An old and persistently annoying wound received some fresh claw marks recently. And I still blame Washington Mutual (WaMu).
In late December, a popular podcast devoted an hour-long episode to the rhetorical question, “Can You Live Without a Bank Account?”
“Stuff You Should Know” tackles a wide range of topics, so by definition it approaches each with a generalist’s view: A couple of intelligent guys (Josh and Chuck) taking a thoughtful approach to researching interesting questions.
As such, don’t expect expert analysis but rather a well-considered—and widely disseminated—perspective.
That said, I found myself screaming into my monitor at several points of this podcast.
After a history lesson dating back to the 1400s and some now standard-issue bank bashing, the hosts tee up a progression of financial alternatives that could conceivably allow an individual to “opt out of the banking system.”
At one point, one of them refers to banks as “gross,” which hints at their prevailing sentiment. Oddly, credit unions are never mentioned among those banking alternatives.
Ultimately, however, the reporters find downsides to virtually every alternative they explore. Stockpile giant hoards of cash? Too risky (financial institutions offer a pretty straightforward solution there).
Bitcoin and hyper-local tenders like BerkShares?
Interesting, but they enjoy limited acceptance and can’t be counted on as one’s sole means of exchange.
General purpose reloadable cards? Burdened by a variety of fees for functions as basic as balance inquiries and hampered by outages that have left users without access to their funds.
Maybe—just maybe—the issue is that it costs money to provide these services, that they deliver value to the consumer, and that they should carry some reasonable associated fee.
Gee, wouldn’t it be great if there were some straightforward, painless way to accomplish that?
There used to be. It was called a monthly maintenance fee, applied to checking/share draft accounts. And it worked pretty darn well until WaMu “disrupted” the model in the early 2000s with free checking for all, not just affluent consumers able to maintain large balances.
Disruption can be a healthy catalyst for innovation and advancement, but not when it’s based on a flawed premise. WaMu cynically calculated that it could support the cost of free checking through overdraft fees.
“Stuff You Should Know” spends a fair amount of time rehashing the perils of clearing order and how the hidden cost of nonsufficient funds fees drove many into the ranks of the unbanked.
They’re fighting last year’s war, but it’s a valid sign of the lasting black eye this practice inflicted upon the industry.
WaMu’s model proved unsustainable, of course, and its shareholders paid a price. But in their wake, virtually every other fee capable of subsidizing “free checking” has been curtailed by regulation—yet the genie is out of the bottle.
Consumers have been conditioned to expect checking to be free, making it perilous for any one institution to reverse course.
Chuck and Josh also took issue with the predatory pricing of payday lenders, while remarking that some consumers nonetheless expressed a preference for them because the fees were at least predictable.
Regarding small dollar short term loans, one of them said, “I’m not sure why banks aren’t doing this.”
Give me 20 minutes and I can line up a parade of credit unions and bank leaders who would love to do so—if the regulatory hurdles weren’t so onerous.
If the objection to items like overdraft fees are their unpredictability, wouldn’t a nominal, stable monthly service fee serve as an appealing alternative?
It could easily reduce customer/member disputes while also providing financial institutions a stable revenue stream.
It might even—dare I say it?—allow for a rollback of ATM fees, another customer hot button.
I’m not delusional enough to believe monthly service fees are poised for a near-term return, but the model is food for thought.
So go ahead and blame WaMu if it makes you feel better.
But then accept that we can’t change the past and move on toward addressing the consumer perceptions still festering out there—and laying the groundwork for a more beneficial revenue model.