Americans have no idea how backward their financial systems are.
Charles Arthur (author and commentator) via The Overspill No. 1618
Yesterday evening I went through the usual dance at a restaurant in my home town of #louisvilleco . You ask for the “check”, the server brings out a printed invoice which lists what you ordered, the taxes, and the final amount. You wait, the server comes back around, takes your card and disappears, only to return a minute-or-so later with two small paper tickets, one for you to complete/sign, and a second copy for you to keep.
My credit card is with CapitalOne. I’m signed up for all the fraud detection and other alerts, before the server returns I usually receive a text/sms message from CapitalOne telling me the amount of my bill has been charged to my account. Except it isn’t. The next step for me is to add the tip to the paper ticket, and then total the bill+tip. Sometime later, someone from the restaurant, I assume, then re-applies the tip included total to my CapitalOne transaction, increasing the amount to the actual total.
In most other developed countries, you ask to pay, the server shows up with a small hand held machine and hands it to you, you insert or tap your card, add the tip, agree the total, input your pin and job done, you can leave having never been separated from your card.
The way it’s done in America is time wasting, inefficient, and prone to fraud. That’s what Charles was alluding to when commenting on @dgwbirch David Birch “Brazilian stripe adventure“.
Credit card processing changed in some US businesses due to COVID-19, but in general it hasn’t.
American retail banking though is much, much worse than that.
Credit Card Rewards?
We own a small business, revenue circa $10k per month. You know the type of business where cash-flow is king. We receive a number of small daily deposits direct from customers who pay online via credit card. If you ever wondered how those cash back and reward cards are funded, let me tell you, it’s from businesses like ours. We pay a small percentage when you pay with a regular card, but when you pay with a reward card, or cash back card, we pay sometimes as much as double in fees.
But you knew that right?
We do not price our services based on fees, and we are not punitive by charging back those fees to everyone, even people who don’t use reward cards.
Banking, Unimaginatively
We get the majority of our revenue though through a few large payments per month. That’s how we cover our major business expenses. If one of those is late, either the payee is away and can’t write a check; the check gets “lost in the mail”; or we are away and unable to deposit the check, well you know, it’s a balancing act.
We bank with local Front range Credit Union, Elevations. They are not perfect, their business banking software has some major weaknesses in usability. For the most part though, they are as good as they can be within the American Clearing House (ACH) system.
One thing Elevations does well is allow us to move money between Elevations consumer and business accounts, instantly. But hey, in reality, no money leaves the bank, so why shouldn’t it be instant?
Elevations also pays our major bills including Rent, and utilities online. It had never occurred to me that there would be a printed check involved. I’ve asked our landlord how the money is received. I know our landlord banks with Wells Fargo and gave me the routing and account code. Our of other major income payments come direct, online, no check involved from Wells Fargo.
Being Given The Chase
When I asked a couple of the small businesses who pay us our larger monthly checks to use their banks bill pay, and pay online, they both came back and said Chase only offers Bill Pay by Check. Meaning they would set up a payment in Chase’s bill pay service, schedule it monthly, and x-days before the payment was due, the amount would be debited from their account by Chase, and then according to the CHASE FAQ
Depending on the type of payee, your payment will be made electronically (delivered in one or two days) or by paper check (delivered in five days). We’ll make payments to your Chase payees the same day if you schedule them before the Online Bill Pay cutoff time.
CHASE Business Bill Pay: https://www.chase.com/business/online-banking/bill-pay – Accessed 4pm, August 25th, 2021
Depending on the type of payee, your payment will be made electronically (delivered in 1 or 2 days) or by paper check (delivered in 5 days). We’ll make payments to your Chase payees the same day if you schedule them before the Online Bill Pay cutoff time.
CHASE Consumer Bill Pay: https://www.chase.com/digital/online-bill-pay – Accessed 4:05pm August 25th, 2021
So, Chase customers who want to pay bills online to banks other than Chase, apparently have the money take from their accounts 2-5 days before the receiving account holder get’s a printed check in the mail, in 2021. As John McEnroe would say “You cannot be serious?“
As I’m not a customer of Chase, so I reached out to @chasesupport on Twitter. With some additional background info I DM’d
How can we ensure that when our clients setup Chase Bill pay, we get paid electronically not via check?
sent via DM to @chasesupport at 11:46 a.m. August 25th, 2021
a reply came 51-minutes later at 12:24,
Hello there. The Bill Pay Directory is an online listing of businesses that accept payments from customers using Bill Pay. There’s no enrollment fee and Chase business banking clients who enroll can: (1) Improve cash flow by speeding up receivables, (2) eliminate manual processing of bill pay checks, and (3) offer other Chase customers the convenience of finding their business in the Bill Pay Directory. Schedule an appointment with a banker at http://spr.ly/6011ytXZU. JR
I replied:
So we would have to be a Chase customer?
to which the response came at 12:37pm
To be placed in the directory, yes. Otherwise, they would schedule the payment using the Bill Pay Service option for the date they would like you to receive the payment. In most cases, this would result in a paper check. ^JR
I can’t tell you how frustrating and disappointing this is. It doesn’t work like this in other countries.
