How America Checks Up

When former CEO of Goldman Sachs and Secretary of the Treasury Henry M. Paulson visited the John F. Kennedy Jr. Forum in early October and claimed that the U.S. has one of the most efficient banking sectors, I could not help thinking that that might be true for investment bankers and other big players, but it most certainly is not for the regular customer.

That same morning I had stood with an overdrawn account in one city and a paycheck in my hand in the city I had recently moved to—without any way to bring those two together. My old bank did not have a physical presence in Boston, and even as a post-doc my paycheck was larger than the maximum amount allowed for the mobile deposit of checks. So it would at least take three business days to get the check to my bank by either snail mail or with the help of another bank. In either case, the process would have taken much too long in order to pay my rent without late-fees.

I wrote my very first check in my late twenties when I moved to the U.S. By the time I had to pay rent for my first room as an undergraduate, all necessary transfers could be done through online banking in the Netherlands.

In a matter of minutes, you can transfer money from account to account, from one bank to another, without paying fees, and without worrying about uncovered checks. Yet even in those days, I still had to pick up the phone to transfer money to and from my native country Germany.

But over the years, that became possible through online banking as well. Remote banks without physical branches started to become popular, because they offered very low fees. After all, they do not have to pay the rent and employees for branches all over the country. Instead, all customer interactions are done online or over the phone. Most recently, this year, the European Union has standardized European bank account numbers, as part of establishing the Single Euro Payments Area. This makes possible convenient, affordable money transfer throughout 34 countries, speaking 26 languages, and writing in at least three different alphabets.

So why does my U.S. bank either charge me $3 to transfer money to another bank or physically prints out a check to snail-mail it to the recipient? And it’s not just foreigners who are frustrated by this system. For example, in 2012 Ron Lieber wondered in the New York Times, why it is so difficult to transfer money to family and friends.

The main explanation for this situation, that I have found, is the difficulty of creating a unified approach for the large variety and number of financial institutions in the U.S. But if the European Union has managed to do so across countries and languages, the U.S. should be able to so, too. It certainly does not lack the technical expertise.

But the perks of such systems are not confined to the E.U. and the U.S. alone. The affordable cellphone-based service called M-Pesa has become hugely popular in Kenya and has started expanding into other countries. This service has made possible money transfers between the most remote villages without requiring the physical presence of a bank.

The argument that more convenient online banking might impede on privacy rights does not convince me either. Having grown up in a village, I am quite glad if no bank employee, who might recognize my name, can “accidently” glance at the amounts and recipients of my transfers while handling my check. And even if I were to deliver my money in paper form, the bank would inevitably store this information in their Internet-connected computer systems.

In short, the current system of monetary transfers in America lags years behind the rest of the world. America might be the best place to do business for Hank Paulson, but it’s less welcoming to the common costumer.

Frauke Hoss is a postdoctoral research fellow at the Belfer Center for International Affairs at the Harvard Kennedy School.