To truly make the jump to the “mainstream”, the canary in the coal mine has historically been the US.
Well, at least if you measure “mainstream” by what’s mainstream in the US. ;) It wasn’t just Japan that pulled ahead with mobile communications, for example—back in 2000 the US was lagging badly behind most of Europe when it came to cell phones. And there are areas like banking services where it’s doing even worse—before I visited the US back in 2010, I think I had seen one or two cheques in my whole life, but in the US they were still in active use.
Why do you assume that banking services are worse if people still use checks? That seems like cultural parochialism. It isn’t like credit card and debit card transactions aren’t universally available, but check transactions are as well. It seems to be an added convenience the retail sector provides for those who want it.
Btw, this inspired me to ask someone I know why she still uses checks to pay for groceries. She said that she just likes using the little ledger in the checkbook to keep track of her spending. And (she says) it doesn’t take any longer really. You just sign the check, and most stores have a machine that fills out everything else for you.
(Quote from a later post, because I wanted to respond higher up in the thread...)
In reality, debit cards, credit cards, and charge cards are pretty much always available wherever checks are accepted.
One instance I can think of where this is not the case is rent payments, many (most?) of which are still done by check by default.
But in any case, the very fact that many poor Americans are underbanked (which you say leads them to prefer checks) demonstrates that the US banking system is inferior to the European, although this is probably more a result of bad overall regulation and market structure than being “behind” on technology. That said, I don’t think either system is especially innovative, except perhaps in the (sometimes unfortunate) sense of creating new financial products. If we want to find actual consumer banking innovation, it seems to be primarily occurring in the developing world, where we’re seeing things like microlenders, interesting savings products, phone-based money transfer (and the usage of airtime as an alternative currency), and so on.
First of all, I think it’s worth pointing out that this conversation is about innovation not whether one retail banking system is better. It is possible for a system to be more innovative while also having worse outcomes. For example, the US healthcare system lags in health outcomes in many ways, but is dominant in medical research publications, medical Nobel prizes (a solid majority of medical Nobel prizes have gone to US researchers in the last 30 years) medical device manufacturing, pharmaceuticals, etc.
But in any case, the very fact that many poor Americans are underbanked (which you say leads them to prefer checks) demonstrates that the US banking system is inferior to the European
You are just assuming that these people are bankless due to some unusual quality of American banks.The main reason I have heard for poor people avoiding banks is overdraft charges—something almost all banks in all countries have. It’s quite possible that America just has a more feckless underclass than most European countries, and they are bad at estimating when they will overdraw. For people like that, using cash would make a lot of sense. Or maybe America’s underclass has more cashflow problems because the US welfare system is oriented more toward in-kind services than cash transfers. Or maybe its just a weird subcultural thing that America’s underclass likes having wads of cash on hand.
That said, I don’t think either system is especially innovative, except perhaps in the (sometimes unfortunate) sense of creating new financial products. If we want to find actual consumer banking innovation, it seems to be primarily occurring in the developing world, where we’re seeing things like microlenders, interesting savings products, phone-based money transfer (and the usage of airtime as an alternative currency), and so on.
You are just assuming that these people are bankless due to some unusual quality of American banks. The main reason I have heard for poor people avoiding banks is overdraft charges—something almost all banks in all countries have.
This does not appear to be the case. Here’s a good overview from the Federal Reserve Bank of St. Louis. My personal guess is that the fractured nature of the US banking systems (many small local banks) results in uneven service quality and less caring about reputation from banks, as well as costs being higher per client, making poorer clients less profitable. In addition, Deloitte writes: “In the United States, many traditional bank competitors view the unbanked and underbanked segments as unattractive as their costs to serve are high and income generated low relative to more affluent segments. This is partially a reflection of a high-cost base and expensive and restrictive regulatory actions exacerbated by recent consumer legislation.”
It is not a case of the poor being better off without banking services or anything like that (as mention in the Fed article, and also here’s the World Bank for some international stats), it’s really just a case of poor provision. On the bright side, it seems like the situation is somewhat improving with prepaid cards being offered, which do not require a complicated application process, and which have no overdraft at all (if you think that’s important), with the one downside being that it seems like some of them may have unreasonable fees.
