Financial innovations brought by technology

- 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.

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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.

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.

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.

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.

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.

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.

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.

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.

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.

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?

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.

Of course you can create a simple service that ignores all those rules and it'll be cheaper.

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.'

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 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).

EDIT: Like paper cheques, I didn't have to use those in my 30 years in Belgium prior.

I'm close friends with a relative of yours who has worked for several major space companies, and we talk about your writing pretty frequently. Your articles on salary negotiation, life in Japan, and how to build side projects have proven extremely consequential for both of us--thank you so much for putting your thoughts down as frequently as you do.

Do you think dramatically increasing the speed and lowering the cost at which people can participate in financial transactions (as appears to be the mission of Stripe and the overall theme of your post) will have any effect on the current astronomical prices of small-scale international shipping? The costs involved in international financial transactions and international shipping for small customers seem to be closely coupled, but I'm not entirely sure how.

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

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

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.

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).

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.

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.

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

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

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