In countries that use a clearing house that supports straight-through-processing the money leaves one account, and effectively arrives in the other account “straight away”. When my son lived in Berlin, I could STP him money in Euro’s, it would leave my UK retail bank in UK Pounds, and arrive in his German retail bank in less than 2-hours, in Euro’s. There were no additional charges for this since it was all electronic.
In the UK, for bills etc. you can setup the payment and it goes into the overnight batch payment system, but still makes it into the payee account the next day, even I believe, at weekends. Meanwhile in the US, USPS doesn’t even deliver on Sunday, much less deposit checks into your account automatically.
Papering Over The Cracks?
Ultimately, the real problem with a check is they can still “bounce”. Besides being slow, even though a credit might show in your account when you deposit it, the bank can take the money back. Laughably we deposit our checks by taking a picture with a smartphone, and having the banking app use the pictures.
Think about that for a minute.
- Someone sets up a recurring payment on a computer using your bank routing code and account number
- At a pre-determined time the bank debits the amount from the senders bank account
- The bank prints a check
- The check is collected by USPS
- USPS moves the check from the city where the check was printed, and by magic delivers the printed to check to our city USPS office
- Our city USPS puts the check in a delivery vehicle, the driver drives all over town, eventually putting it in a mail lock box for our home.
- We, usually on the way home, stop by the mail box to collect our mail. This is always after banking hours.
- The next day, at the earliest, I write “for remote deposit only” and sign it.
- I logon to my Elevations Business Banking app, select remote deposit, take a picture of both sides of the checks and submit
- Within an hour or so I usually get an email to tell me the submission has been approved. This still means the check can “bounce” it just means the pictures are acceptable to submit.
- About 2-days later we receive a credit in our account for the full amount of the check.
At least with an online check it typically can’t bounce as the amount was debited from the senders account at the time of issue. For sender written checks, for the next 5-days we are on notice, as the transaction created from the pictures rumbles around the ACH seeking payment. There is still a chance that while USPS was trucking the paper check around, the sender spends a large amount from their checking account, and our check deposit causes their account to become overdrawn, for which they don’t have an arrangement, they will get a overdraft fee; we will have the deposit reversed and also receive a bounced check fee.
Straight-through banking eliminates steps 3-11, when the payment shows up, it’s yours.
Fly-by Wire?
The usual banking response to this is, but you can do a wire transfer. The problem with this is that it costs both the sender and receiver. Even if the sender was prepared to pay the additional $25-$30 for each transaction, I’m not prepared to pay the $20 to receive a wire.
Banking transactions just don’t cost this much. The reason a wire transfer costs this much is the sender fills out a form, the bank receives the form and processes it, sends the wire detail, the receiving bank manually receives the wire and credits the account. In many cases it’s even more complicated as the wire goes through another step. All this ads to the cost and overhead, hence the charges. It’s a joke in 2021.
Lipstick On A Pig
The other payment option is to use the add-on services most banks offer, Zelle “This Is How Money Moves”, Venmo “Fast, safe, social payments”, or PayPal “Accept payments just about any way and anywhere”, and Square “Accept payments quickly, easily, and securely.”
However, these apps all have disclaimers about paying businesses. Each requires an app, doubles the amount of transactional accounting, and will potentially attract additional fees. Let’s face it, the chances of a small business getting five or six other small businesses to use the same app/service, difficult at best.
They all come with daily limits, which impact the amount you can send in one day. If you have a large number of bills to pay, it is easy to exceed the daily limit at the end of the month, no matter what your ability to pay is.
Worst of all, many of these services have the ability to freeze your accounts, not letting you have access to funds, or in a growing number of cases just close your account.
None of this helps small businesses, they add cost delay, confusion and inefficiency. Banks don’t make money out if this efficiency, they just avoid spending money to update their system and agree a set of rules for the 21st century.
So when Charles Arthur says “Americans have no idea how backward their financial systems are.” that doesn’t include me. The systems are terrible, essentially still using clearing house rules designed in the era of the pony express, and using technology basically unchanged from when I was appointed an “Assistant Treasurer”, age-25, at Chemical Bank in New York in 1985.
Oh yeah, bitcoin my ass.
Yup. A small improvement — but not relevant to your main point, business processes — is that I’ve lately paid restaurant checks by pointing iPhone camera at a QR code on them, app opens, I add tip, skip waiting for another server round trip, and receive emailed receipt.
It’s an improvement facilitated by credit cards and credit card processing. The credit card processors, who make money from both transactions, merchant fees, and by people paying for stuff they can’t afford. Merchants pay for the improvements you see.
I’ve long banged-on about the inefficiency of US banking, but it was only when we became a small business accepting card payments I saw how this gets paid for.
And that’s part of the problem, people always prefer convenience and don’t really care who they get it. The banks have sat on their hands for too long, because most of them make money from credit cards or own credit card businesses, and that needs to change. The idea that everything we buy is creamed and nickel and dimed because the banking system is inefficient is starting to drag the economy down.
Great to hear from you as always Gabe!