In the United States, many traditional bank competitors view the unbanked and underbanked segments as unattractive as their costs to serve are high and income generated low relative to more affluent segments.
You are very dishonestly misrepresenting your sources, and privileging your hypothesis. None of your sources actually claim that US bank practices are different. Deloitte does say that regulations (ceteris paribus) increase the cost of serving low-income people, but does not actually demonstrate that such costs are higher than they are in Europe. Furthermore, most of these regulations are designed to make banking more appealing to low-income people, since they decrease fees, and force banks to offer overdraft protection. Yes those costs make banks less likely to advertise to poor people, but also make bank use more attractive for poor people. And none of this demonstrates that bank behavior is different in the US—since European countries probably also have consumer protection laws. Deloitte never claims that US banks are more regulated on balance.
The World Bank source actually argues my point in my earlier response to you: that America’s poor people don’t use banks because 1. they have cashflow problems and 2. They don’t trust banks (i.e. a cultural problem). Both of those are characteristics of US poor people, not of US banks.
The Fed St. Louis report also supports my claim:
Some consumers are unbanked for a variety of reasons. These include: a poor credit history or outstanding issue from a prior banking relationship, a lack of understanding about the U.S. banking system, a negative prior experience with a bank, language barriers for immigrant residents, a lack of appropriate identification needed to open a bank account, or living paycheck to paycheck due to limited and unstable income.
You claim that I privilege my hypothesis, while your own hypotheses as originally stated were: 1) overdraft charges are scaring the poor away, 1a) maybe US poor are more “feckless”, 2) maybe US poor have less cash flow due to welfare being less cash-based, 3) maybe US poor prefer to use cash… and then you claim that Fed St. Louis supports you in that paragraph? Really? It mentions none of those things except insofar as one of the aspects of “negative prior experience” is overdraft charges (and by a very generous reading it could perhaps be argued that the “paycheck to paycheck” bit is somewhat similar to what you said). In fact, I went out of my way to search for “overdraft” specifically, as that was your primary hypothesis, and I found that fears of overdraft protection come up in surveys as minor factors for not having a bank account, and as fairly major factors among those who prefer prepaid cards to debit cards (which I mentioned).
In addition, I would appreciate it if in the future you would not assume that someone is being willfully dishonest unless you are absolutely certain of it. Having reread my previous post and re-skimmed the sources I cite, I do not see where I misrepresented them. Although I obviously did not write everything each of them said (and indeed I also read three or four other things I did not link at all), I believe my post is broadly in alignment with their intent.
Regardless, I find I have no interest in further discussing this topic with you, so this will be my last post.
This doesn’t seem to be true. I’ve confirmed that both the UK and France have overdraft fees. US banks also are required by law to offer overdraft protection (which is opt-in).
Because I’ve been told that the main reason for checks still being in use is the lack of convenient wire transfers, and having to bother with cashing out checks when e.g. getting your salary sounds a lot less convenient than just getting the money directly to your bank account. (Feel free to correct me in case my information’s mistaken.)
Because I’ve been told that the main reason for checks still being in use is the lack of convenient wire transfers
Most employers actually prefer to pay via direct transfer, and obviously the banks offer these services.
Again, it isn’t a case of the service not being offered, it is just that individuals are offered a choice, and some choose differently than you would. Why does that bother you?
It doesn’t; I was under the impression that it was a case of the service not being offered. Some folks from around here that I know have sold their products in webstores owned by American companies, and complained about those companies insisting on payment by check, which are a pain to get processed in our banks. But perhaps this just means that American companies aren’t good with international wire transfers, while being fine with domestic ones?
Cheques aren’t an added convenience to cards, cards and online payment are added conveniences that are slowly superseding cheques. In Britain, cheques are on the way out, although
not quite as fast as was once planned. Most shops no longer accept them.
