my income.

If you made 300 dollars in your last paycheck, a 30 dollar overdraft fee is 10% of your check.

In addition to the other administrative burden related explanations, there's at least some fraction that are cultural.

Ages ago, I read a "Nickel and Dimed" style long form article about check cashing services where the author tried to understand your very question: why do some customers continue to use these services when cheaper alternatives exist?

IIRC, some preferred the accessible, high touch in person aspects of the services. Much like some people connect with their regular barista, I suppose. Vs the intimating experience of a bank, the impersonal ATM, whatever.

In that way, putting on my UX and ethnographer hat, I keep thinking of the long tail of late adopters, as first detailed in Diffusion of Innovations. People are just people and have all sorts of nonobvious reasons and factors guiding their choices. We just have to meet them where they're at. Especially with social policy.

Any way, it's important to ask why people don't take advantage of apparent benefits, like you've done, and then figure out catalysts for making adoption more likely.

Edit: Oops, I forgot my two concluding points.

For accessibility, sociability aspects, I think the USPS branches will be great for community banking. Every branch I've ever visited is like its own community hub.

It's not enough to ask people why. A lot of the time, people can't articulate their rationale. This is normal. Just like with usability testing, would-be policy makers have to actually be present and observe.

I grew up in poor Appalachia where there are countless poor citizens but they still struggle with bank accounts. You might be looking for a negative reason but a lot of them just like having cash in hand and don't want to deal with accounts that can overdraw or be penalized in any way. It's just an old world way of thinking. My money in my pocket consequences or no.

At least the IRS won’t be doing surveillance on their transactions of $600 or more. Maybe it’s a better way to do things?

You also run into the situation where banks check your credit/banking history and may deny you an account based on that. My partner couldn't open a bank account for years because they forgot to stop an auto payment after they closed the account and moved.

Those payments bounced, leading to fees, which kept compounding and even after taking care of that, it took a long time to figure out how to clear the mark on the report (I don't know if we did, or it just eventually fell off due to time)

The EU solution for this was legislation that mandates that banks can not refuse a basic payment account. Being able to participate in electronic settlement is necessary to participate in modern society, so even a bankrupt person convicted of felony fraud should have a right to a bank account somewhere, and it's the duty of the society/government to ensure that they can obtain one.

The US is attempting to pass similar legislation on America politics time.

https://www.congress.gov/bill/116th-congress/senate-bill/357... (S.3571 Banking for All Act)

It also expands the USPS Postal Banking capabilities and mandate.

Edit: The Federal Reserve's FedNow instant payment system going live in 2023 should also eliminate the need for check cashing in its entirety: https://news.ycombinator.com/item?id=28393576

> banks check your credit/banking history

Those are not the same thing. Banks will deny you an account based on your history with bank accounts, sure. But not “credit history”, which is entirely separate.

If it's a regular checking account, with no overdraft, the bank loses nothing from having a person like that as a customer. The only money they can use is their own that they deposited there.

In US banking, many customers are relatively costly, with low balances, requiring branches with expensive people to service them. Overdraft happens often with them, and is a cost to the bank. They cannot be given credit, and are not otherwise candidates for other services by which banks make money. So fees- overdraft, deposit, withdrawal, desk usage, account- it is.

Banks don't have to allow overdraft. That's an optional lending service.

But if they don't allow overdrafts, they can't charge overdraft fees.

It is an optional service, one that is highly profitable ($billions per year for each of the large banks), and one also that arguably best serves the customer's interest, as not making a payment in most cases is far worse for many reasons for the user than making the payment and getting charged a service fee.

And you hit the nail on the head. It all comes back to the dollar in the end. Making the most money per customer.

People are often unbanked [in the US] because bank accounts are associated with:

- Minimum balance requirement

- Direct deposit requirements

- Fees & penalties

People in poverty without steady incomes don't have the liquidity to open accounts and keep them open without incurring penalties.

As someone in the fintech industry, this isn't accurate. There are a sizable number of services that offer no-monthly-fee, no-minimum-balance accounts. The real reason people are often unbanked is that these types of accounts tend to have extremely high fraud (or at least attempted fraud) rates. As such, their KYC requirements as well as their fraud systems will kick out people, for example, who have a substantial past history of overdrafts.

I'll be blunt: it is extremely difficult to service this population of users profitably. Their balances are low, they're more likely to use less "automatable" forms of service (e.g. no direct deposit but instead sending in physical checks or cash), and their fraud rates are much higher. Which, given that, is why I'm very much in favor of a government service that would provide banking services to this population at cost.

How can you claim their fraud rates are higher, when they have no accounts?

Thanks for that perspective.

If you owe money to a bank for example have your financial life crash during one of the many fiscal disasters in the last 20 years and end up with an account closed with a negative balance either because you are overdrawn or because you accidentally had an auto payment drafted from it it can become impossible to get a bank account with another institution.

Modernizing how? I've lived in multiple other countries and they all had pretty strict regulations around opening a bank account, even as a legal resident.

There are at least a handful of countries that offer services like this (basic check cashing, and in some cases, accounts with balances) via the post office. Italy, France, and Japan come to mind as examples, I'm sure there are more.

(The company that I work for is a fintech that deals a lot with unbanked/underbanked communities)

Sure but what were the ID requirements. That was the OPs criticism.

Yeah, good point - I can't say what the ID requirements are for those banks. I know that for international remittances (my line of work) we need things like a national ID or passport, so it seems like it'd be along the same lines, perhaps even a little less strict because there are fewer concerns w/r/t money laundering or terrorist funding.

While living overseas, I had the option of postal banking and commercial.

My employer had a relationship with the commercial bank, vouched for me, and generally made it easy. Had I used the postal bank I would have had to jump through more hoops, bring a translator at every visit, and wouldn’t have had access to all the same services.

why are there all these unbanked people in the first place?

There are a handful of reasons: https://www.fdic.gov/news/events/consumersymposium/2017/docu...

One large portion of the unbanked have a low socioeconomic status. Banks tend not to operate in the areas they live. Banks also have limited hours, so if you happen to work during those hours and can't take a day off, when are you going to go? Many banks don't have anyone to speak Spanish.

Another is people with poor health and limited cognitive ability. This includes the elderly.

You have to love all the replies to this carefully explaining how banks prey on the poor and that’s why they go to check cashing services, but nobody seems to realize that instead of putting the check cashing services out of business by competing with a government subsidized service, maybe we should fix the banks?

It’s a more practical solution to the problem. At the fringes of society, USPS is a closer to being an equitable and accessible bank than Wells Fargo is. Even if you did require Wells Fargo to serve unprofitable customers, they’re still not going to build a branch in the underserved areas where these services are needed.

Equitability will always be at odds with the profit motive of commercial banks. If anything, requiring banks to offer unprofitable services might just lead to more branches closing to avoid the losses.

There’s a reason you can’t send a letter for $0.58 via FedEx or UPS.

Some banks require a credit history to open an account, others require a good credit history.

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