What’s wrong with American banks?
I am shocked by the lack of efficiency and the fees charged by American banks! Having lived mostly in Europe, and now residing in the US, I am completely unable to understand American banks.
Checking is costly
I have stopped using checks years ago. But in the US they are still used! Even though debit and credit cards are accepted everywhere, people still use checks. But checks are much more costly for banks than electronic cards. They also take more time to write and control whenever they are used. So the costs as well as the transaction costs are higher. But still there are tens of millions of checks written every day!
This is wild. But I have started to notice why. The first thing is that banks in the US are extremely bad when it comes to electronic payments and transfers, both in terms of efficiency and in terms of the costs (or the fees they impose on users). So the incentives for discontinuing the use of checks for consumers are small.
This is a sad state of affairs. Both the banks, the customers and the US economy lose out on this. Loss of efficiency in the end translates into higher costs for users and hurts the competiveness of American businesses.
Electronic transfer efficiency
I am used to a transfer from one of my own accounts to another of my accounts taking no time at all. Here in the US it takes a day. Transfer to somebody else’s account with the same bank, I am used to taking 1-2 hours. Here it is one to two days. Transfers to other banks I am used to taking 1-4 hours. Here it is 3-5 business days.
But electronic wiring and computers are just as fast in the US as in Europe. So the explanation for this is not technical. It’s simply the banks keeping the money for a while to profit from the float (the accumulated interest of all funds being in “limbo” on the way from one account to another). But this kind of greediness slows down business and imposes business costs on others! And it makes customers angry all the time.
Fees
The cost for an electronic payment is microscopic. Yet in the US the charges for some transfers are dollars instead of cents! How is it possible? I pay 3 bucks to use an ATM to take out money from an account in Europe. Bank of America, which charges this fee, has a cost on this transaction which is unlikely to be higher than 5 cents. How come they are allowed to charge this outrageous amount?
According to CNN money American consumers actually paid more than $36 billion in various fees in 2006! They write that a
.. government study on bank fees released Monday revealed that consumers are ill-informed about the fees they are paying on their checking and savings accounts.
The report, published by the Government Accountability Office, found that some fees assessed by at banks, thrifts and credit unions have steadily increased in recent years – in some cases by double digits.
Overdraft fees, for example, rose 11% between 2000 and 2007, according to the study. Other charges however, like monthly maintenance fees, have declined in recent years.
Regulation
Philosophically, I am a liberalist. I want the market to take care of things. But when markets fail, they need to be regulated. I will write more about the American banking industry later. But to my mind this is an industry in dire need of regulation. It’s really shocking to see that this is possible in the country that really is in the forefront technologically as far as Internet, computers and software is concerned.
It is truly remarkable, isn’t it, that the country with Microsoft, Intel, Dell, Facebook and Google is at the same time at the level of a third world country when it comes to the quality of its banking system?
The odd piece of information, strange facts, comments on news, ranting and rambling. Kicks and licks. Fun, irony and sarcasm, often, though, with some serious intention.
I live and have lived in Europe and the US. I like both.
I’m nekkid, so no need to undress me. Don't bite me. I much prefer stroking.
April 5th, 2008 at 9:49 pm
Do you know why bank transactions take only a few hours in the EU? Electronic transfers would take even longer than they do, except that the US gov’t requires money to be made available within 3 business days. Although in my experience, a transfer from one account to another at the same bank is instantaneous if it occurs during business hours (why that should matter, I don’t know).
In regards to ATM fees, I agree they seem exorbitant, but without knowing the cost of building/maintaining an ATM, one can’t appropriately judge. Although I’d be willing to bet that a transaction at a physical branch is significantly more expensive than at an ATM, which is why most banks let you use your own banks ATMs fee free.
Also, in regards to America being on the forefront of technology, I think that’s the problem. America is usually on the forefront of ways to make money. Bank fees are just another way to do that. The wealthiest 1% own 50% of the country, which means they are always be thinking of ways to double their wealth.
April 5th, 2008 at 9:58 pm
Commercial banks are doing everything they can to scam more and more fees from their depositors BUT Credit Unions do not! Credit unions do everything banks do however they are in business to help their members, not shear them like sheep. Credit Unions are the best kept secret in America.
April 5th, 2008 at 10:11 pm
Enginerd: But why doesn’t government simply impose a 2 hour max on banks to transfer money? Float is a hidden cost imposed on customers that makes the system inefficient.
Also, some American studies indicate that the fee structures used by American banking institutions are so complex and hard to get full info about that people simply don’t know them. Researchers trying to obtain info in the study had a hard time finding out what the fees were.
Disclosure and transparent fees would make the system more efficient. And, as with fuel efficiency standards, there is no reason why the government should not impose efficiency standards on banks. US government is tough on competition in a lot of areas, but banks seem to be allowed to do whatever they want. Tougher disclose requirements, maximum fees (including overdraft fees), etc would be easy to impose.