Unless you’re making the purely semantic point that checks existed first (which is entirely obvious, irrelevant, and did not need to be pointed out), yes they are an added (i.e. additional) convenience offered over firms that do not accept them.
It is surprising that you would think accepting more payment methods is somehow worse than offering fewer.
It is surprising that you would think accepting more payment methods is somehow worse than offering fewer.
Additional security vulnerabilities, additional costs to implement and support possibly blocking new better approaches, additional complexity...
If checks had not yet been invented, and someone came to Europeans saying, ‘I have this new ultra-cool system of payment which involves trivially forged signatures on paper where the bank upon receiving it takes a photograph rather than store it on paper and where fraud may not be detected for days; also, you have to manually keep track of the balance and if you don’t and you write a check that bounces you’ll be fined by the bank and maybe also the person you wrote the check too; and did I mention that the security is so weak that people who want to distribute their checks far & wide like Don Knuth can’t do it because their bank accounts will be raided? Pls pay me $$$ for my kicking invention kthnxbai’, do you think they would greet him with open arms?
Yes checks have downsides, but they have upsides as well, which is why a substantial percentage of people prefer to receive them. You should read about this thing called “Revealed Preference.” For example, more than a fifth of black and Hispanic Americans don’t have checking accounts—usually because of bad experiences involving a overdraft fees. So being able to receive checks is a nice convenience for them.
Also with checks you avoid interchange fees, so there are advantages to merchants as well.
I strongly suspect that in Europe the number of “bankless” households is much smaller. My point, though, is that having check capabilities isn’t worse than not having them—unless you already happen to be living in a place where nobody prefers checks.
Your argument reminds me of this guy I know who always gets really mad that some people buy iPhones instead of Android phones. But… they’re technically inferior! Stop using what I don’t use!
You should read about this thing called “Revealed Preference.”
I take it that it did not occur to you that this was the point of my use of the reversal test on the European absence of checks.
My point, though, is that having check capabilities isn’t worse than not having them—unless you already happen to be living in a place where nobody prefers checks.
I reiterate the point about revealed preferences plus a reiteration of my list of costs to supporting checks.
In that case, you have misunderstood what my discussion with Kaj was about. He felt that the fact that checks were still in wide use in the United States implied that financial services in America lack modern conveniences.
I pointed out that the fact that an older medium is still accepted does not, in fact, imply that wireless transfer and debit card payments are not available. My argument was not that Europeans should adopt checks because they are superior, but that having check capabilities doesn’t actually mean modern conveniences are lacking, as he implied.
I pointed out that the fact that an older medium is still accepted does not, in fact, imply that wireless transfer and debit card payments are not available. My argument was not that Europeans should adopt checks because they are superior, but that having check capabilities doesn’t actually mean modern conveniences are lacking, as he implied.
Revealed preferences as applied here can only give a stalemate: Americans preferring checks and Europeans never using checks doesn’t tell us which is superior. Adding in the reversal test and noting that the European electronic systems came after rather than simultaneously with checks tells us that in a direct head-to-head comparison, checks lost in a large area of the world, and noting that they don’t offer them at all, apparently, tells us that there is a large burden or cost to supporting checks—in direct opposition to your rhetorical invocation of ‘how can additional options be bad?’. With the burden of supporting checks established, the situation now looks like one of path dependence or local optima traps: the Europeans were able to escape to a more efficient secure useful system of e-banking while the Americans continue to be trapped in a local optima because they cannot profitably shift to a e-banking system while also supporting the costs of the existing checking system.
Americans continue to be trapped in a local optima because they cannot profitably shift to a e-banking system while also supporting the costs of the existing checking system
If this claim was right, there would be lots of locations in which card readers are not available, but checks are accepted. In fact, you seem to be totally wrong about this bizarre claim. In reality, debit cards, credit cards, and charge cards are pretty much always available wherever checks are accepted. I’ve never been to a retailer that accepted checks but not cards.
