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Have you ever considered what a banking solution from first principles would look like? Ignoring cash for the moment, consider that banks are properly character

Have you ever considered what a banking solution from first principles would look like? Ignoring cash for the moment, consider that banks are properly characterized as a connected graph of double-entry ledgers, where the edges are network connections. As such, it should be trivial to a) assign a public/private keypair to each bank node, b) encrypt and/or sign outbound messages, and c) have it work in real time. We could even impose serializability on the whole network, and still operate in real time. Perhaps it is impossibly naive to think that centrally controlled bank systems could be so straight-forward and simple, free of precedent and regulation, but I'd like to understand why.

mywittyname 6y ago
The banking industry is capable of near real-time, international, encrypted, irreversible transactions in which the identities of persons on both sides of the transaction are confirmed. It's just a more expensive system which requires more hoops than is necessary for the bulk of bank transactions. I'm sure we could build a better banking system if we scrapped everything and started over. But what we have is really good enough for most people.
- haltingproblem 6y ago
  The last sentence is a pithy summary of the state of the banking industry. Having worked with the banking industry for over two decades, the banking industry is capable of a lot. They have infinite capital and they hire some of the best people on the planet. Fundamentally Banking is risk-averse conservative culture. Their primary focus is "good enough for most people" then don't break it. Absent government regulations from a major catastrophe or an existential competitive threat, they will not change.
- PeterisP 6y ago
  It's not necessarily a more expensive system, such systems are used for the bulk of bank transactions in many places. It's just that there are some minor disadvantages (a bit of profitability back when higher interest rates meant that any delay brings interest revenue to the bank, but mostly customer habits - no single institution wants to be the one to try and change them) so USA banks won't make such a change unless forced to.
  - mywittyname 6y ago
    Are wire transfers free in Europe? I've only used them a handful of times, but each time the cost was not insignificant, like $30 or so. A quick look around online suggests that price is consistent. This suggests to me that there's a intrinsic cost to supplying the guarantees that a person gets with a wire transfer over something like an ACH. And that's probably why ACH has the shortcomings that it does.
    - r00fus 6y ago
      SEPA same day is free in a lot of countries from my experience setting up bank automation for various corporate clients. Not sure if it’s free for people though.
      - smartbit 6y ago
        SEPA same minute for sure is free for private customers in some EU countries.
    - PeterisP 6y ago
      For EUR transfers within EU, the SEPA CT is the equivalent of a wire transfer and has pretty much replaced them. The fully loaded cost of processing such a transfer by a bank is in the ballpark of 0.01-0.02 EUR if I recall correctly, depending on the economies of scale they can get; so for private persons some banks/some markets offer them for free and some banks/markets charge something like 0.30 EUR, it depends on the level of competition for general services, how much they can earn on other services from that customer, etc. As for most services, the price is not really determined by costs but by the competition and plausible alternatives. There is some intrinsic cost for a 'true' wire transfer, but (1) it's not due to the benefits/guarantees that the customer gets, but due to legacy/compatibility issues requiring a not-that-scalable process, lack of international cooperation, and the inefficiencies of bilateral settlements (or, often, a chain of bilateral settlements) vs a centralized bulk settlement system; and (2) it's not in line with the prices charged. $30 for a wire transfer is a reasonable market price in many markets, but the fully loaded cost for a wire transfer (assuming a electronically initiated proper payment without any missing information so it gets 'straight-through processing') that I recall is something comparable to $2, the rest is profit - the market for this service is simply not competitive (people choose their banks based on other factors, not the level of rare fees like this) so that's a revenue stream that nobody wants to let go without a good reason.
PeterisP 6y ago
The limitations discussed in the parent post come from a clearing system that must (for legacy reasons) support payments via cheques. There are many payment systems which don't do that (e.g. SEPA credit transfers in EU, and various other 'giro payment' schemes), and can do fast and cheap payments that are actually known to be fully cleared right after receiving them. The key thing for preventing money-forwarding scams, however, is that all the commonly used payment systems in your society must be "reliable". If some are, and some are not, then the intersection of these payment systems opens people up to an "arbitrage" of sending "reliable money" after receiving "unreliable money"; you won't eliminate this type fraud by making a better payment system accessible, that will happen only after systems like cheques are driven out.
- deleted 6y ago
  [deleted]
dustingetz 6y ago
principle agent problem

