Everyone knows it’s broken

That does seem like a gross oversimplification.

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

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

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

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

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

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

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

Then of course the US decided that online poker was evil and it all went to hell :(

Personally, I prefer to keep my phone and my banking completely separate. Actually, the only "important" account I log into on my phone is my email. Anything else? I'll just wait until I get home or go to work.

I personally enjoy this comment the best:

> venmo is great also because it is sort of a social network too, like you have to put in a sort of “memo” field and so you see a news feed of what your friends paid each other for

Um... WHY? I don't see why I should care? I guess that's just part of an over sharing culture.

Here comes the old fogie... If I owe someone money I just give them cash. What's wrong with cash? I hope cash isn't going the way of the personal check... (which, hilariously, I still use personal checks)

Perhaps it has to do with individualism? My friends and I operate on a more informal method. If Joe bought the cab then John pays for the beers. Then Jake pays at the next place or the next time. This isn't stated or organized in advance, just everyone seems to go by it by default.

Sure there's a generation gap on privacy, but that's totally tangential to value the service has.

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

The core earnings of a retail banking operation is net interest margin - essentially the spread between what the bank pays depositors and is paid on loans. That spread has been in a pretty negative downtrend http://research.stlouisfed.org/fred2/series/USNIM/. However, that is for all banks (think BofA as well as you local 1st national whatever), so my guess it may look worse for purely retail operations (maybe not).

My point is this, most figure it costs ~100-150bps to manage a retail branch network (which is a relatively fixed cost) and for the most part (with the past couple of years being the exception) you're getting squeezed in the interest rate side of things (not to mention what you're reserving for defaults). So of course if you are managing one of these banks you are going to want to diversify your revenue stream towards fees.

So why not move to the online only banking model and scrap the branch network? Because retail branch deposits are sticky and are good at gathering stable deposits. That's a much longer discussion - but while some of this may seem idiotic from the outside there is a method (or least logic) to the madness...