Adding in the reversal test and noting that the European electronic systems came after rather than simultaneously with checks tells us that in a direct head-to-head comparison, checks lost in a large area of the world
The same argument could be used to claim that Los Angeles’ transportation infrastructure is more advanced than San Francisco’s. (LA used to have a light rail system, but later transitioned entirely to cars. SF kept light rail going, in addition to having cars).
If this claim was right, there would be lots of locations in which card readers are not available, but checks are accepted. In fact, you seem to be totally wrong about this bizarre claim.
It’s a good thing I never said that because it is indeed bizarre. Of course individuals may move closer to the better European optima, but the system as a whole remains in the optima. You may be able to use your debit card in plenty of places, but where’s the rest of the European style system? Can you trivially send money from account to account? Receive deposits in minutes or hours rather than multiple days? etc.
The same argument could be used to claim that Los Angeles’ transportation infrastructure is more advanced than San Francisco’s.
Would pass the reversal test. There are plenty of LAers who would welcome a light rail system, and googling I see there are active light rail projects.
Well, at least if you measure “mainstream” by what’s mainstream in the US. ;) It wasn’t just Japan that pulled ahead with mobile communications, for example—back in 2000 the US was lagging badly behind most of Europe when it came to cell phones. And there are areas like banking services where it’s doing even worse—before I visited the US back in 2010, I think I had seen one or two cheques in my whole life, but in the US they were still in active use.
Why do you assume that banking services are worse if people still use checks? That seems like cultural parochialism. It isn’t like credit card and debit card transactions aren’t universally available, but check transactions are as well. It seems to be an added convenience the retail sector provides for those who want it.
Btw, this inspired me to ask someone I know why she still uses checks to pay for groceries. She said that she just likes using the little ledger in the checkbook to keep track of her spending. And (she says) it doesn’t take any longer really. You just sign the check, and most stores have a machine that fills out everything else for you.
(Quote from a later post, because I wanted to respond higher up in the thread...)
One instance I can think of where this is not the case is rent payments, many (most?) of which are still done by check by default.
But in any case, the very fact that many poor Americans are underbanked (which you say leads them to prefer checks) demonstrates that the US banking system is inferior to the European, although this is probably more a result of bad overall regulation and market structure than being “behind” on technology. That said, I don’t think either system is especially innovative, except perhaps in the (sometimes unfortunate) sense of creating new financial products. If we want to find actual consumer banking innovation, it seems to be primarily occurring in the developing world, where we’re seeing things like microlenders, interesting savings products, phone-based money transfer (and the usage of airtime as an alternative currency), and so on.
Bitcoin.
I’m aware it exists, but its penetration is vastly lower than the things I mentioned, and its usefulness more dubious.
To me Kickstarter is just as innovative as Microlending.
Paypal is a recent invention and works much better than phone-based money transger with airtime as alternative currency.
First of all, I think it’s worth pointing out that this conversation is about innovation not whether one retail banking system is better. It is possible for a system to be more innovative while also having worse outcomes. For example, the US healthcare system lags in health outcomes in many ways, but is dominant in medical research publications, medical Nobel prizes (a solid majority of medical Nobel prizes have gone to US researchers in the last 30 years) medical device manufacturing, pharmaceuticals, etc.
You are just assuming that these people are bankless due to some unusual quality of American banks.The main reason I have heard for poor people avoiding banks is overdraft charges—something almost all banks in all countries have. It’s quite possible that America just has a more feckless underclass than most European countries, and they are bad at estimating when they will overdraw. For people like that, using cash would make a lot of sense. Or maybe America’s underclass has more cashflow problems because the US welfare system is oriented more toward in-kind services than cash transfers. Or maybe its just a weird subcultural thing that America’s underclass likes having wads of cash on hand.
I agree with this.
This does not appear to be the case. Here’s a good overview from the Federal Reserve Bank of St. Louis. My personal guess is that the fractured nature of the US banking systems (many small local banks) results in uneven service quality and less caring about reputation from banks, as well as costs being higher per client, making poorer clients less profitable. In addition, Deloitte writes: “In the United States, many traditional bank competitors view the unbanked and underbanked segments as unattractive as their costs to serve are high and income generated low relative to more affluent segments. This is partially a reflection of a high-cost base and expensive and restrictive regulatory actions exacerbated by recent consumer legislation.”
