How are Banks screwing you over?

The real reason why so many people are willing to adopt cryptocurrency is because of a certain dissatisfaction with existing systems- come to think of it, this is why humans constantly think of reinventing the wheel.

To really understand why the wheel needs reinventing, we need to go back to a time without wheels

In the beginning, people exchanged goods for goods or services. I’d give you four bags of potatoes for a chicken, a house on a small plot for a large empty field, a few chickens for the quinine to cure my malaria after having been diagnosed with it. This was the barter system which is a personal agreement between two people who set a value on goods/services they had to offer in exchange for goods/services they wanted.

The problem was that there was no standard set value for people to draw comparisons with. Each agreement was independent and in case of an unhappy customer, things could really go sour.

So we moved to currency, made of rare metals like gold, silver, bronze and copper. Each coin had a defined weight and that weight had a defined value. It became easy to exchange coins for goods/services.

Eventually, some people had too many coins and didn’t have too much place at home to keep all those coins. But they had to keep them anyway which led them to live in the fear of armed robbery. Eventually, some families came up with the idea of a bank- a place where you could keep your money safely and access it whenever you wanted it. In the early days, you’d pay the bank to keep your money safely. But some genius eventually figured out that all that money was sitting idle, and would actually make the bank more money if it were loaned out while the original owners of the money didn’t really need it. Add to this, the profits from interest collected on the loans was not only enough to waive off the fees people paid to keep money in the banks, but it was also enough to pay people an interest for depositing money.

Banking in the 21st Century

Fast-forward through the industrial revolution and familial banking gave way to national banks and central banks. These institutions manage an entire state’s finances, cash-flow and set the interest rates for loans and savings.

So far, so good. But the inherent problem with giving someone all your money for safekeeping is that it is run like a business. And businesses need to make profits to stay alive.

So the focus in financial institutes shifts to how we make more money for the bank that we work for with banks usually treading a fair and just line with this. Their credit business is looked at from a lens of risk. Their savings accounts business is looked at as a servicing business with service fees and other hidden charges becoming a norm.

Digitization & Newer Technologies

With newer services (ATM, telebanking, SMS banking, etc.) come newer service charges. Even with regards to funds transfer, you end up paying a rather heavy fee. A $100 Million transfer might incur transaction fees amounting to almost a million dollars in itself. A similar transaction via a blockchain based cryptocurrency would incur a cost of maybe a dollar. Even 100$ doesn’t seem too much compared to the million you’d spend via banks.

Read more about the benefits of Blockchain technology.

I think the worst of all these fees (and it does seem like an evil thing to do) is the minimum-account-balance fee. Banks charge you money for not having a certain amount of money deposited with them.

If you tried walking into your bank and requested them to transfer a large sum of money, say like $100,000 – they’d probably laugh and tell you about a withdrawal limit. Then they’d give you an acceptable number and let you know that they are mandated by some bureau to inform them of transactions above a certain number. You’re left wondering why you’re not being allowed access to your own money.

Meet John Smith

Now I’d like to introduce to you John Smith, a sales executive at a bank. He’s ambitious and loves Ferraris. He works hard at a big central bank to make a lot of money for his bank so the bank gives him a lot of money in the form of incentives. John Smith then buys Ferraris with the money, ‘cause he loves ‘em. But John Smith gets really scared when he’s unable to meet his sales targets. He fears he will be fired and he will have to sell his Ferraris. So John Smith bends the rules a few times to achieve his targets. But John Smith is a good guy, he’s just doing his job. A financial institution that recruits thousands of John Smiths who sometimes bend the rules to meet their sales targets usually ends up in a situation leading to a catastrophic collapse of the system. In extreme cases, it leads to an economic depression, just like the one we witnessed in 2008 when the Lehman Brothers filed for Bankruptcy.

While blockchain technology and cryptocurrency are in its infancy, adopters are visibly impressed by its ease of use, low transaction time and fees, minimal human intervention and it’s generally decentralized nature.

Read about how banks are adopting blockchain technology.

Do you agree with the fact that banks cater to their own needs over the customers? Let us know in the comments section below.

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