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Financial innovations brought by technology
- patio11 5y agoHappy 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.
- axg11 5y agoJust let the market decide ;)
- TameAntelope 5y agoOkay, 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.
- handrous 5y ago> 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.
- Meekro 5y agoA 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.)
- kamarg 5y agoNot 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.
- ClumsyPilot 5y agoAt that point you might as well buy insurance directly and skip a step
- stevebmark 5y agoYou 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.
- whimsicalism 5y agoI'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.
- throwaway98797 5y agoBuy a nft. See if that changes your perspective.
- mdp2021 5y agoWhat about security? A number of innovations seem to overrely on new options which could offer potential for breach.
- tl 5y agoUnfortunately the market-clearing price (in karma) for someone posting your article is greater than zero, ensuring that nothing short of regulation would prevent it.
- mherdeg 5y agoHow 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?
- patio11 5y agoIf 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.
- ska 5y agoThis 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.
- mherdeg 5y agoIt'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
- jslove 5y agoOanda 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.
- tantalor 5y agoThe 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.
- effie 5y agoIt's supposed to be centralized, no nothing like crypto-assets. More like tighter FED/government control of the "new dollar".
- rfd4sgmk8u 5y agoCentral 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.
- ClumsyPilot 5y ago"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.
- effie 5y agoBut 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.
- mountainofdeath 5y agoMost 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.
- Folcon 5y agoReading 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.
- Arcuru 5y agoIt 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".
- Folcon 5y agoInteresting, thanks for the heads up.
- xsmasher 5y agoSome 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.
- Folcon 5y agoI'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.
- frogpelt 5y agoYou left out fee-free stock trading which is commonplace now. Maybe you were intentionally focused more on the banking side.
- simonebrunozzi 5y agoHey 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).
- dr_dshiv 5y agoNot 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?”
- umeshunni 5y agoGreat 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.
- ksdale 5y agoI believe he mentioned that in the first newsletter!
- tablespoon 5y ago> 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.
- Apocryphon 5y ago> 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 https://www.readmargins.com/p/jokes-you-invented-bad-jokes
- patio11 5y agoA 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.
- Ensorceled 5y agoDo 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.
- patio11 5y agoConsider 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.
- truculent 5y agoCan you call it innovation when much of the world has had it for some time? Good, no doubt, but innovative?
- smoovb 5y agoA more accurate headline would have been: "American legacy financial institution innovation is actually happening"
- endisneigh 5y agoThe 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 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.
- roenxi 5y agoHacker 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.
- fragmede 5y agoI, 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.
- AshamedCaptain 5y agoIt 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.
- simonebrunozzi 5y ago> 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.
- handrous 5y agoCurrent 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.
- quacked 5y agoWow, 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.
- patio11 5y agoWow, 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.
- quacked 5y agoWill do, and thanks for the leads.
- p_l 5y agoCould 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.
- fleddr 5y agoMore like fixing the basics of banking that are decades overdue.
- mr_luc 5y ago(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.'
- ErrantX 5y agoI 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.
- bityard 5y agoThe 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.
- Plasmoid 5y agoThat'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.
- clairity 5y agono, 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.
- marban 5y agoLet'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.
- smoovb 5y agoHighly US-centric article, would be good to be labeled as such.
- zz865 5y agoYeah 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.
- sarora27 5y agoI 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.
- wiseowise 5y agoI 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.
- deeg 5y agoDon'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.
- smoovb 5y ago"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.
- petesergeant 5y ago> 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.
- tablespoon 5y ago> 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.
- Kranar 5y agoThis 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.
- kebman 5y agoA whole article on financial innovation, and not one mention of crypto or defi? Not even Bitcoin?
- wiseowise 5y agoCrypto is not financial innovation.
- ghtt75 5y agoSo what type of innovation is it then?
- knownjorbist 5y agoHow 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".
- wiseowise 5y ago> There are entire classes of financial instruments in use today that could not exist in the tradfi ecosystem. Such as?
- apesti 5y agoFlash loans couldn’t exist in the traditional system
- knownjorbist 5y agohttps://en.wikipedia.org/wiki/Perpetual_futures https://en.wikipedia.org/wiki/Perpetual_futures
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- jamesshamenski 5y ago
- rfd4sgmk8u 5y agoIMHO, 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.
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- delaaxe 5y agoThe 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.
- rfd4sgmk8u 5y agoYes, we are still early. patio11 is very aware of cryptocurrency, he has rejected it for as long as he has known about it.
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- vorpalhex 5y agoI 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.
- delaaxe 5y agoWhen you think about this too much it starts to seem inevitable, but I agree those types of predictions can be off by multiple decades
- RGamma 5y agoSince 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.
- mNovak 5y agoI'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.
- mmd45 5y agointerersting. does mercury support bill pay? can you get a cashier's check? how long do deposited checks take to become available for withdrawal?
- mNovak 5y agoBill 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.
- originalvichy 5y agoAs 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?
- thrashh 5y agoIt’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.
- andrewf 5y agoI 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-internet-connectivity/ https://www.zdnet.com/article/brazilian-airline-gol-offers-i...
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- mattnewton 5y agoI 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.
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- lvl100 5y agoIf financial innovation means more nickle and diming people for every single transaction, I want to say NO THANK YOU.
- pcwalton 5y agoMost of the article is specifically about how financial innovation has resulted in less "nickel and diming" people for transactions.
- downWidOutaFite 5y agoThis 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.
- ghtt75 5y agoThere’s a ton of interoperability and public API access in the cryptocurrency world. All of it was achieved without mandates. How can you argue that regulation is essential for competition and innovation despite such a clear counter-example?
- toomuchtodo 5y agoA 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.
- digianarchist 5y agoThe 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.
- p_l 5y agoFrom 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
- trixie_ 5y agoIt'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.
- jamesshamenski 5y agoIf you haven't moved people to crypto, you're enabling the problem.
- mbesto 5y agoFun 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.
- Insanity 5y agoMoving 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.
- switch007 5y ago> 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).
- waynesonfire 5y agoBanks should be required by law to expose an api. Plaid is a billion dollar web scraper and privacy violater that works around this omission.
- dragonwriter 5y ago> 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.)
- sfjailbird 5y agoThat's what the EU's PSD2 regulations are about.
- deleted 5y ago[deleted]
- andremendes 5y agoSame-day settlement is cool but how about instant transfer between different banks? Brazilian Pix has it for almost a year.
- black_13 5y ago2008
- lmilcin 5y ago> 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.
- OldHand2018 5y ago> 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.
- habitmelon 5y agoWhy 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?
- RileyJames 5y ago> “ 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.
- tinco 5y agoSort 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.
- clumsysmurf 5y ago> 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?
- cblconfederate 5y agoat 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
- vinay_ys 5y agoUPI 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.
- kapad 5y agoI 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).