Don't know if you'll be checking this after probably being downvoted out of existence but:
Would you have something apart from 'personal experience' to back your claims? It's an interesting issue: a cultural mistrust of financial institutions to take care of money, and is bound to have generated much research if there is any truth to it. If this is the case (as it may well be, I don't understand the downvotes, perhaps your generalization of 'black people'/'white people' instead of pointing out cultural issues at play?), social (non-economic) solutions are likely to be more effective than strictly financial/technological ones. As in, how east Africa has gotten people to put complete faith in mobile banking, but South Asia has failed completely. Perhaps lessons from here could be useful for South Asia?
"Basic bank accounts" were a game changer. They're what the US calls "checking accounts" (minus the checks) with them you get a debit card, the ability to pay in, take out, and transfer money; however absolutely zero ability to go overdrawn (no loan, no line of credit, etc).
But everyone could get one, even those who declared bankruptcy, since it was decided that it was not-viable in the 2000s for someone, anyone, to not own or have the ability to own a bank account. Which is right.
Banks make money via the spread between the general interest rate and the lower interest rate offered by the account, in addition to sales opportunities (e.g. offering to upgrade to a full account, savings accounts, small loans, etc).
However in general in the US banks are under-regulated and antiquated. Banking in the US Vs. UK feels like going back in time twenty years, everything is slow, complex, expensive, they charge for a basic checking/current account(!), you still have to physically go to a branch [ever!], transferring money between two banks is annoying, checks still exist, their anti-fraud is pathetic, and they're only getting C&P right now.
PS - Although I am at Wells Fargo so maybe my opinion about US banks is really more Wells Fargo biased than general banking. Maybe there are better US banks, but I don't know who they are.
The problem is that in the US you get trapped in fees if you live paycheck-to-paycheck. It's damn hard to avoid them in some cases. I think Wells Fargo is probably the easiest bank in terms of avoiding fees. But others that were in my area weren't so friendly to poor people in that regard.
The problem is that in the US you get trapped in fees
One solution to this problem would be a legal requirement to have cost-free basic bank accounts. This could be a necessary requirement to getting a banking license.
Requiring things of corporations in exchange for the many protections and the enormous power we grant them is considered by many in the US to be socialism, and therefore immoral and unacceptable.
I laughed out loud when I read your comment, it's so true. Why in hell would we ever expect corporations to give up _anything_ in exchange for their benefits from the system?
It's funny, the left treats wealth like a fact of nature (the only problem is how to distribute it!) and the right treats protection like a fact of nature (I ain't givin up nothin in exchange for protection of my assets!)
It's sorta hard because I think the regulations on commercial banks is oddly split between the federal and state govts. I know some deregulation has occurred at the federal level, but I'm not sure it included asserting federal dominance on commercial banking as a whole.
I did not know about the basic bank account in the UK. What do you need to apply for a bank account? Do you need to provide some form of govt. ID to get it or can you get it any piece of item in a retail store?
In the US a good portion of the unbanked also happens to be undocumented immigrants. There is also the problem of AML/KYC process in the US which has been stricter in the US than in the UK (as you could tell from the UK headquartered banks getting fined by US Regulators -- not saying it is better though) and as a consequence the cost of compliance goes up for the bank. They pass on these costs to the consumer but with an upsell mentality that you had mentioned (increased min balance requirement removes fees, for e.g.) -- this leads to the upper middle class paying nothing and the poor and middle class paying bulk of the fees.
The economist had a very nice article about the cost of being poor: http://www.economist.com/news/united-states/21663262-why-low.... This is a very difficult problem and will be hard to address properly without adequate support from the govt. For example, the govt. could provide easier access to banking license for those who want to serve low-income customers and allow for innovative solutions in this space.
> What do you need to apply for a bank account? Do you need to provide some form of govt. ID to get it or can you get it any piece of item in a retail store?
In order to stop money laundering and fraud they do require some things:
- Proof of address (2x of the following): Bills (e.g. utilities), council tax bill, benefits agencies, a UK driving license, tenancy agreement, or a letter from your employer.
- Proof of identification (1x of the following): Passport, driving license (even foreign), national identity card, letter from benefits agency or local authority, or a verification letter from an individual in an trusted position (these are verified, and only individuals in certain notable roles are trusted, like commanding officers in the military, parole officers, and your priest, etc).
Interesting. If they accept foreign passports, it will be amazing if we can relax the regulation in the US along the same lines with a specific carve out that information cannot be used to enforce immigration policy violations. Then most undocumented works can probably get a bank account without a SSN and not worry they will get deported -- convincing undocumented immigrants that this is safe is going to a tough battle though.
It's actually much easier for foreigners to open a bank account in the U.S. than it is in the UK, since the UK banks have this silly list of documents which no-one who's just moved to the country will be able to provide. I had no problem opening a bank account as a British person in the U.S., but every American I know in the UK found that it took around a month to get one.
Not just UK but even eastern europe. I find concept of "overdraft" rediculous, if there are no money on account, just deny transaction. My bank offers account in multiple curencies, option to aprove each card transaction over phone, card white list, black list... All for free.
First time I got a debit card they tried to sale overdraft 'protection' to me. They explained how, if I wanted to buy a sandwich and didn't have the money, it would allow me to buy the sandwich anyways. $30 extra charge just for a sandwich? They could've at least used something that was more like an emergency such as needing gas and being out of money.
