This is such a strange question. Having many participants in a market simply means that nobody were able to consistently outcompete the other players.
I's like saying, why have 2 million farms in the U.S., when you could just have a few mega cooperations owning all farm land?
It would make more sense for many of those smaller banks to merge locally and compete with much bigger banks in their geography. But the US is odd. Take, for example, the justice system, where very little town has its own police force. In contrast to other countries where the State police do all forms of policing and everyone gets a better and more uniform quality of service.
I would question the notion that promoting numerous small banks without the advanced features of larger counterparts, and deeming it beneficial for competition, is simply a manifestation of U.S. exceptionalism.
I used to bank with large national banks. Their fees were higher, account balance minimums were higher, loans were harder to get (often with higher rates), and their response to customer service issues were to raise their hands and say “sorry, it’s corporate policy.” Their big benefit was that branches were easier to access and they have ATMs everywhere.
I moved to a local credit union and have no interest in ever switching back. They invest in the community. It’s easier to get a loan. It’s easier to appeal to a human. And they simply work with you more. Nowadays they provide essentially everything larger banks do with better service. The only thing I can think where they lack are international wire transfers, where they need to route through a bigger bank. I think I’ve needed to do that once in the past decade.
Regional banks could possibly fill the role small banks do, but we used to have regional banks and they all consolidated throughout the 90s and 00s, presumably to be more profitable, or they sold off to larger banks. Small banks and credit unions do the job regional banks used to but without the mandate to increase profits year over year.
There are plenty examples of American exceptionalism. Providing more customer choices and better service by having more choices in banking is not a stellar example, IMHO. It may complicate rollout like of things like FedNow, but if that’s the cost of having access to a banking system that enhances their communities, I’ll live with the trade-off. On the other hand, I have friends in other countries that despise their bank but have maybe two other options, with essentially no difference between them, so they’re stuck with it.
A core topic of what I wrote is that I enjoy banking with an entity that doesn’t have aspirations to grow beyond its local environment. I enjoy being a member of a credit union. I decidedly do not want to bank with a large bank. History has shown this utopia you envision is almost certainly never going to happen.
Why should I want to bank with a large bank? I’ve done it, several times, and it offers no advantages over my current bank. The goals of a credit union are far more aligned with my own interests.
Yeah, no. The tiny bank in Arkansas isn't participating in the same market as the tiny bank in Alabama. But the large bank from New York wasn't allowed to compete in Alabama by state regulators.
In fact, I suspect that there are actually huge inefficiencies in these very small regional banks people are paying for one way or another.
It might still be worth it for society, in the end, but I highly doubt that it’s cheaper/more efficient than in other countries.
One example is the fact addressed in the article: It takes way too long to roll out technical innovations that have been commonplace in other countries for decades or even centuries.
I’m not even sure why you’re intent on blaming small banks for the slow rollout. The article notes that the large banks introduced a competing system in 2017 and it took years to deploy. That’s with all of the advantages of large bank efficiencies and none of the pesky government bureaucracy. We always hear stories about the legacy COBOL systems these big banks have and how it hinders innovation.
It seems to me this more a case of no incentive. If this were such a highly sought after feature, customers would flock to the banks providing it, but they’re not. It’s worth considering why so many choose smaller banks. They can certainly choose large banks but aren’t, despite whatever efficiencies large banks can supply.
Barclays was founded in 1690 though
I’d rather have 50 large banks than 5 humongous and 5000 tiny ones from a resilience and efficiency point of view.
Sounds like a business opportunity. Heh, I wonder why the market is so broken that this wasn't fixed yet, there's obviously money in dealing with money.
It's more of a people problem than anything else. Wrapping the future in a palatable package for risk adverse bankers is truly a cursed problem. Everyone needs their medicine coated in some exquisite form of custom sugar or they won't even look at it.
Traction has been acquired though. We've got word of mouth doing the rounds and customers are coming to us out of the cold.
Paperless onboarding is our bread and butter, but we are eventually going to become the single pane of glass for any branch manager or frontline employee.
Back office is our next dragon. We are saving it for last because doing front office well (I.e. paperless signed docs straight to imaging system via api) means back office workload naturally reduces.
The opportunity is bananas. More than we can deal with and you basically have a mini market per core platform. I feel like you need a really special kind of team to do what we do. Our company president is a former banker with a strong vision of what an ideal in-branch customer experience looks like. I can't imagine it working out any other way.
There’s a lot here that sounds interesting but I have no idea what business you’re in
It really is incredible to me the moats that some of these business leaders have been able to construct. At the end of the day, what these companies are selling is regulatory permission to use a very over priced SQL database.
The real-time aspect of FedNow has liquidity implications; the fact that it (optionally?) allows outbound push payments for consumers at a much cheaper rate than wires makes means that automated fraud prevention becomes a priority.
In other words, when you can charge $10-30 for an outgoing (and often incoming!) wire, that pays for the liquidity and manual fraud reviews (during business hours only). At roughly $0, those economics change significantly.
Why should efficient lending decisions somehow be uniquely hard to make in a large corporation with many local branch offices?
We’ve seen massive consolidation in mobile phone networks (where local knowledge should arguably matter just as much for where to build the next tower), supermarkets (I’d assume preferences and spending habits to also vary widely), media, and many other areas of business.
