The Problem With Banking

Why do banks need to charge fees when they’re already making money lending out our balances?

In 2016, banks made around $33 billion from unwitting consumers through overdraft fees, according to the Wall Street Journal. That’s around enough to fund Trump’s proposed border wall, according to moderate estimates. Quite a price to levy on your loyal customers, isn’t it?

Don’t you think the concept of bank fees is ridiculous? It’s like the bank’s saying, “Pay me money to get access to the money you have.” What’s even more infuriating is that most people seem to begrudgingly accept this outcome.

Source: pixabay.com

Can you imagine lending some money to a friend to keep safe and then having them turn around and say, “You know, its been a bit of time, I think I’m going to hold your money hostage until you pay me a fee.”

If this sounds ridiculous to you, why should we allow banks to get away with it, is it just that it’s too much of an effort to alter the status quo? If you think about it, the real reason seems to be that people simply don’t care enough, and that’s exactly what these financial institutions intend to take advantage of from a psychological perspective.


Now, I get it. Banks provide services and have sophisticated transactional and security infrastructures — both virtual and physical — in place. And often, investment banks and commercial banks spend significant resources into developing reliable and consistent systems. However, my primary point of criticism is that this cornucopia of fees imposed in banks on unwitting customers is not wholly necessary for a bank to be able to provide a decent, smoothly functional level of service to its consumers.

In fact, the growing necessity for better scrutiny as it applies to online banking in general is a key concern in this well-written primer on the issue by Peculium.Online banking: How the world banks today17 / 07 / 2018medium.com

One of the most prominent examples of this is probably Robinhood, which does not relate directly to the topic of banks, but shows how a service has risen to popularity to occupy a decent portion of market share because they’ve offered commission-free trades. The idea here is that if Robinhood can offer commission-free trades and still be profitable, or at least financially viable, then there’s probably a similar inefficiency in banks that can be addressed.

Perhaps a salient example of this is high-yield savings accounts that offer around a 2% APY on your balance; I’m talking about banks like Barclays, Ally, or Synchrony.

These offerings on interest in a savings account seem fair to me, and a lot of people giving out solid financial investing advice recommend such investments, as Cliff Weitzman details below in his article:Personal Finance Hacks (Ages 18–30)How to Open a Bank Account & Invest your Money in less than 2 Hoursmedium.com

This rate is about twenty-fold the interest you’d receive on a regular savings account at Bank of America or Chase. In fact, it almost feels a bit insulting that these traditional banks seem to think that a fraction of a percentage every year is an appropriate distribution for their customers.

Frequently, these financial institutions rationalize and gaslight clients as a necessity, “What are you going to do? Not pay the fees? Well, say goodbye to your credit score!” I think this sort of ridiculous thought process really shows just how far banking systems exploit the average individual.

Moreover, the cherry on top of the whole situation is that even with all this money they scrape from overdraft fees and transfer fees, it seems that banks are continuously prone to breaches of security. Let’s like at a few cases of incompetence that’ll make you ask whether or not these financial institutions are keeping their end of the security bargain for consumers. I mean, after all, it doesn’t seem like they’re lacking the financial resources to undertake a comprehensive initiative on this front.

Nick Deshpande gives a good overview the data breach here, and while Equifax is a credit bureau, the message here for me is more or less the same. Why can’t these financial institutions hire competent people given their profit margins?Lessons from the Equifax Data Breach ReportThis month’s House Oversight & Government Committee report about the Equifax data breach is worthwhile reading for…medium.com

Not to beat the dead horse, but let’s take a walk down memory lane of all the recent breaches of data that have ultimately resulted in an increasing scrutiny on these regulatory and oversight mechanisms employed in banking, and their key inefficiencies.

One particularly egregious case to point out is the recent JP Morgan Chase breach of 2015, summarized in the CNN article below.

It’s hard to imagine how such a major bank could expose itself or to possess vulnerabilities that have allowed malicious actors access to important financial and consumer information, resulting in liabilities for the company of around $100 million. However, at this point, it appears to be a reality that will stick.

While the future of lending, investing, and banking have a lot of room to develop, especially with nascent technological applications ostensibly spreading out of many different part of the financial sector, investors and the average consumer must keep themselves informed of the growing risks that accompany such advances.

Finally, vigilance and better, but not overbearing, levels of oversight should be implement to reach greater security outcomes along with more equitable customer policies in relation to controversial fees, which often appear as a shameless, automated cash grab by these institutions.

All Rights Reserved for Richard K. Yu

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