mywittyname 6y ago

The banking industry is capable of near real-time, international, encrypted, irreversible transactions in which the identities of persons on both sides of the transaction are confirmed. It's just a more expensive system which requires more hoops than is necessary for the bulk of bank transactions. I'm sure we could build a better banking system if we scrapped everything and started over. But what we have is really good enough for most people.

haltingproblem 6y ago
The last sentence is a pithy summary of the state of the banking industry. Having worked with the banking industry for over two decades, the banking industry is capable of a lot. They have infinite capital and they hire some of the best people on the planet. Fundamentally Banking is risk-averse conservative culture. Their primary focus is "good enough for most people" then don't break it. Absent government regulations from a major catastrophe or an existential competitive threat, they will not change.
PeterisP 6y ago
It's not necessarily a more expensive system, such systems are used for the bulk of bank transactions in many places. It's just that there are some minor disadvantages (a bit of profitability back when higher interest rates meant that any delay brings interest revenue to the bank, but mostly customer habits - no single institution wants to be the one to try and change them) so USA banks won't make such a change unless forced to.
- mywittyname 6y ago
  Are wire transfers free in Europe? I've only used them a handful of times, but each time the cost was not insignificant, like $30 or so. A quick look around online suggests that price is consistent. This suggests to me that there's a intrinsic cost to supplying the guarantees that a person gets with a wire transfer over something like an ACH. And that's probably why ACH has the shortcomings that it does.
  - r00fus 6y ago
    SEPA same day is free in a lot of countries from my experience setting up bank automation for various corporate clients. Not sure if it’s free for people though.
    - smartbit 6y ago
      SEPA same minute for sure is free for private customers in some EU countries.
  - PeterisP 6y ago
    For EUR transfers within EU, the SEPA CT is the equivalent of a wire transfer and has pretty much replaced them. The fully loaded cost of processing such a transfer by a bank is in the ballpark of 0.01-0.02 EUR if I recall correctly, depending on the economies of scale they can get; so for private persons some banks/some markets offer them for free and some banks/markets charge something like 0.30 EUR, it depends on the level of competition for general services, how much they can earn on other services from that customer, etc. As for most services, the price is not really determined by costs but by the competition and plausible alternatives. There is some intrinsic cost for a 'true' wire transfer, but (1) it's not due to the benefits/guarantees that the customer gets, but due to legacy/compatibility issues requiring a not-that-scalable process, lack of international cooperation, and the inefficiencies of bilateral settlements (or, often, a chain of bilateral settlements) vs a centralized bulk settlement system; and (2) it's not in line with the prices charged. $30 for a wire transfer is a reasonable market price in many markets, but the fully loaded cost for a wire transfer (assuming a electronically initiated proper payment without any missing information so it gets 'straight-through processing') that I recall is something comparable to $2, the rest is profit - the market for this service is simply not competitive (people choose their banks based on other factors, not the level of rare fees like this) so that's a revenue stream that nobody wants to let go without a good reason.

PeterisP 6y ago

The limitations discussed in the parent post come from a clearing system that must (for legacy reasons) support payments via cheques. There are many payment systems which don't do that (e.g. SEPA credit transfers in EU, and various other 'giro payment' schemes), and can do fast and cheap payments that are actually known to be fully cleared right after receiving them. The key thing for preventing money-forwarding scams, however, is that all the commonly used payment systems in your society must be "reliable". If some are, and some are not, then the intersection of these payment systems opens people up to an "arbitrage" of sending "reliable money" after receiving "unreliable money"; you won't eliminate this type fraud by making a better payment system accessible, that will happen only after systems like cheques are driven out.

deleted 6y ago
[deleted]

dustingetz 6y ago

principle agent problem