You also talk about the trouble of mailing a check 5000 miles (it's closer to 4000, but who's counting?). I'm sympathetic: what kind of system would you prefer? For instance, do you think you should be able to scan the check at your PC and enter it that way? Would you rather have a payments system so that you don't need to use checks at all? Nothing will happen magically tomorrow, but I'd be very interested to hear what HN readers think, and I'd keep it in mind as we work to improve our systems!

Starting a bank is HARD... I wish you luck in your endeavor, but it MAY be easier to find a "good" bank (different people may have different ideas about what that means) and support them. You are certainly welcome to pass on your good ideas to someone like me.

- I'm extremely jealous of USAA's Deposit@Home feature. Depositing a check just by snapping a photo in an iPhone app? Yes, please.

- I've received an answer about the required linked account before, but I still don't like it. ING really can do everything I need from a bank - dealing with another one is just annoying.

- It sounds like you two are talking about depositing checks into an ING account by mail? I didn't even know that was possible. The only thing I use my linked checking account for is making deposits and then transferring them to ING. Why isn't this option mentioned in any help topics regarding deposits?

I use USAA and it is awesome. I have never used deposit@home because I generally go for direct deposit, but maybe I'll try it. They give you pre-paid stamped envelopes for depositing checks. That is what I use for the rare times I have to cash a random check. Now that I live in NYC with copious blue boxes, it is even easier.

To join USAA you have to be a veteran or a relative of a veteran. I'm lucky that both of my parents were in the Navy. I've tried other banks and always felt I was getting shafted in some way. USAA, on the other hand consistently makes you feel like you are getting a good deal.

Depositing a check by snapping a photo with a phone? That's pretty fancy! But perhaps it's something we should take a look at.

EFT is mostly inaccessible to customers. Checks work, and would avoid the bank #1 in my process, but take extra time to clear. Wire transfers work, but would charge me a decent sized fee every time.

Basically, it shouldn't be so difficult to transfer money between banks at the customer's level. But I also understand that interbank coordination is done at a higher level than any one bank. So ING for example can't just say "here's a new interface" and let people go for it.

I suppose my question is: how do we advance the banking system in areas that require system-wide simultaneous upgrades?

That said banks in the US have been very very slow to make this technology easy for customer's to use, partially because they just suck at user friendly technology, and partly because they don't want to make it too easy for people to move their money to an account at another bank.

In a way, I think we HAVE said "here's a new interface" and let people "go for it".

As for the $26 overdraft charge, do you know how much it costs the bank? Do you know that it makes a difference if it's only a $1 overdraft? If you don't know the industry, how can you propose to change it? Sure, it might be nice for me to say I think all banks should give 10% interest on accounts, but they can't. Maybe there's nothing they can do about the overdraft fee.

There is serious congressional concern about the inherently predatory nature of overdraft fees. However, with Dodd's impending departure from the Senate it appears that the banking lobby will prevail in avoiding legislative restrictions.

Furthermore, a huge amount of overdraft fees comes from the practice of auto-enrollment in overdraft protection. If consumers need education, having transactions go through at the point-of-sale despite having an empty bank account is a recipe for trouble.

Last, is the issue of check ordering. (Considered a "courtesy" by most banks!) Today, most banks clear all debit card purchases (and checks) at the end of the day, after sorting them from largest to smallest. The idea is to run your account into the red as quickly as possible, saving the small $1-5 charges for the end. This simple greedy algorithm (no pun intended) maximizes the number of overdrafts. The typical rationale is "big checks tend to be rent and other important payments, which you would prefer to clear under any circumstance" -- laughable when the majority of overdrafts are on small, card-based debits.

So while I agree with you that consumer behavior needs to change, the people that need to save and not spend are exactly the ones that banks are (intentionally) targeting, and they have gotten exceedingly good at doing so. Check order policies and automatic enrollment in OD protection only complicate the issue.

