Banking, along with health insurance, is probably the last substantive obstacle for the all out Third Wave practice of law, for the solo practitioner, the connected lawyer, those that work through collaborative effort, the shingle hangers, future lawyers or home office lawyer. In the Age of Google and Facebook, there has just been no great cloud alternative for banking.
Banks have developed a lot of bells and whistles to help wow people, and certainly online bill pay is an advantage. But, it just seems that banks (and by this I mean financial institutions in general) have been dragged kicking and screaming into the Third Wave. When they have instituted tech only in a restrict sense that gouge people for more fees for services that potentially save the bank much more in money.
The truth of the matter is, I believe, that banks do not design themselves for us. They tolerate us, and cater to wealthy individuals and hedge funds. We prosumers are useless to them except to extract exorbitant fees for limited services.
In defense of traditional banks, it is hard to dismantle all of the bricks and mortar they have erected over the years and of late. It is not easy to kick themselves of the habit of retaining all of those useless and underpaid employees that make too little money and have no authority, and of maintaining the systems and procedures they have develop to deprive you, to their benefit, of the money for which you have worked so hard.
Banks have survived by bulking up in the wrong direction. They get bigger, not just in terms of deposits and loans, but in terms of overhead. This seems to lead to very risky behavior both to meet this growing and gigantic problem of physical growth, and in terms of making those at the top obscenely wealthy. I am talking about wealth paid in spite of the fact of massive incompetence, mismanagement and in wrecking our economy. The point is that they have opted for girth as opposed world changing innovation, and the effect of that is to inflict damage on us poor solos and other small business people. If it has not injured us, then it has least greatly inhibited us from evolving more quickly in the way of a business model that works in this day and age.
No, really, banks are the culprit to those of us that are working to revolutionize the way people work and live in this country. Not only do their corporate structure greatly inhibit us in what we do, their money grab to pay for it all makes it just intolerable to work with them. In the past we have worked with traditional banks and the big banks because there has not been any logical or effective alternative.
It is a problem because excessive greed and massive corruption and irresponsible conduct leads to the need for stringent regulation. This regulation then inhibits change and growth. But, to us Third Wavers, we are damned if we do and damned if we do not. After all, we cannot live with the unbridled graft and greed of these scumbags in suits and an ivy league degree, but we need the change that too much regulation inhibits. Who is the blame? I say the banks. It is hard to blame those who are just trying to protect us from massive malfeasance.
This might be changing, however.
As to the money grab, banks use to primarily make their money off of the net interest margin, which represents the gap between interest paid and interest received. However, with the rise of the mega-banks that is no longer the case. Today, banks make half of their revenues from fees. A case in point would be overdraft fees. Today, every household in America pays over $200.00 annually in overdraft and bounced check fees alone. For small business people and Third Wave lawyers that must juggle bank accounts, and from which accounts companies freely and with little notice rip money, these overdraft fees are substantially higher.
I do not know about everyone's situation, but in the past it was easy to control overdrafts because your accounts were closed to the through traffic, so to speak. You not only saw every transaction that came out of your account, because you wrote a check, but not just anybody could dip into your account without substantial notice to you and your approval. Banks might have had that possibility, but they did not charge these kinds of fees and in the multiples of transactions a day we see presently. Now, it seems there is a super highway running in and out of your bank accounts. Companies and others automate and withdraw cash on demand through authorized, unauthorized and deceptive ACH transactions and debits of varying kinds. This makes a persons ability to monitor the accounts difficult without the help of the banks to alert us by text or email before assessing the fees.
Nobody necessarily blames the banks for the traffic. That for which the banks are blamed is setting us up to take royal advantage of it. Nobody cares if the banks try to recoup their money for these issues, and even a reasonable amount of money for their cost of lending. However, at an average of $34 per overdraft, this has become a cash cow for banks. The bigger problem is that banks literally set you up to rip you off and to enrich their executives and to pay for their bad lending policies. We, as individuals, are the real bailout, and not the money the Bush administration gave the banks. They encourage a proliferation of "free accounts" all under your central bank account, increasing the chances that you will have sufficient money in the bank, but not in a particular account. Then, of course, banks do things such as process your largest transactions first, regardless of how or when those transactions get to the bank, so that they can charge many multiples of their overdraft fees each day. They say they do this because the largest transactions typically represent the most important transaction you would want covered. The problem with this argument is that the banks are covering all of the transactions anyway, as most of them occur with a debit card. So, they are just maximizing your loses to their benefit. Since they control the account, what are we to do about this?
The other problem with relying on fees for profit and not so much on the net interest margin, is that the banks have no incentive to loan money to make money. Small business and Third Wave lawyers suffer from this policy as well, especially when the banks' cost of money is low and the investment return is higher.
I digress some as overdraft fees and net interest margin are but only two examples. There are many.
It is fine to say move your account to a credit union or community bank, but almost all of these institutions do the same thing, if not as aggressively. In fact, most of these transactions go through one of the big banks operating as the correspondent bank for these smaller institutions. Sure, their interest rates might be lower, they may appear more friendly, but these are sales devise to mask the same fee grab the other institutions charge.
