Banks created Bitcoin, crypto
Having to wait in line for hours to make a transaction. Requiring 11 to 26 documents to open a bank account.?Charging users $350 in monthly overdraft fees. When I returned to America, I was surprised to learn that up to half of our factory workers didn't have a bank account. Research for this article was done on a global basis. We found that there are three major problems with banking today. First, banks make it difficult to open a bank account. Secondly, banks make it difficult to bank. Finally, banks can be expensive for lower-income folks. Banks created Bitcoin and Crypto; by failing customers.
I. Making it difficult to open a bank account
Proof of residence. A major impairment to opening a bank account
Banks ask for a lease, title, or utility bill in one's name to open an account. Nowadays, many young people live with roommates, but the lease is in the name of only one of them. Same for spouses and those living with their parents, friends, or relatives. While an existing bank account sometimes suffices, no bank will be the first to open a bank account.
11 documents to open a bank account
Bank of Scotland requires over 11 documents to open an online account , including details of where you have lived for the last 3 years, your income, and expenses. Many banks worldwide require bank statements from the previous six months and a reference letter from another bank. Young clients will not put up with this.?
Offshore banking
We tested opening offshore bank accounts in Belize, Cayman Islands, Antigua, Vanuatu (got beautiful photos there ), Dubai, and the Bahamas. The Private Banking route was easier but still cumbersome. Over 15 documents are required to open an account. As the WSJ describes here , it's much harder for US nationals and residents to open bank accounts abroad.
26 documents to open a business bank account
It took me 3 hours to open a business bank account at a JP Morgan Chase branch. In this article , we list the 26 documents required by banks to open a business bank account. The burden is extremely high for entrepreneurs and small business owners like John in the photo. Why would you do that to him?
You, the bank, are a credit risk. We are giving you money
When we make a deposit, we are giving the bank money. It's unreasonable for a lender to have to explain to the borrower details about his income and expenses. Over 500 banks have failed in the US in the last 10 years, according to the FDIC. We should be the ones asking questions.
The Know your Customer (KYC) excuse
Banks argue that they need all this information to comply with Know your Customers guidelines. Then I ask, "How come other banks, bigger than yours, which have not been fined, don't ask for that?" All major banks have been fined over $5 billion for compliance issues, hurting customers, or money laundering. That includes Goldman Sachs $2.9 Billion , HSBC $1.9 billion , ?Societe Generale $1.3 Billion , Citi $400 Million , NatWest $351 million , JP Morgan $250 million , Bank of America $225 million , ?USAA $140 million . What do they do? When they run into trouble for making illegal transactions for ultra-net-worth individuals, they agree with governments to increase the scrutiny. Then they make it harder for small clients to open accounts. Years ago, we bought a company, and I recommended to the seller to keep the cash at Citi. He was told he would have to fill out 26 forms and said, "I'll rather cross the street and transfer the money through the other bank, where they don't ask for all this." Major banks such as TD Bank, which were never fined for money laundering, require 2 documents instead of 26. The KYC rules are a terrible excuse.
7 million Americans don't have a bank account
When I was doing my MBA, I opened several bank accounts; to get a free toaster. In Europe, we got $2,000 by opening bank accounts for our employees, which we passed on to them (Finance became quite popular). When I returned to the States, I went to our factories to explain to colleagues that they were wasting $1,000 in check cashing fees by not having a bank account. It worked. In the classes I teach Pro-Bono on weekends for high school students , I always show them how to open bank accounts to start saving.
1.7 Billion people without a bank account. Why they are choosing Crypto
Globally, 1.7 Billion people don't have a bank account. In this article about Bitcoin , I show that it's more expensive to transfer money with Bitcoin than through the banking system. Until I learned how difficult it's for people to open a bank account, I couldn't understand why people would use Bitcoin. Now I do.
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How to open an account around the world
To research this topic, I worked with 11 colleagues in Europe, Asia, and Latin America and personally traveled to 11 countries to open a bank account. I stood in line like anyone else. I am not a banker.?I work in corporate finance?for multinationals. As a company executive, opening a bank account in all 9 countries where I lived took only a few days. Now I work for Private Equity and?teach a graduate finance class at New York University?(NYU). All the research I do is accessible to everyone, for free, either on the NYU class home page or through articles. These articles may be of interest:
II. Making it hard to bank
Have you ever had a problem with your bank? Were you unable to log in or make a transaction? Was there a problem with a deposit or payment? The Consumer Protection Financial Bureau (CPFB) sends 10,000 complaints per week . At Goldman Sachs, I was once on the phone for over 3 hours. This photo is from customers waiting at a Banco Nacion in Peru. I counted them; they were over one hundred.
III. Making it expensive to bank
One of the main reasons our factory workers don't have a bank is that someone was charged $350 in overdraft fees by making ten transactions of less than five dollars each. The CFPB calculated that overdraft fees for checking-account users pay are the equivalent of a 17,000% annual percentage rate . In 2021, banks charged over $12 billion overdraft fees, primarily to low-income Americans.
The easiest country in the world to open a bank account
I am not American. The US is the easiest country to open a bank account. It also beats all countries in pricing. When clients and friends visit NYC, I take them to TD Bank. They open an account on the spot and walk away with a debit card in their hands in less than an hour. While they open the account, I grab from the counter free lollipops ( I have two daughters). TD Bank Canada is the same, but the Canadians don't let tourists get a bank account. For business bank accounts, the US is the easiest country through a brokerage account. There are no fees of any kind or minimum balance. The best state to create an LLC is Wyoming (link ) ($100, online, on the spot, no CPA or Lawyer needed). One doesn't have to travel to or live in the US to open a business bank account through a broker.
How governments can help 1.7 billion unbanked consumers
Governments are better off with people using the banking system because it leaves a digital trace for every transaction, just like Bitcoin does. As the WSJ notes, it's a myth that Bitcoin is anonymous; criminals get caught. Here are 3 ways to expand and improve banking :
Can banks save themselves? Leadership is the key
Some banks are adapting to the digital world and trying to transform themselves but are failing because they bring old bad habits into the digital experience. The successful ones have an Amazon like-attitude to delivering services. That comes from the top.
Digital bank accounts Best Practices.
Our experience opening digital bank accounts was good. In the United States, we liked Chime (their Visa works in more countries than Chase) and Marcus by Goldman Sachs (they pay higher interest rates but have no debit card), in Spain with N26 (cheaper to transfer money), in Argentina with Mercado Pago, and in the UAE with YAP (personal accounts) and Wio (business accounts). Many banks force the recipient to be at home to get the debit card At Mercado Pago; if you are at work, you can collect it from the courier's depot the same day. They also let 13-year-olds open accounts and use face recognition from a government database to verify identity. At Wio Business; we liked that the courier records a 10-second video of the business when delivering the Visa, instead of asking for numerous documents to prove the business's existence.
Learning from Bitcoin and Crypto
We already have something better than Bitcoin It's called Visa and MasterCard. Transactions are processed in seconds, and it's much cheaper to use. We need to make it simpler and easier for people to get a bank account. It should be as easy as getting a wallet to use Bitcoin .
Why banking is important
In my opinion, a bank account is a basic right. It enables people to save, provides transparency to governments on all financial transactions, and enables others to get a mortgage for a house or to finance a business. It's good for the community. Why would we make it that hard to bank?