The U.S. might be a world leader in many things, but when it comes to the banking system here you feel taken back to the middle ages compared to, for example, Europe. The first surprise for a European like me is the common usage of checks. A check, for those not familiar with them (which I’m assuming includes most of my European audience), is a piece of paper that has your bank routing and bank account number on it. You write the recipient’s name and the amount of money to pay on it, sign and date it, and give it to the person or company that you want to pay.
While in Austria the concept of checks is pretty much unheard of (and you probably wouldn’t be able to pay with them anywhere), here in the U.S. they are far more common. They are often used to pay rent, utility bills, mobile phone bills, and many other types of bills. Also, employers use them to pay their employees (i.e. the pay check). In many instances, checks are the only form of accepted payment.
Direct payment via automatic transfer from one bank account to another bank account has just recently started to gain popularity, but (as a European) you wouldn’t believe how incredibly hard and painful it can sometimes be to set that up.
An example: My housemates and I have just recently moved to another house, so we had to set up a new water account with the local water district. Of course, I wanted to pay the water bill automatically from my checking account. In Austria that would be the normal thing to do. When you sign up for your water account, you give them your bank account details and direct payment is set up within one or two bank days. Here in the U.S. you also give them your bank account details, but in addition they usually require you to include a voided check (wtf?) with your application for direct payment. But what’s worse, it usually takes between 30-45 days for the direct payment to become effective. So for our first few bills I ended up paying manually, i.e. by check or credit card. 30-45 days? “That’s ridiculous”, you might say and you’re absolutely right. However, it’s the way it works here in the Land of Opportunity.
Another example of where I consider the U.S. banking system to be archaic is direct transfers between personal bank accounts. In Europe, if you owe a friend money you can easily pay her via online banking. You log in, type in the bank routing and bank account number of your friend, enter a TAN (for my American readers, a TAN or transaction number is used for security reasons to authorize online banking transactions) and off you go. Your friend will have the money electronically transferred into her account within a few days. (The transfer actually happens instantaneously, but banks have to make money somehow and so they use your money for a few days for investments on financial markets).
While it seems to be possible to do the same thing with most banks here in the U.S., it is still somewhat complicated. Here’s how it works: If your online banking supports it, you follow the same steps I outlined above (with the exception of not using TANs; they haven’t heard of those here yet). But what happens then is kind of incredible: If my friend has a bank account with a different bank than I do, you actually have to enter the bank’s name and address (and add “c/o Friend’s Name”) instead of just using your friend’s name. Then my bank will send a paper check (!!!) to her bank, which the bank will then cash and deposit into my friend’s account. Again, I’d like to emphasize that they actually send a paper check! It seems that they haven’t heard of electronic databases and all the other electronic software gimmicks European banks use for this kind of stuff.
So now I’m in charge of paying the utility bills for our house and my housemates mostly pay me back with checks. That of course means that I have to go to the bank and cash them in (argh!).
Why can’t they have easy, electronic direct deposit in the Land of Opportunity? Why has no one used the opportunity to develop proper online banking that allows me to do all sorts of transactions myself online, such as direct account-to-account transfers, international transfers, investments in funds and stocks etc.?