And, really, the government should make the banks create a consistent set of incentives that make people and businesses stop using checks. That’s third world these days.
April 5th, 2008 at 10:25 pm
Ha!, in business to help themselves…. thats rich. any system that involves usury is in business to help no one.
take a look at this
http://www.stwr.net/content/view/2579/198/
April 5th, 2008 at 11:17 pm
Sometimes i doubt the ability of the free market to properly provide a service.
I use a state credit union. I have had electronic banking for over a decade when most banks introduced it about 5 years ago. Transfers between accounts in the credit union are instantaneous, on rare occasions large transfers take half an hour. The rates are almost nothing, hell overdraft is $.50, there is an authorized chain of ATMs with no fees and i pay the credit union nothing extra if i use a non-branded atm. My credit union is mandated to serve only state employees because there is no way conventional bank with a for profit model could compete.
They innovate because they can and provide excellent service because they have no ulterior motive.
April 6th, 2008 at 12:35 am
You have a really horrible bank.
I don’t see these electronic fees that you are talking about. I have more than one bank that I do transfers between accounts too, and they show up instantaniously (including my free cash advances off of my credit card).
In addition, ATM fees are free if I’m with my bank and reimbursed up to $15/mo (I never make that many pulls!) if I use other banks ATMs.
Do some research before you bank with a particular bank next time!
April 6th, 2008 at 12:43 am
If I didn’t have alot of money I’d join a credit union.
Since I have money, use one of the first tier banks. They pay me for checking. All ATM use is free. I get free stock trades, free ACH, 24/365 worldwide support, even when I called new years eve, foreign currency services, etc. I think you have to maintain a $250K balance to get it all.
April 6th, 2008 at 1:35 am
The banks in the USA are not interested in improving service to ordinary citizens. Things like the Bank Secrecy Acts keep the govt and banks in a close partnership. search for CTR and SAR, the banks in the USA milk regular citizens and answer to the govt and the wealthy. Banks are effective monopolies and at the same time a required utility for most people – people need banks and banks are immune from competition. Currently, they are working with the govt partners to eliminate the payday loan industry since the poor use the payday businesses instead of banks, since they were not welcome at banks. Now banks are seeing money in those poor and want it for themselves. Watch for “not using the USA banking system” to be effectively outlawed in the near future.
http://en.wikipedia.org/wiki/Bank_Secrecy_Act
April 6th, 2008 at 3:51 am
[...] BlessnHI impact blockaded using checks eld ago. But in the US they are assist used! Even though entry and assign game are recognized everywhere, grouping assist have checks. But checks are much more pricey for banks than electronic cards. … [...]
April 6th, 2008 at 5:44 am
From working in banking for a long time I can tell you that banks make a ton of $$ off the stupid and lazy.
Keep track of your balances like a hawk, realize you are going to get “wacked” for using an ATM that is not your bank’s and shop around. Good banks are out there.
April 6th, 2008 at 6:52 am
[...] What’s wrong with American banks? I have stopped using checks years ago. But in the US they are still used! Even though debit and credit cards are accepted everywhere, people still use checks. But checks are much more costly for banks than electronic cards. … [...]
April 6th, 2008 at 10:07 am
“Currently, they are working with the govt partners to eliminate the payday loan industry since the poor use the payday businesses instead of banks, since they were not welcome at banks.”
Payday loans are not an example of a business which helps the poor, quite the opposite in fact. http://usgovinfo.about.com/od/consumerawareness/a/paydayloans.htm
A typical loan might last 2 weeks and cost 20%, that’s about 520% APR. And that’s only if you pay on time, and don’t get smacked with their late fees. The business model is to keep people in debt, so they have to keep paying more fees. This may be competition for banks, but it’s a little like competition between two mob factions.
As for why the gov’t doesn’t impose a 2-hour limit on electronic transfers, my guess would be the banking lobby controlling congress. Businesses are not about making the country better, they are about making money for their owners. This is the major flaw of the free market. The counter argument is that everyone working in self interest will always provide the best solution for everyone is simply false, and why anyone still believes that is beyond me.
April 6th, 2008 at 1:23 pm
you think that’s bad? banks in south africa charge you a fixed percentage to deposit cash money. can you believe that? what a way to encourage savings in a developing economy that desperately needs it.
April 6th, 2008 at 1:44 pm
ATM and other fees are for chumps. If you make no effort to shop for banking beyond the most well-advertised, you’ll get what you deserve. It’s like shopping at a convenience store for groceries — you’ll pay a lot more, and have fewer product choices. Credit unions and other less well-known banks have no fees and even refund fees from others’ ATMs. Transfers are quicker and cheaper, if not free. Finally, why anyone would use an ATM is beyond me, when you can go into any grocery store and get cash back for free, in a safe and secure environment which these days is open 24 hours.
This is one of those “know the local culture” issues. Otherwise you pay the “gringo” price.
April 12th, 2008 at 1:59 pm
Every individual seems to have a path to the internet.