What makes banking so special? And why in the US, but not in most other countries in the world?
And if it’s a question of not having too many “too big to fail” entities: Wouldn’t it then be better to have 20-50 Chases rather than 5 Chases that still concentrate a huge chunk of customers and a long tail of thousands of tiny banks?
Once a bank gets big enough, I think the main issue is risk. The long tail of tiny banks represents a certain customer type that is harder to model in an Excel model and is vetted through personal relationships. Consider one the "big" banks in that long talk - SVB. For a lot of startups getting banking services such ACH, or lending mortgages to founders backed by "paper gains" would be a nightmare for your classically trained big-four bank manager. Conversely, all the work thank bank manager would have to do in winning those deals, likely wouldn't get any benefit from the parent bank except for the bank charter and maybe a small bonus. It's better to be the CEO of a small bank with a highly differentiated order flow, then to fight your exec who lives 1000 miles away that won't let you lend to founder of DropBox because cloud storage isn't a dropdown in their excel spreadsheet.
The trouble is that the decisions can't be entrusted to the branch offices, so you wind up being a little stiff and inflexible and slow.
Banks have the issue with delegating power to give you money. From a distance I'd guess there is a real advantage to businesses of local banks and being able to work on personal relationships.
You never have a relationship with a big company, you are just an entry in a database interacting with an algorithm.
Easy. When you only exist in for example Manhattan, you don't have to deal with divergence laws against Calif, because you just not in Calif.
But when you have branches in NY and in Calif, laws just prohibited you to make different decisions for NY and Calif - all MUST be SAME.
And we still do have too-big-to-fail ones too – and they’re gaining market share.
Only being able to receive and not send is a feature I’d love to have for my bank account. If it’s implemented at the “bank level” even better. One less worry for me.
It hit the market well after people were seeing FedNow on the horizon. Why bother building something expensive that's obviously going to be obsolete in a few years?
If it was meant to compete with PayPal/Cashapp/Venmo, it was 10-15 years too late for that. Anyone who wanted it had it already.
I wonder if the value of Zelle is that it's still a private club. The customer safety and confidence stories have been terrible-- rejecting accountability, ignoring fraud and misuse. The banks are incentivized to say "our network, our rules."
FedNow, as a government entity, will eventually respond to controversial political forces like "people expect to be made whole in the event of fraud" or "payment platforms should provide a means of leverage in customer disputes".
GDP of USA and Italy: 26.95 and 2.19 trillion dollars. [2]
GDP/banks (if it makes any sense but bear with me) : 26.95/9000 = 0.0029 and 2.19/439 = 0.0049
So yes, money per bank is less in the USA but only by a factor of 2. It's in the same order of magnitude. It's also a much larger and sparse country (at least in some areas) so I would expect more fragmentation and redundancies in those markets where you need to be physically close to customers. Banking is among them IMHO
[1] https://www.bancaditalia.it/pubblicazioni/banche-istfin/2023...
[2] https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nomi...
Congress grilled bank executives about it last year and even most of the representatives failed to grasp that it was digital cash. If someone gets defrauded, it's just as if they handed $20 to a scammer. It's going to be hard to reverse that.
Comparing it to cash is dumb.
Imagine you’ve sold a car, the buyer drives off and later reverses the payment.
For very large transactions we have escrow—but isn’t quick by design.
A new potential court-ordered opposite transaction is not what people think of when they hear reversible.
It's that table stakes have changed. Mainstream customers-- and the regulators who represent them-- expect reversibility as a built-in feature. The technology exists for it. Saying "we're building digital cash in 2023" is like saying "we're going to sell a 4K OLED television with seperate VHF and UHF knobs, because it was fine for Grandpa's 17" CRT."
Various players may desperately want a non-reversible transaction to save a few cents per transaction, or to immunize themselves against bad-faith chargebacks, but it's pretty much ignoring everything we've learned about fraud and user experience in the last 50 years of electronic payments.
At best, there might be a market for a seperate, parallel universe of nonreversible transfers, but it would likely be something tightly regulated and B2B, rather than something that you can misdirect ordinary customers into choosing (like, say, Zelle or PayPal's friends-and-family mode)
I doubt this. Austria alone has 334 independent Raiffeisenbanks(!) (usually Ltd. or Cooperatives) and this is only considering one of our three banking sectors. In total we easily have over 500 independent banks in Austria alone and I know our Swiss colleagues have much more than this. And we're just two tiny countries.
Instant payments in the EEA have worked without an issue for a long time now, by the way.
The article claims big banks lobbying with their own competitor to FedNow delayed the rollout of real-time payments, according to those industry officials. But another factor I want to point out is that the USA has more small banks (and, I assume, credit unions) than any other country on Earth; affecting the ability for the network effects of a real-time payment system to take hold.
"The U.S. has more than 4,000 small banks. That's more than any other country in the world and more than all of the small banks in the entire European Union combined."
https://www.npr.org/2023/05/04/1173488958/silicon-valley-ban...
I am a member of one of the 20 largest credit unions in the US but they only allow to receive FedNow payments. Not send them. I am assuming it is expensive to setup and many small financial institutions may not be able to support it for years down the line.