But if we can brainstorm/think of other ways to modify individuals behavior - to help them manage money better, avoid over spending etc. then the banks are a bit screwed and would have to adapt.

Actually better idea: we'll meet in the middle. :D

Lean and mean...except when it comes to customers who will be treated with the dignity they were used to 25 years ago. Make money with the bank's core services instead of an abusive fee structure. Doesn't seem terribly outlandish to me.

The average consumer is shockingly disorganized with their personal finances. Sites like Mint are a tremendous step in the right direction. Online banks are also emerging as "consumer-friendly" competition. For example, Schwab has one of the best deals out there right now -- free, interest-bearing checking, no overdraft fees, unlimited ATM surcharge rebates.

I think consumers want to understand but are overwhelmed. Perhaps an approach lies in expanding the 3rd party services market to continue to provide helpful tools to consumers.

The typical banking model of net interest margin (the amount earned by the difference in savings & loan rates) dominates revenue elsewhere. The American market, however, is so lacking in competition that they can get away with charging hidden fees and charges.

Sure, it helps if you check your balance. But do you read your full terms and conditions each time your bank changes them. I spent most of my summer reading the T&C's of every major bank account in America. You'd be very surprised by what they contain.

Here's a personal favourite of mine: most banks would retain the right to re-order your transactions in any 24 hour period before settlement so that withdrawals for large amount came before any smaller amounts, and then deposits were posted in reverse order. What this means is that if you were to start out the day with $100, then have a $2,000 check clear and post to your account, you could go out and make a purchase in the afternoon for $500 and _still_ get hit by an overdraft fee. And if in the morning you made a few $5 purchases, they would _also_ incur the $35 (median) overdraft fee, despite the fact that if the balance was updated in chronological order you would incur no such fee.

I say 'would' as this practice is being phased out. That said, overdraft fees, while expected to earn $40bn for banks in '09, are only about 7% of overall revenue. There are plenty of other tricks that banks have up their sleeve.

Falling back on the argument that banks are allowed to do whatever you agree to in your contract is intellectually and morally dishonest. No one reads their T&C's. Banks know this and use many invisible and often unavoidable fees to earn excessive revenue from unsuspecting consumers.

And even if you were to level the playing field in terms of fees and charges, banks are sluggish and don't grok what it means to have a good online experience. We are working on fixing this.

If you want to speak with us in more detail, track us down and we'd be happy to chat.

Is that even possible.

No account with a cheque facility could prevent you making an unauthorised overdraft. Nor indeed could it have Maestro (et al.) as balance is not normally checked when making authentications or done as part of the purchase process. So it would have to a cash only account... and then the chance of the bank making money from you must be low; meaning they'd probably have a standing charge?

Banks can make money in other ways - in many parts of Europe banks don't charge overdraft fees - they just charge you a monthly fee to cover the cost of providing service. Other banks (e.g., ING Direct, Uno-e) in those same countries provide accounts without fees, and without access to a branch network. You can choose what service level you want without being screwed over by the bank.

No they only guarantee to honour cheques up to the stated guaranteed amount. Usually this is £200 but can be more or less.

Highly recommend them. Take pictures of your check with an iphone to deposit. They cover other banks' ATM fees up to $30/month, so that's pretty much eliminated as well (for me, at least).

Or are you using "checking account" as a loose term? I always assumed it meant an account one could write cheques from?

Keep in mind that anyone buying a bank right now is competing with an unprecedented amount of highly sophisticated Private Equity buyers with access to plenty of cash.

Even if you were able to acquire a bank, you'd need to go through much of the FDIC and OCC (assuming it is a nationally chartered bank) approval process. This is typically a time consuming process. Prior to the crisis this would take 18 months to 2 years. Currently the FDIC is making this more difficult and de novo banks forecast a 3+ year approval process.

In addition to the time constraints to starting a de novo (brand new) bank, you need to have regulatory capital in advance of opening. Off the top of my head you need to have enough capital to cover your expected three year deposits. So unless you have $50m lying around, it will be tricky.