I had the same experience moving from NZ to Canada in 2010. I could not believe how terrible the banking experience was. Everything was so slow. Opening an account, depositing or transferring money. People still writing cheques for everything. Before Canada I'd never had a cheque book and could count on one hand the amount of cheques I had dealt with in my life.
You might want to look into credit unions around your area. Capital One acquired and ruined the small bank that I had been using for over a decade and I decided I was never going to let that happen again.
I have some experience in this area. From what I've seen any company involved with lending to the underbanked is going to operate pretty similarly to a payday loan company... A lot of these new companies want to appear different and go out of their way to never mention payday lending. But the terms are pretty similar at the end of the day.
Lending to this segment of the population is fraught with write-offs, its just not possible to give a great deal on loans with that kind of risk unless you are a non-profit. If it were possible, one of the payday lenders would do it and corner the market.
For many unbanked, getting loans might not always be the highest priority. Just a safe place to park one's money is valuable. Imagine you are sleeping rough on the streets, where do you store your few monetary possessions? If you keep them on your body, they are likely to get stolen. A basic bank account as
Someone1234 describes it, would help.
Totally, I agree, I think someone1234 is describing a UK law that provides these basic bank accounts to everyone. I think the underbanked will be helped more through laws and regulations like that than by a new company or something.
Compte-Nickel, a French operation, has a basic package available that includes a debit card, IBAN number (to receive or wire funds) for 20 euros/year. No other fees since there is no possibility of being overdraft. Payments are free, although ATM withdrawals are paid (something like 2 euros/withdrawal). It can be bought from tobacconist's stores and refilled there. An ID is required but nothing else (so it is available to homeless people). Overall seems like an interesting, non-preying offer.
22 comments
[ 2.9 ms ] story [ 64.4 ms ] threadWould you have something apart from 'personal experience' to back your claims? It's an interesting issue: a cultural mistrust of financial institutions to take care of money, and is bound to have generated much research if there is any truth to it. If this is the case (as it may well be, I don't understand the downvotes, perhaps your generalization of 'black people'/'white people' instead of pointing out cultural issues at play?), social (non-economic) solutions are likely to be more effective than strictly financial/technological ones. As in, how east Africa has gotten people to put complete faith in mobile banking, but South Asia has failed completely. Perhaps lessons from here could be useful for South Asia?
"Basic bank accounts" were a game changer. They're what the US calls "checking accounts" (minus the checks) with them you get a debit card, the ability to pay in, take out, and transfer money; however absolutely zero ability to go overdrawn (no loan, no line of credit, etc).
But everyone could get one, even those who declared bankruptcy, since it was decided that it was not-viable in the 2000s for someone, anyone, to not own or have the ability to own a bank account. Which is right.
Banks make money via the spread between the general interest rate and the lower interest rate offered by the account, in addition to sales opportunities (e.g. offering to upgrade to a full account, savings accounts, small loans, etc).
However in general in the US banks are under-regulated and antiquated. Banking in the US Vs. UK feels like going back in time twenty years, everything is slow, complex, expensive, they charge for a basic checking/current account(!), you still have to physically go to a branch [ever!], transferring money between two banks is annoying, checks still exist, their anti-fraud is pathetic, and they're only getting C&P right now.
PS - Although I am at Wells Fargo so maybe my opinion about US banks is really more Wells Fargo biased than general banking. Maybe there are better US banks, but I don't know who they are.
It's funny, the left treats wealth like a fact of nature (the only problem is how to distribute it!) and the right treats protection like a fact of nature (I ain't givin up nothin in exchange for protection of my assets!)
In the US a good portion of the unbanked also happens to be undocumented immigrants. There is also the problem of AML/KYC process in the US which has been stricter in the US than in the UK (as you could tell from the UK headquartered banks getting fined by US Regulators -- not saying it is better though) and as a consequence the cost of compliance goes up for the bank. They pass on these costs to the consumer but with an upsell mentality that you had mentioned (increased min balance requirement removes fees, for e.g.) -- this leads to the upper middle class paying nothing and the poor and middle class paying bulk of the fees.
The economist had a very nice article about the cost of being poor: http://www.economist.com/news/united-states/21663262-why-low.... This is a very difficult problem and will be hard to address properly without adequate support from the govt. For example, the govt. could provide easier access to banking license for those who want to serve low-income customers and allow for innovative solutions in this space.
In order to stop money laundering and fraud they do require some things:
- Proof of address (2x of the following): Bills (e.g. utilities), council tax bill, benefits agencies, a UK driving license, tenancy agreement, or a letter from your employer.
- Proof of identification (1x of the following): Passport, driving license (even foreign), national identity card, letter from benefits agency or local authority, or a verification letter from an individual in an trusted position (these are verified, and only individuals in certain notable roles are trusted, like commanding officers in the military, parole officers, and your priest, etc).
We had mobile banking in 1999 via SIM toolkit...
Lending to this segment of the population is fraught with write-offs, its just not possible to give a great deal on loans with that kind of risk unless you are a non-profit. If it were possible, one of the payday lenders would do it and corner the market.
The market is efficient; therefore the market is efficient.