Earlier today I gave our dear American banks a kick in the derriere over their old-fashioned ways. Their lack of progress should be of concern.
Another indicator that banks are behind the times comes when you travel overseas – oy vey! Even using credit cards is problematic. For example, AmEx is much harder to find a use for overseas – in Europe as well as in Asia and Africa. Even if you carry a VISA card in Europe, that doesn’t always work either because it isn’t a European VISA. And a US-issued VISA card can be a no-go. Your overseas travel enjoyment could be further reduced if more countries follow the lead of Sweden, where there are no ticket booths for public transit. The fact that everything is electronic is fine and well assuming you have the “right” VISA card, an Internet connection (here your US carrier smartphone might be a little stupid all of a sudden), and the ability to transact in the local language… The combination stumped even me. Well, it gave the local cab companies business.
On my travels to Italy this summer I thought I had the problem licked. I had found a US-issued VISA card that came with guaranteed compatibility with Italy – and no foreign transaction fees! To be on the safe side I still brought cash to Italy, which turned out to be a good thing. Many Italian places didn’t accept any credit card. So I was off to the bank to exchange money, and there we ran into a daily $500 exchange limit! Yes, each Italian bank only allows you to exchange $500 per day. On the bright side, I have now found a country with an even more bureaucratic banking system than the US.
Closer to home, we have the many small businesses that trade with other small businesses overseas. With a diminishing US manufacturing base, this is a fact of life. The infrastructure supporting this part of the economy is less favorable, however. The USPS has done away with surface freight, for one thing, which is another nail in their coffin. Foreign firms can ship using inexpensive surface into the US, but US firms no longer have this option when exporting. Not helpful to the economy.
Regarding payments, it is quite awkward to pay overseas firms (unless you’re using basic credit cards). Online banking doesn’t support foreign transfers, so you have to visit a bank. The bank in its turn works off paper – the proverbial triplicate approach – and even if you send funds to the same recipient on a regular basis, the documents have to be filled out in full each time. Yes, there is no usable record of the last transfer where you can copy-paste and just change details to complete the current transfer. You start from the beginning each time.
Once the paperwork is completed, it takes a good deal of time to complete, with rekeying along the way. Ironically, despite filling out all the lines of information, nothing is used to validate the actual transfer. Only the three basic pieces like the routing number, the account number, and the amount are of practical impact. A minor juxtaposition of two digits, and the process breaks down, which means you have to start from scratch.
On top of this lies an immovable $10,000 transfer cap (created in 1970) before reports to the Feds are required. Banks are obviously playing it safe and have typically implemented a $5,000 cutoff before additional scrutiny kicks in – and additionally, according to the Feds, you can get in trouble from “patterns” such as transferring multiple $4,900 amounts. It is absurd. For those too young to remember inflation, let me point out that $10,000 in 1973 would be $54,000 in 2013, or $1,900 in 1973 would be $10,000 in 2013. In other words, the reporting cutoff naturally gradually becomes lower and lower, until essentially any transfer will trigger federal reporting requirements.
As in the previous article, the impact on the overall marketplace from these transactional impediments is significant and will reduce economic activity. This is an area that we rarely, if ever, hear about from our politicians.
If Bitcoins won’t work – and Krugerrands are too old-fashioned – what modern payment process will do away with the political burdens of the current system?