That all said, there are ways to do this. If you'd like to know more about what we are up to, let me know.

Oh, and I totally agree. Banks suck. We are trying to fix that situation. We are 6 months into the process and hope to have something in the market by the end of this year.

Thing is, it's entirely impossible. To start a bank you need capital to leverage your deposits. That's anything from 10-30%, so to have a liability of $1000 you'll need $300 in capital reserves just to keep within the rules. Then there's the insurance you'll need to buy on the risk you take, and the other ways you'll need to turn profit - otherwise, why will i invest in you (with retail deposits?)

As jacques said, credit unions are a simpler step- but even simpler are lending groups where everyone pitches in money and then everyone takes a turn in being able to borrow from the pool. I can't quite recall the name of these structures, but they are on wikipedia- NPR's Planet Money podcast covered them a few months ago. (which, if you are in any way interested in this stuff, you should listen to back-to-front).

But i don't think it's the banking that's the problem.

If you have a bunch of money - liquidity - then it's easy to move it around to ensure you're covered. Then you don't get hit by charges. In fact, most systems (wells fargo included) do this by default now, and you don't even have to care. You can realize then that cashflow is the lifeblood of small biz, and if you have it, everything is great. If you don't, you're screwed.

The bottom line might seem to be that it's hard to be financially stable when you're starting out/contracting/consulting/low paycheck, whatever. There are two ways of dealing with this: making a strict budget and keeping to it (boring) or deferring your care till you make enough money to just buy that debt off - in which you risk bankruptcy and other nasty things.

http://en.wikipedia.org/wiki/Rotating_Savings_and_Credit_Ass...

And, like others have said, if a big concern of yours are the overdraft fees call your bank and tell them you no longer want overdraft protection.

Personally, I like Virgin's take on this; buy a small bank that already has a licence and go from there:

http://www.telegraph.co.uk/finance/newsbysector/banksandfina...

As I said, the effort put in keeping with all this is very big. Usually the split is 50/50 with regulation vs new features (my view is as a software developer). The bank being global only makes things worse, as only adds more regulations from different places to equation.

Well that was the boring part. I think theres a place for new financial services but perhaps the way to get started is providing those new services and avoiding being a bank. As the institution adds more services and grows, it can begin to take into account the regulation little by little. That was my simplistic view ;)

Paper money works in its simplicity. You always know how much you have, because you can hold it and count it. There's no way to overdraft, or have it charged without your consent. The main downside is having to be physically present to transfer it to another person. Making change is also a minor annoyance.

So, digital money should be designed to be very similar to cash. First, it should be legally within your possession at all times, even if it is just a number stored in a government database. You should never have to hand control over to a bank if you do not wish. Because losing control means they can fuck with your balance and delay transactions. Perhaps it could be thought of as micro treasury bonds (not sure). Second, there are no transaction fees. It does not make sense to hamper commerce; and any infrastructure costs for money servers and bandwidth are a complimentary service of the U.S. Mint. Third: transactions are completely controlled by the sole account owner. Nothing gets in or out without the owner's permission. There is a combined transaction history and queue, extending arbitrarily far into the past and future. You may authorize a transaction or deny one without penalty at any time. If insufficient funds are available, the transaction is either delayed or canceled. You may also authorize a recurring transaction, but these will appear in the same queue in case the need arises to cancel. The beauty of the infinite queue is there are no surprises.

Now, I'd argue that Congress or the Treasury should get cracking on this immediately, but I doubt that's going to happen. So if you start a bank, please try to hold the principles of paper money in mind. Institute firm policies of ownership and self control with zero fees. You can practice with a virtual currency (maybe for a game) and just try to get the security and interface down. Good luck!