It is not a case of the poor being better off without banking services or anything like that (as mention in the Fed article, and also here’s the World Bank for some international stats), it’s really just a case of poor provision. On the bright side, it seems like the situation is somewhat improving with prepaid cards being offered, which do not require a complicated application process, and which have no overdraft at all (if you think that’s important), with the one downside being that it seems like some of them may have unreasonable fees.
Well, that went off-topic.
You are very dishonestly misrepresenting your sources, and privileging your hypothesis. None of your sources actually claim that US bank practices are different. Deloitte does say that regulations (ceteris paribus) increase the cost of serving low-income people, but does not actually demonstrate that such costs are higher than they are in Europe. Furthermore, most of these regulations are designed to make banking more appealing to low-income people, since they decrease fees, and force banks to offer overdraft protection. Yes those costs make banks less likely to advertise to poor people, but also make bank use more attractive for poor people. And none of this demonstrates that bank behavior is different in the US—since European countries probably also have consumer protection laws. Deloitte never claims that US banks are more regulated on balance.
The World Bank source actually argues my point in my earlier response to you: that America’s poor people don’t use banks because 1. they have cashflow problems and 2. They don’t trust banks (i.e. a cultural problem). Both of those are characteristics of US poor people, not of US banks.
The Fed St. Louis report also supports my claim:
You claim that I privilege my hypothesis, while your own hypotheses as originally stated were: 1) overdraft charges are scaring the poor away, 1a) maybe US poor are more “feckless”, 2) maybe US poor have less cash flow due to welfare being less cash-based, 3) maybe US poor prefer to use cash… and then you claim that Fed St. Louis supports you in that paragraph? Really? It mentions none of those things except insofar as one of the aspects of “negative prior experience” is overdraft charges (and by a very generous reading it could perhaps be argued that the “paycheck to paycheck” bit is somewhat similar to what you said). In fact, I went out of my way to search for “overdraft” specifically, as that was your primary hypothesis, and I found that fears of overdraft protection come up in surveys as minor factors for not having a bank account, and as fairly major factors among those who prefer prepaid cards to debit cards (which I mentioned).
In addition, I would appreciate it if in the future you would not assume that someone is being willfully dishonest unless you are absolutely certain of it. Having reread my previous post and re-skimmed the sources I cite, I do not see where I misrepresented them. Although I obviously did not write everything each of them said (and indeed I also read three or four other things I did not link at all), I believe my post is broadly in alignment with their intent.
Regardless, I find I have no interest in further discussing this topic with you, so this will be my last post.
I have never had any interest in discussing this with you. I did so merely as a courtesy for someone who seemed to have an interest.
Customer protection laws in Europe don’t allow banks to operate the same way with overdraft charge as banks can operate in the US.
This doesn’t seem to be true. I’ve confirmed that both the UK and France have overdraft fees. US banks also are required by law to offer overdraft protection (which is opt-in).
Because I’ve been told that the main reason for checks still being in use is the lack of convenient wire transfers, and having to bother with cashing out checks when e.g. getting your salary sounds a lot less convenient than just getting the money directly to your bank account. (Feel free to correct me in case my information’s mistaken.)
Most employers actually prefer to pay via direct transfer, and obviously the banks offer these services.
Again, it isn’t a case of the service not being offered, it is just that individuals are offered a choice, and some choose differently than you would. Why does that bother you?
It doesn’t; I was under the impression that it was a case of the service not being offered. Some folks from around here that I know have sold their products in webstores owned by American companies, and complained about those companies insisting on payment by check, which are a pain to get processed in our banks. But perhaps this just means that American companies aren’t good with international wire transfers, while being fine with domestic ones?
Cheques aren’t an added convenience to cards, cards and online payment are added conveniences that are slowly superseding cheques. In Britain, cheques are on the way out, although not quite as fast as was once planned. Most shops no longer accept them.
