Bits about Money

1. Moving stuff in a ledger from A to B (sending money around in general) is all fairly trivial from a technology standpoint, but only a minuscule part of what financial institutions are doing. They spend a lot of money and effort on combatting fraud and making sure rules and regulations (KYC, AML, CTF, sanctions, etc.) are being followed.

(The crypto bros (and some FinTechs) solve a tiny part of the puzzle with a new technology (not even good/efficient tech in case of crypto), and then think that they alone have solved it, and that the rest is easy, and that they are now in a position to take over finance. Not so.)

2. Costs vary tremendously by jurisdiction and industry structure. In Europe, bank transfers within the SEPA region are basically free (instantaneous transfers might cost 35 cents or so). Bank transfers, direct debit, and standing orders have been ubiquitous and cheap for a long time, and checks and credit cards are rarely used (on the continent; the UK is closer to the US system). There was no need for PayPal, as it was fairly trivial to pay bills. (Only when Ebay bought PayPal and made it the default payment method did PayPal get any traction in Europe, I think.)

Similarly, credit card interchange fees are capped at 0.5% in the EU. That means fewer card rewards (which arguably benefit mostly the rich), and less credit card marketing.

The banking system in the US is quite crap, but that's not due to stupidity, but a mix of a) well intended regulation that…

I'm bored, so I'll respond. But where to begin?

First, the most basic role of money is to be a medium of exchange. With reasonable overhead and in acceptable time, people need to be able to exchange money for goods and services. Crypto fails this in every practical way. If I want to buy pizza with bitcoin, my overhead exceeds the value of the pizza, the average time to make the purchase is longer than the average time to order, have it made, delivered, and get eaten by my family. (Have you ever SEEN hungry teenagers tear into pizza.) Also if people started trying to buy pizza with bitcoin, you'd quickly run into the problem that the maximum number of transactions per second on the bitcoin network is a fraction of the number of pizzas sold per second.

Yes, yes. This is all improvable. I've heard that for years. But these issues are not new, and haven't gone away.

OK, what next? You are making a big deal out of the fact that there are poor people in horrible third world countries who want to use crypto to escape authoritarian oversight. At best this is a red herring, I lean towards calling it disingenuous. A far more important use case for crypto is crooks trying to get paid for their ransomware attacks without themselves being caught by law enforcement. And the third world has benefitted far more from payment networks like M-PESA than all of crypto.

Besides, the single best way to help the poor people in horrible third world countries is to continue the…

Think of something like home owner insurance. Your insurance rates depend on exactly how your home is built, what type of heating system it has, where it is, etc. The rates, carefully calculated by actuaries, act as a signal to you as to how dangerous your house is to yourself, but also to others. If you set your house on fire due to negligence and cause the next house to burn, you might be liable for damages there as well.

Forcing everyone to buy such insurance forces everyone to fully pay for the expected cost of the danger inherent in their house. Over time, this causes houses to be constructed in a safer manner. If people are not forced to buy insurance, they don't buy it, and so this evolution over time does not happen. Also see [1].

Some financial tools are amazingly clever - whether they are morally good or bad. Bits about Money is a great blog to build insight into some of these constructions [2].

Another example for your initial question is car seats for kids. If you don't force em, nobody buys em. Then their kids die.

[1] https://en.wikipedia.org/wiki/Moral_hazard

[2] https://www.bitsaboutmoney.com/

For background on KYC in the banking context @patio11's podcasts and essays are worth consuming:

Patrick: Yes, so "Know Your Customer" (KYC) and "Anti-Money Laundering" (AML)
are mandatory elements of the international compliance regime that have been
in place in the United States since the early 1980s. Over time, this regime
spread globally, largely fueled by the U.S. leveraging the dollar as a tool
of foreign policy—a point where I find myself agreeing with critiques from
the crypto community. Their complaints about this are largely accurate. You
can see this clearly in the documents as these laws were passed and as
supranational bodies increasingly tightened regulations on banking secrecy
havens.

https://www.complexsystemspodcast.com/episodes/true-crime-banking-edition/

https://www.bitsaboutmoney.com/archive/kyc-and-aml-beyond-the-acronyms/

> what specific reason they have for triggering KYC/AML

As far as I understand, they're often not allowed to disclose that. E.g.,

https://www.bitsaboutmoney.com/archive/seeing-like-a-bank/

> In the specific case of “Why did the bank close my account, seemingly for no reason? Why will no one tell me anything about this? Why will no one take responsibility?”, the answer is frequently that the bank is following the law. As we’ve discussed previously, banks will frequently make the “independent” “commercial decision” to “exit the relationship” with a particular customer after that customer has had multiple Suspicious Activity Reports filed. SARs can (and sometimes must!) be filed for innocuous reasons and do not necessarily imply any sort of wrongdoing.

> SARs are secret, by regulation. See 12 CFR § 21.11(k)(1) from the Office of Comptroller of the Currency...

That blog has a lot of choice quotes along the same lines. Another favorite:

https://www.bitsaboutmoney.com/archive/money-laundering-and-aml-compliance/

> This [KYC/AML] will affect the typical user of the financial system precisely zero times during their lives.

I've been affected by this nonsense, and so have friends and family. Quite inconvenient when you're trying to buy a house and trying to keep things moving on time. I may not be "typical" but my mother certainly is. I can tell that patio11 is highly invested in the finance industry, not wanting to burn bridges, and I think he is incentivized to try to make people believe that KYC is beneficial and highly effective, but it's just not the case. It reminds me of the people inside Google working on their auto-banning systems who won't admit that it doesn't always work perfectly.