You would think that open source and cloud-based tech and aggressive competition would have changed all of this, forcing banks to change or falter. But, it has not. After all, in this day and age we Third Wavers should be able to handle our banking on our laptops, if not our cell phones.
The one thing that has held us back, especially in the practice of law, are deposits, escrow account management, and money transfers. But, this is where banks have caused tech to go wayward.
The problem is that there is not good tech systems for the settlement of lawsuits. This too is due to the large banks. It is impossible to get money wired to an escrow account. We still settle a case, the opposing counsel orders a check from the client, the client then ships it to opposing counsel who then overnights the physical check to you. It is then deposited into escrow and then by electronic payments from there. Is this not the reason Blockbuster is failing? Sure you can play a digital movie on your TV, but you have to get in your car, go pick it out of a limited selection, drive home, place it in your disc player, then remove it, and remember to deliver it back. Blockbuster then takes advantage of this low tech tendency and institutes a lot of gimmicks to collect fees. Whether Blockbuster of lawsuit settlements, it is just absolutely antiquated. Who is behind it all? Banks. They are so large that they are controlling or stifling new ways of paying out money.
Then the problem with remote banking are ATM fees. Like other fees these are going through the roof. And, I am just plain tired of every banker from the local credit union to the person in the JC Penney suit at Bank of America saying all you have to do is go into a grocery store and buy a stick of gum to avoid outrageous ATM fees. I do not even chew gum. And, in this day and age it is a bit like saying if I want a drink of milk, I can simply go to the dairy, pick out of cow, milk her, in order to get a drink. It is not reasonable. Besides, explain all of the packs of gum on your IOLTA account. Whether paid to the bank or to the company that makes Wrigley's gum, why do we need these costs and the lost of time?
So again, because of the local deposit rules of banks, Third Wavers have trouble leaving for a better alternative.
You would think that the advent of online or remote deposit would change all of this, but the technology for Third Wavers is being stifled. Credit unions are the leaders of this movement in a sense as a way to compete. For example, Randolph-Brooks Federal Credit Union is making mobile depositing available over a smart phone. However, I tried to sign up for this service and found an Olympic gymnast would have trouble getting through the maneuvers to achieve such a thing. First, there is the issue of membership eligibility. Second, even if you set up an account, they will not let you access this service for six months or more, and then only after a careful review. This means there is no guarantee that they will let you ever use it. Yet, the credit union for me is not local and that makes deposits in the interim nearly impossible. Clients and attorneys are waiting for money and they do not care to wait for it to be mail and cleared through the credit union first. And, with no deposits in the interim, you will not be approved to use this service in six months. Also, the credit union still has all of the let's-live-off-fees attitude that pervades banking these days.
The larger banks do have remote banking services for their bigger customers, but it comes at a high costs, which seems odd given the savings to the bank. Forget your smartphone, they require a specialized device that costs over $800.00. And, they charge $50 to $60 a month for the privilege. The point is that you are still tethered due to the specialized equipment, and you are robbed of money that what the system is worth.
USAA Bank has to be leader in this regard. Its "bank anytime, anywhere" program allows for smartphone deposits, ATM free charges and most of the systems that would allow one to literally untethered from banks cost effective and in way that is manageable. Problem is USAA is only for the military and families. Yes, you can use their bank if you do not fit their profile, but you cannot use the most critical online services unless you qualify for the insurance products, which requires the military relationship. I went through the entire process and could not make the complicated nature of their system work. Worse, their online and phone staff cannot seem to explain this eligibility problem well, at least how it applies to our non-soldiers.
If you are not a soldier, are just tired of getting ripped off for thousands of dollars that could be put to better things like putting your children through school, and want to experience truly mobile or Third Wave banking, some salvation might be around the corner.
Starting sometime this year Banksimple.net is on the horizon. We will see how it lives up to the buzz, but it looks promising. It is a truly online bank that is to be engineered around simplicity. It is modeled on social networking more than anything. There are to be no hidden fees, and especially no outrageous overdraft or late payment fees. It will be primarily designed to operate with a smartphone. As for online deposits, go to the app, take a picture of the check to be deposited and you are done. Then there will be the 30,000 ATM system that will be free. No purchase a pack of gum in the store requirement. Add online bill pay and one smart card for all you need, and this could be revolutionary and long overdue.
Right now, you can go to the sign up page of Banksimple.net and request an invite for when they start up. I have. Maybe you should to. What can it hurt?
And then, regardless of the the "we're number one" mentality we have here in this country, nobody is more advanced than Asia in many regards. Faster and cheaper broadband, smarter tech, and mobile efficiencies for which we might be willing to die. Jibun Ginko (or My Bank) service allows money to be sent via email from one person to another. Money is not sent from phone to phone, but the email message acts as a proxy for the transaction, which takes place between banks over a secured network.
So here is to hoping that the pain of big banking is almost over for most of us.