I've always wondered why big banks don't implement a lot more technologies, and I guess this gets to some of it. But it does seem like banks would have the incentives to kill services like Venmo and Stripe overnight. Like why are there not clear and straightforward banking APIs that let me create virtual cards and why doesn't my app let me just transfer money directly to my friend's bank account (I get global being a bit more difficult, but country wide is similar regulations, right?). I feel like there's just so much that I don't know that I don't even have the ability to reasonably answer these questions and I'm pretty sure there's reasons the above companies exist and it isn't simply static friction of big banks.
Brazil does have a system similar to what you mentioned. It's called PIX (https://www.bcb.gov.br/en/financialstability/pix_en) and it's basically an API that banks and payments systems implements and we use to make instant transfer from/to any bank account in the country. Can also be used to pay for things, most of the card machines that we have in the country today support paying with Pix instead of a Credit/Debit card as well, you read a QR code with your bank app and pay for whetever you're buying (from a big grocery store to a street vendor selling popcorn).
Brazil has a lot of negatives, but I always find amusing that we managed to have a bank system that is light years ahead of the US.
I worked for a couple of banks. The older the bank is, the difficult it is to 'implement a lot more technologies'. They have the old COBOL codebase running on mainframes from 70's, then a lot of Java, COBRA interfaces that deal with this ancient, but reliable COBOL in the backend. Who is going to implement these technologies 'without being responsible for failures'? Modern management is all about taking credit for success, but not being responsible for failures. This sets up very bad incentives for any paradigmatic changes underneath.
That's why newer banks without legacy cruft, without a large customer base, can implement better stuff: for instance, Capital One entered retail banking in 2005, so they are better at some stuff.
Relatedly part of why it is interesting watching Goldman Sachs' even more recent entering into retail banking (Apple banking and Marcus), including their interesting partnership with Apple as something of their "technical R&D department".
Which is ironic because they are now taking large steps to wind down at least part of their Marcus business. Just today I think it was announced that they sold off $1B of loans on the Marcus books, and they are also looking to sell of Green Sky which was bought for their retail banking division just a few years ago.
Some additional layers to the irony, from my understanding, is that much of Marcus' debt came not-so-intentionally bundled from Marcus' purchase of some of (also aforementioned) Capital One's credit card business lines in an attempt to bootstrap more Marcus customers.
There's a few big problems, at least on the "friend-to-friend" transfer.
1) You kinda need everybody on board. The biggest banks in the US have something like 5% market share, so it's not just 3 companies you need to get on the same page. This probably means it needs to be mandated from above. Any 1 bank could probably throw together an easy account-to-account transfer for other customers at the same bank without too much trouble, but inter-bank? Yikes.
2) 90% of the institutions are slow and conservative. Even if they agree this is a good idea, it's a couple years of meetings and gathering requirements, then a couple more to implement.
3) You can either have instant transfers or you can have reversibility, you can't really have both. People want the first...until they (desperately) want the second. This becomes a support nightmare for banks. Now, you limit this if you have really good security (password requirements, 2FA, transaction limits, recipient verification, risk analysis)...but all that needs to be in place first, so we're back at point 2.
The big US banks have implemented a friend to friend transfer system. It started between BoA/Chase/Wells Fargo as ClearXChange in 2011, now known as Zelle, and has covered more and more banks ever year since. At this point, the banks of 80% of US population are participants.
Correct me if this is wrong, but I've read somewhere that Zelle gives you no recourse in the event of fraudulent transfers. This makes me extremely reticent to use it, or even use a bank that provides access to it without a signup process.
Prey tell, if you use cash, what recourse do you have in the event of fraudulent transfers?
Does that also mean you refuse to use banks that provide cash ?
