Monday, 9 February 2015

On American financial primitivism

This post should have been written months ago, but I never quite got around to it.  It stems from various observations I made whilst biking in the United States last year concerning the American financial system and how different it is compared to the Canadian system and indeed that of other industrialized countries.

The first thing that struck me was how deeply and quickly the elimination of the penny in Canada has shaped my habits. Several times, I found myself instinctively rounding down or up to the nearest 5 cents when paying for things with cash, despite the fact the Canadian penny hasn't been gone for all that long. Pennies are surprisingly annoying once you have to use them again. While I was waiting out a rain shower under the eves of the C-store in Caspian, I overheard the cashier talking on her mobile to someone asking if they could get her some pennies as she was out and it was a weekend. I surprised her by giving her my stock of pennies (about 17 or so) on the random acts of kindness principle. A few days later at another, less corporate C-store on Highway 2 in Michigan, the owner told me that he rounded down prices to the nearest 5 cents. We had a discussion on the Canadian experience of the abolition of pennies.

In a similar fashion, I noticed that I was instinctively rustling my American bills in order to separate them as I do when handling the new plastic Canadian bills which are known to be somewhat sticky. The cloth paper American greenbacks seem almost an archaic throwback along with the absence of dollar coins or even two dollar bills. While both exist, they are rarely seen. The two dollar bill on account of prejudice bordering on superstition against them.

Another throwback is the way credit cards are handled. Rather than the now ubiquitous PIN reading machine (at least in Canada but also in the U.K. and Australia) such as the two transactions I did this morning, the procedure is the old carbon copy imprint and signature method. Likewise, Interac or other debit payment systems seem to be almost unknown. One visible effect of this is that it is obvious that people still pay for a lot of things by check, including gas. I saw a number of gas stations with signs limiting the use of checks such as this one:
I see this as a sign people aren't using credit or debit cards to commonly pay for things. As well, it also indicates a fear of fraud.

In thinking about these issues and trying to figure out the "why" of it, I tied it in with another phenomena that seemed odd to my eyes: the absence of major banking chains. When I rode through American towns, I rarely saw any familiar banks. By this I don't mean Toronto Dominion or Bank of Montreal, but a consistent  "big name" bank, à la Citicorp, Bank of America or the like. Instead, they banks I saw tended to be "First National Bank of Podunk" or "Mudville Savings and Loans." Evidently, they were linked to a greater network as their ATMs worked for me, but they didn't seem to part of a chain equivalent to TD or even Caisse Populaire Desjardins.  My working theory is that there is a bias against "them there evil Wall Street bankers" which translates into small banks. (I have since found out that interstate bank branching only became legal in 1994(!)) How the small banks tie in to the larger financial network is unknown to me.  However, I am prepared to speculate that this means the small banks don't have the capital to bring in the debit machines. From a grocer friend, I know that those things are expensive and would be more so if the parent bank was small. Thus these small banks represent a barrier to technological innovation. At least, that is my theory.

As well, I can't help but wonder if the separation of small banks dealing with consumers from the large commercial banks didn't contribute to the financial meltdown a few years back as financial instruments (such as sub prime loans) "traveled" more between institutions rather than staying put within a single large bank with many branches.

All this to say that financially, the United States seems primitive in many respects.

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