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Comment by ceejayoz | Hacker News Reader

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ceejayoz

> I don't understand why that person wouldn't have just a bank account with a debit card?

http://www.newyorker.com/business/currency/the-high-cost-for...

Basically, the poor can't absorb the fees, float, and inconvenience of a regular bank.

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> Only thirty-nine per cent of non-interest-bearing checking accounts were free in 2011,

Thanks. So 39% of the types of checking accounts investigated were actually free.

If there is no bank that offers a $0/year account with a $0/year debit mastercard attached to it, then something is seriously wrong with the competition in the US consumer banking market.

The article goes on a lot about payday loans, check cashing and so on, and mentions "fees" but doesn't really specify what those fees are, but checks and the fees and problems with them seem to be at the root of the problem.

Couldn't Joe from the Bronx who works at McDonalds just get his $15/h straight to his no-fee account every month? Then buy his gas and toilet paper with his $0/year mastercard? This is how I (and likely much the rest of the world) has done it for many years now.

The bank is not a public good. Think about how they keep the lights on: they reinvest the capital of their clients. If their clients are bringing them hundreds of thousands of dollars each the economics can work; less so for the client with hundreds of dollars. The bank doesn't really want these clients, they can't make money off their capital, so they hit them with fees whenever they can. All "no fee" accounts that I know of have requirements that must be met -- usually a minimum balance, plus (or alternatively) some various combination of others specific to the account.

In my experience, the most reasonable of these accounts require you to have at least $100 in your account for the entire monthly period -- if you dip below at any time, you get charged $12 for the month. And then to boot, if you didn't have $12, they might also hit you with a $34 overdraft fee.

To much of "the rest" of the world, this is unacceptable.

The cost of just creating and maintaining an empty an account (a record in a database) is about zero, and the debit card company (MasterCard) doesn't really have any costs associated with a card until it's used, at which point there is a transaction fee anyway!

It still seems to me that banks should be really eager to just soak up these "unbanked" customers, even if just a small fraction of them ever turn out to generate income in the future. (Say 1/100 inherits some money and starts saving, and 1/100 buy a house with a mortgage. That should easily pay for the 98 people with perpetually empty accounts).

Maybe there are some regulations that create per-customer overhead costs in the US? For example, if it's required that banks send out annual statements on paper to their customers, that would be a per-customer cost.

An account isn't at all just a record in a database. There are tons of marginal costs involved.

It seems to me like you should start a banking startup for these customers and get a lesson in how the real world works. Your math alone is laughable.

Well, where I live (also in the real world) there are many banks that are happy to provide no-fee accounts without any strings attached such as minimum balance).

So the math can't be that laughable. Can you give me an example of the marginal costs of a customer opening an account?

The only way we can have so many banks offering these services for free must be that they have very small marginal costs and/or the average expected future profit from these customers is higher than the marginal costs.

Conversely, the only reason this isn't the situation in the U.S. must be higher marginal costs and/or lower expected future profits.

So, if that reasoning is sound, my question is: what drives the marginal cost up in the US (regulation? low demand for online-only banking e.g due to check use?), or, if that is the case, what drives the expected profit down? Low social mobility? (I.e too low percentage of customers expected to have large savings or mortgages within N years in the same bank)

No, the math is still pretty bad. Are there laws in your particular backwater that require banks to offer these no-strings-attached accounts? Why should banks otherwise forsake the profits from their mortgage on 98 leeches?

Every single customer that comes in requires services from a human that must be paid a salary, a share of a branch that has to pay rent and utilities, the cost of auditing, insurance, and paper trails for everything they do, and that's without even getting started. What platonic realm do you inhabit where these things aren't required? Do you also exist on a diet of pure light?

There are no laws requiring this, since if there was, all banks would provide it, but not all do. Those who do are few of the big traditional banks, but mostly newer disruptive banks, such as those started by retail chains.

"every single customer that comes in requires services from a human..."

That's only if there are physical branches! I'm almost starting to think you think I'm making stuff up. So let me explain (this is Sweden by the way):

Many banks here don't have physical offices at all, or just provide banking services through existing infrastructure (some large retail chains, for example IKEA and our largest grocery chain). All banks, but especially the large commercial banks with physical branches charge huge fees for the manual transactions (paying a bill in a physical branch can be $5-$15), as to discourage manual service. Only elderly people use manual bank services these days and physical branches closed in large numbers starting 15 years ago, since most banking moved to the Internet. I haven't used a manual banking service (paid a bill, cashed a check, deposited cash...) in ten years.

I'm not sure what the marginal costs of audits, insurances and so on are for our banks, but apparently lower than the expected income from a customer. You know how McDonalds sell you a $1 item at a loss just to get you in the door (a "loss leader")? - this could well be a case of that, and that would make a lot of sense. As everyone is always paid salary to a bank account here, I imagine the average customer can be pretty attractive; Everyone with a legal employment of any kind will have money in their accounts. The bank just needs to believe that the expected income of a new customer is greater than the marginal costs. I do believe banks here have very nearly zero marginal cost for a customer that opens an account themselves using electronic ID, and never uses a physical branch. I also think the expected future profit from a customer can be pretty big because of how the economy works with high employment and all salaries paid to bank accounts.

So, almost entirely different from the Bronx. "Joe from the Bronx" would never trust a bank that made him do everything online, and to be honest, neither would I. He gets most of his income in cash under the table so what does he care about automatic direct deposit?

I get it, you live in Sweden, you don't have an underclass, you're completely digital, but you're out of touch with what reality is for most people.

There is plenty of competition on that side. The bigger problems are that these people are uneducated and don't trust banks. They also frequently get part or all of their income in ways that dissuade from from putting it in banks because they do not want to pay taxes on it or have to explain what illegal things they did to earn it.

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