Yes, it is literally the case that you will be fully reimbursed (after a $50 maximum) in the event of cash fraud, and that is one of the things that makes banking in America so powerful and safe. See for example, consumerfinance.gov:
> Let’s say you lost your debit card or PIN or either was stolen. If you notify your bank or credit union within two business days of discovering the loss or theft of the card, the bank or credit union can’t hold you responsible for more than the amount of any unauthorized transactions or $50, whichever is less.
> If an unauthorized transaction appears on your statement, but you did not lose your card, security code, or PIN or had any of them stolen, you should still notify your bank or credit union right away. At the latest, you must notify your bank within 60 days after your bank or credit union sends your statement showing the unauthorized transaction. If you wait longer, you could have to pay the full amount of any transactions that occurred after the 60-day period and before you notify your bank. In order to hold you responsible for those transactions, your bank would have to show that if you notified them before the end of the 60-day period, the transactions would not have occurred.
Roughly speaking, you can only be held accountable for withdrawals, transactions, and transfers from your account that you actually authorized. Any other cash transaction is fraud, and will result in you getting your money back. This is why banks are careful not to allow transactions that they suspect to be fraudulent.
:) . it’s quite a jump you took from cash to debit card .
You give me $50 in cold card cash . I run away . And you are telling me your bank is on the hook for that $50?
Both of those suck hugely vs Asian bank apps. You can just quickly and instantly send money by entering somebodies phone number. And it’s built into all the banking apps.
Could you elaborate? I've used Zelle in the exact way you've mentioned previously (entered a phone number and an amount to send straight from my bank app) with no issues.
Zelle was a consortium of the biggest US banks. It works fine if you have a deposit account at one of those institutions, or if you have created a Zelle account that lets them get you funds through a shim if your bank isn't a member participant of Zelle. If you're at a brokerage that doesn't support it, a credit union, or a community bank, your experience is meh or non existent.
FedNow is native real time messaging plumbing, so all deposit accounts can support it once you plug into FedNow (which is run at cost by the Fed). We should theoretically arrive at an experience similar to UPI, PIX, and other instant payment systems where you can use phone numbers, email, or QR codes to facilitate payments over the next 1-3 years.
Plenty of credit unions like BECU and First Tech fully support Zelle for sending and receiving payments, some credit unions even have higher daily and weekly Zelle limits than the traditional banks.
In the US I just iMessage money to people. Doesn’t work for Android, sure, but I know very few people still using Android and for them we just use Venmo.
So how do I text someone money bank-to-bank? How do I give someone money who doesn't have a bank account? I do this today with iMessage. And it's not a 3rd party app.
A lot of it is because they suck at technology, software, and marketing. You may recall that when Apple first announced Apple Pay, a bunch of banks were worried this would lock them out of the loop, and they announced, to no fanfare whatsoever, a competitor called Isis (lol, oops), quickly renamed to CurrentC. It went nowhere and was killed with nobody noticing a few years later.
In the banks' defense, they have to work with absolutely archaic infrastructure like ACH, so maybe once the considerably-improved FedNow takes over they'll have a better shot at building something people actually want.
For some history, the biggest US banks built Zelle as a consortium because the Fed didn’t, and the Fed built FedNow because Congress didn’t want community banks beholden to the big banks for access to this capability.
India has done this for more than a decade at this point with IMPS and NEFT, and recently UPI. And I'm sure several other countries have them too, but for some reason the US chooses to remain backwards in this case.
It's funny how so many non-Americans call our payments system "backwards", but I generally prefer it to bank-transfer-based payments:
1. When I pay with a credit card, I haven't actually spent any money. That money is still in my bank account, and I have the chance to dispute the transaction if it's fraudulent, without putting my own money on the line first. I've heard a few horror stories where a merchant/service has mis-charged a debit card or ACH transfer, and the time it took to get the money back caused stress around things like making rent payments. It frankly doesn't matter to me how common or uncommon such a thing is; it's literally impossible when paying for a credit card. (Yes, I do have to trust that the credit card issuer themselves won't make an error when debiting my bank account when the bill is due, but I prefer only having to trust one party not to make mistakes, than some larger number.)
