Thread by @patio11

Digital wallets might be worse-is-better bank accounts.

Maybe that needs some unpacking.

Digital wallets are a class of applications which give you a place to store money and some mechanism for paying it out and transferring it, generally to merchants / people who intentionally support the same wallet.

Paypal was an early example, and was (and is) a great business.

But in the last ~2 years some newer entrants became much better products qua products than Paypal is.

Some of them seem like a better basic banking product than any actual basic banking product.

I feel professionally miffed that I didn't realize this earlier, and I think that is because my quirky hobby of collecting banking products, weird situation of living internationally, and relatively-well-served status with traditional finance caused me to not look too seriously.

But I was talking to someone about Square Cash recently, and reflecting on the last month or so of using Paypay, and: these are *bad* bank accounts for people who like their banks but *really good* bank accounts for people who either don't have bank accounts or hate their banks.

A sketch of the product features:

- You can sign up on any smartphone.
- The KYC requirements are gradual.
- They don't seem to hit Chexsystems.
- You can put money in, for free, at widely geographically distributed ATMs.
- You can transfer it approximately as easy as an SMS.

This is missing core requirements for a bank account if you're a professional software developer, like the ability to print a fake specimen check to give to your HR department to get your salary direct deposited. They're not banks and they extend no credit.

But people were asking the banking industry *for years* to figure out a way to make a checking account which can't NSF, which charges no monthly fees, and which still has a debit card attached.

And darn if the wallet apps didn't go and build exactly that. Bully for them.

"Chexsystems?"

Checking accounts in the United States are designed to be credit products, though most normal people don't think of them that way. Banks routinely extended credit for funds which hadn't cleared (and spent decades tuning the number down).

Chexsystems is a credit bureau specific to checking accounts. If a banking customer overdrafts their account and in lieu of paying the bank back the money (plus substantial fees) just walks away from the relationship, the bank reports them to Chexsystems.

And then they find themselves more-or-less frozen out of the formal financial system, for years.

This happens a lot to folks in poor socioeconomic circumstances, and is a substantial mechanism behind the sizable fraction of Americans who are (term of art here) unbanked.

That isn't the only use/effect of Chexsystems, but it is probably the most salient one for non-fraudulent users.

Story time: Bank B asked me, when opening a checking account, if I had opened an account with Bank A 30 minutes earlier.

Me: "Oh, Chexsystems is fast huh. That's impressive."

Judging by expression this was not the right thing to say.

Me: "Sorry, I work in the industry and geek out on this stuff. Yes, I'm mortgage shopping opened an account with them for the same reason as you: because one of you will get a mortgage from me. Does that work for you?"

That, of course, worked for them.

One of the reasons I try to write about this sort of thing so much is to make the point that in addition to the mechanical operation of systems there is substantial human subjectivity and that there are ways to play the game better than the default. I'd prefer they not be secret.