It might be more feasible to start a credit union:

http://en.wikipedia.org/wiki/Credit_union

A relative works in the banking industry as a branch manager and they literally have goals on how much they're supposed to collect via fee's, especially overdrafts. These goals alone can make or break quarterly bonuses and yes, they do indeed make a LOT of money from them.

I realize that overdrafting is in almost all cases the customers fault, but in my mind a bank should be loyal to its customers in the same way a customer is loyal to the bank. If I've been with a bank for 10 years and I overdraft 30 cents, cover it for me or at least reverse the fee without question if I call and ask about it. Often times, the banks are also meeting quota's on how many reverals they're allowed to give per day, month, quarter and per account. Call them at the wrong time and your plight won't matter, they'll just deny you. It really seems like customer service is no longer a top priority in most banks, perhaps not even in the top 5.

Unfortunately, as much as I'd love to see progress and change made in this area, I simply don't see myself ever giving my money to a bank or credit union that isn't well established unless I have some expendable income that I could test the waters with.

http://wesleyjohnson.posterous.com/chase-bank-sucks

First, I think a decent web interface for my money would be nice. The bank wont let me have 20 checking accounts, but it would be nice if I could have the appearance of that many accounts in a web interface. One account for bills, one account for the new computer I want to buy, one account for food, one account for random transactions (i.e. where my debit card pulls from). Then, when my direct deposit paycheck comes in, I want to be able to have it automatically be split up into these bins. I do all of this mentally any way, but if I could see it on screen then it would make things much easier.

I also want there to be text message alerts for things, especially overdraft. I got $720 in over draft fees for spending something like $150 last fall, this is absurd! If they had sent me a text message or email, or anything I wouldn't have had to skimp on Christmas presents. Of course many will say "this is how they make their money: fees." I would reply, "this is capitalism: have a better service and make your competitors bend to your will, or let them go bankrupt."

I have come up with other ideas on what a bank could do, and would like to be updated if anything happens with this.

Most of the comments here seem to miss the point: banks act as liaisons between people and money, and most banks -- even local ones -- aren't doing a good enough job at that, so there is a notable opportunity here.

For example, lending practices: there are many individuals with poor credit or financial liquidity issues that would still be reliable loan customers if the relationship was handled carefully.

And, other people here are missing the point about fees: these are not small sums of money which primarily target the poor. They are a poor tax. At what point did that become socially acceptable?

Then there's the problem of interest-bearing accounts. Financially savvy individuals don't bother investing in banks, because the yields are too low -- which in turn affects the bank's ability to lend.

So, yes. I'd love to see this.

Savings accounts at a 3% rate.

Mortgages at a 6% rate.

On the golf course by 3PM.

Still, I hope you're successful. I'd love to see better banks.

But, I'm not quite sure what's the exact problem you want to address. You are confusing local banks problems or their services with international issues.

For example Zopa (http://www.zopa.com) targets the loan issue.

Also, a lot of the innovation in that field is limited to the US. I don't know of anything comparable to Mint.com in Europe, for example.

I got my figures from http://www.fool.co.uk/news/investing/2009/12/30/virgin-break...

What you're spending on food, rent, and iPhones day-to-day is a substance called bank credit that sprung into existence when someone, somewhere, applied for a loan. When they spend that bank credit it goes into circulation and eventually winds up in your paycheck.

The issuing bank doesn't need to find real money to service that credit until they either have to correct an imbalance with another bank (call for a Brinks truck), or increase their deposit with the Federal Reserve to cover their mandatory 9:1 credit ratio.

It's all paper money and bits now.

And the bank also has to find real money when you withdraw it.

Also, banks cannot actually create money. Before a bank can lend money to a customer, it has to receive money from another customer. During any given business day they may end up lending more money than they received (or vice versa), but at the end of the day they just borrow it in the overnight Fed Funds market (or lend the excess). The only agency that actually creates money (electronically or physically) in the US is the Federal Reserve. They typically do this by creating money electronically, and then buying bonds, so that the money enters circulation.