2. While everyone is of course paying for this through higher prices in stores, I'm reasonably savvy about using credit cards that give me cash back or rewards points or something, and tailoring what card I use to benefit a particular transaction (for example, one card might give 3% back on grocery purchases, while another might give me 3x points on travel expenses). Ultimately I end up paying a bit less for everything than if I were to use cash or a debit card (or a bank transfer). Certainly some merchants have credit card surcharges, or discounts for paying cash/debit, but I find that those are a tiny percentage of my transactions, and I can always use cash or debit in those instances. It's hard to say how much (if at all) prices would actually be lower if credit cards (and their associated fees) didn't exist; handling cash isn't free either for businesses (counting/reconciliation, storage areas, security for transport to a bank, etc.).
The main issue with our useless bank-transfer payments system is person-to-person payments. But these days, with Venmo, Cash App, and Zelle, that issue rarely comes up (and all of these are free for the sender if you use bank debit rather than a credit card). I can't remember the last time I had to give money to a friend that involved using cash. The big downside of all of these (similar to cash, I guess) is that there's very little fraud protection. If you send someone money, and they screw you over, you might not have much recourse.
I very much consider our banking system backwards in many ways, but I find our payments system to be just fine, and, in some ways, quite good. And our banking system is backwards in part due to lack of demand.
I guess you assumed I'm from India, so I have no idea about US but, I'm living in the US for the past 2 years.
And having lived in both places US payment systems are really backward.
Zelle is trying to solve it, but not widely accepted and is not even at scale what India has done with UPI.
Direct Bank transfers take seconds not days.
Also we get OTP verification for every transaction, it's mandatory. People can't just randomly charge someone just because they know their A/C and routing.
We do have credit cards too, but for it, one needs a good standing too, it's a privilege not a feature.
And Debt is bad for many people, who can't manage it.
And finally we don't have to depend on some 3rd party company(I've read enough PayPal, cash app horror stories). We have a default system between banks that just works, to make transactions instantly,secured and authorized.
I feel similarly. In these threads there are plenty of people to tell me how the US system sucks but then their examples are of things I’m glad we don’t do here.
I’ve no problem moving money wherever I want, quickly, whether to a business or another person.
Good for you, but it's like saying, I rather travel by steam engine/someone else's car, while other countries are able to provide bullet trains.
That how different payment methods in US vs few countries( I've only lived in the US and India, so I gave India as an example).
Assuming you are using Zelle or Cash app or PayPal
Those are run by 3rd party companies, that can absolutely keep/loose your money, and are a privacy liability, why I used some one else's car analogy.
Or if you are using direct bank transfers, I've never once had a transaction that went thru from chase to any other in seconds, it literally took atleast 3 days.(steam engine analogy)
Also if I input the data into any service, there is no authorization forever. Just my A/C number which could be leaked, and routing number which is easily obtainable info are enough, which is security liability.
Fun part is even direct bank transfers take mere seconds to complete and are also authenticated and authorized via OTP.
And UPI is not some random company, it's a common public interface between banks built by the govt.
Every bank integrates into the system. Its well documented, and any app or infact anyone implement clients for it. It's authenticated for every transaction.
And they do, we have 10s if not 100s of apps. And everything is real time(bullet train analogy)
UPI has become so common in India that even in villages, shops, tuks tuks (autos as we call em), even beggars accept it.
But in NYC, I barely could use Zelle. PayPal is never even accepted at an most shops. Cash app has better adoption as Zelle but then again not preferred form of payment, UPI is default form of transfer that is an actual cash replacement.
If you ever use UPI, your opinion will definitely change, the scale of payment transactions UPI handles in a day, and how much penetration it has. And how easy it is to setup or use.
Like I mentioned in another comment, I am from India but have been living in US for last 2 years, so my comments are not from ignorance of US payment methods.
