New tech: same as the old

This is the fifth post in our series "From old money to Smart Money." If you haven't read the first four, we recommend you start here.

“Okay,” you might say, “clearly, ACH and checks are broken. I knew that already, because last time I sent a payment somewhere it took several days. But there are all sorts of new technology these days. Zelle! Neobanks! Fintech! Don’t these fix the problems?”

Spoiler alert: no.

Zelle, for example, is a group of the biggest banks sharing “risk” information with each other. On each transaction, they agree whether the transaction is risky or not. If it isn’t, they credit and debit the accounts instantly. But: behind the scenes, they still send an ACH to actually settle it. It’s just that in the interim, the banks agree to make it seem like the money moved instantly. The ACH they are sending still has all the risks that the normal Pony-Express-esque ACH system has.

Why does this matter for you? Well, because the money isn’t actually moving and the banks are making a risk decision, they don’t let you do whatever you want with your money. Zelle has a weekly limit on how much you can spend, and in certain cases, they might just arbitrarily reject transactions.

It’s crazy that your money is restricted like this. But again: not the banks’ fault. Because they’re stuck on ACH, they have to make decisions like this. It’s the fault of the system.

Neobanks are more of the same — think Chime, Revolut, Step, and more. They’re typically technology companies partnered with a small bank. The bank provides the services, and the neobank provides a beautiful, slick user interface that targets a hyper-specific audience.

Since they’re not the bank themselves, they often can’t take the same interest out of your pocket the way a bank can (their partner bank still does!), so the main lever they can pull to try to reach profitability is capitalizing on debit card interchange and subscription fees (fees, again!) while driving their consumer acquisition costs down through better marketing to specific demographics. A beautiful app with better marketing to a specific group of people is not the solution to our systemic problems.

And now for something that may seem unrelated…