I’m sure the US will catch up.
Unless you’re making the purely semantic point that checks existed first (which is entirely obvious, irrelevant, and did not need to be pointed out), yes they are an added (i.e. additional) convenience offered over firms that do not accept them.
It is surprising that you would think accepting more payment methods is somehow worse than offering fewer.
Additional security vulnerabilities, additional costs to implement and support possibly blocking new better approaches, additional complexity...
If checks had not yet been invented, and someone came to Europeans saying, ‘I have this new ultra-cool system of payment which involves trivially forged signatures on paper where the bank upon receiving it takes a photograph rather than store it on paper and where fraud may not be detected for days; also, you have to manually keep track of the balance and if you don’t and you write a check that bounces you’ll be fined by the bank and maybe also the person you wrote the check too; and did I mention that the security is so weak that people who want to distribute their checks far & wide like Don Knuth can’t do it because their bank accounts will be raided? Pls pay me $$$ for my kicking invention kthnxbai’, do you think they would greet him with open arms?
Yes checks have downsides, but they have upsides as well, which is why a substantial percentage of people prefer to receive them. You should read about this thing called “Revealed Preference.” For example, more than a fifth of black and Hispanic Americans don’t have checking accounts—usually because of bad experiences involving a overdraft fees. So being able to receive checks is a nice convenience for them.
Also with checks you avoid interchange fees, so there are advantages to merchants as well.
I strongly suspect that in Europe the number of “bankless” households is much smaller. My point, though, is that having check capabilities isn’t worse than not having them—unless you already happen to be living in a place where nobody prefers checks.
Your argument reminds me of this guy I know who always gets really mad that some people buy iPhones instead of Android phones. But… they’re technically inferior! Stop using what I don’t use!
I take it that it did not occur to you that this was the point of my use of the reversal test on the European absence of checks.
I reiterate the point about revealed preferences plus a reiteration of my list of costs to supporting checks.
In that case, you have misunderstood what my discussion with Kaj was about. He felt that the fact that checks were still in wide use in the United States implied that financial services in America lack modern conveniences.
I pointed out that the fact that an older medium is still accepted does not, in fact, imply that wireless transfer and debit card payments are not available. My argument was not that Europeans should adopt checks because they are superior, but that having check capabilities doesn’t actually mean modern conveniences are lacking, as he implied.
Revealed preferences as applied here can only give a stalemate: Americans preferring checks and Europeans never using checks doesn’t tell us which is superior. Adding in the reversal test and noting that the European electronic systems came after rather than simultaneously with checks tells us that in a direct head-to-head comparison, checks lost in a large area of the world, and noting that they don’t offer them at all, apparently, tells us that there is a large burden or cost to supporting checks—in direct opposition to your rhetorical invocation of ‘how can additional options be bad?’. With the burden of supporting checks established, the situation now looks like one of path dependence or local optima traps: the Europeans were able to escape to a more efficient secure useful system of e-banking while the Americans continue to be trapped in a local optima because they cannot profitably shift to a e-banking system while also supporting the costs of the existing checking system.
If this claim was right, there would be lots of locations in which card readers are not available, but checks are accepted. In fact, you seem to be totally wrong about this bizarre claim. In reality, debit cards, credit cards, and charge cards are pretty much always available wherever checks are accepted. I’ve never been to a retailer that accepted checks but not cards.
The same argument could be used to claim that Los Angeles’ transportation infrastructure is more advanced than San Francisco’s. (LA used to have a light rail system, but later transitioned entirely to cars. SF kept light rail going, in addition to having cars).
It’s a good thing I never said that because it is indeed bizarre. Of course individuals may move closer to the better European optima, but the system as a whole remains in the optima. You may be able to use your debit card in plenty of places, but where’s the rest of the European style system? Can you trivially send money from account to account? Receive deposits in minutes or hours rather than multiple days? etc.
Would pass the reversal test. There are plenty of LAers who would welcome a light rail system, and googling I see there are active light rail projects.
The downside is, cards aren’t as useful for doing this.