Leaving the banking system and only using Bitcoin can have several distinct advantages. It can save banking fees, protect against identity theft, maintain financial independence, and remove the fear of having one’s funds shut down in the case of controversial activity. However, losing the banking system is not without its drawbacks.
Cointelegraph interviewed Tiffany Hayden, founder and CEO of Enable Payments and a candidate for the US Congress, about the potential downsides of going completely unbanked.
Cointelegraph: How useful or necessary is it to have a bank account?
Tiffany Hayden: Using cash for everyday transactions is a hassle. It’s aggravating how often a cashier hands back the incorrect change. It doesn’t happen occasionally, it happens all the time. I doubt there are any cash registers out there that don’t tell the cashier exactly how much change to hand back, so that means it’s either a counting problem or it’s being done intentionally. I don’t have time to give a math lesson every time I go through a drive-thru, so I usually end up ignoring it.
Speaking of time, paying with cash at the gas station is an entire event. I cannot believe the number of people who go inside to pay. There is always a line. The cigarette and lottery people are the worst. They’re usually on a first name basis with the cashier and make lots of small talk.
Making a car payment without having a bank account is a pain. My car is financed through Chase Bank. If I send somebody $300 in Bitcoin, they can’t go into Chase Bank with $300 and my account number to make the payment for me. Chase Bank does not accept cash from non-customers! They will point to a grocery store across the street and tell you to purchase a money-order first and then come back to make the payment.
Prepaid credit cards might sound like a good idea, but my first experience was a small nightmare. I was given a $500 Kroger prepaid Visa card. The card says that it is FDIC insured…after it’s activated. The problem was that I couldn’t activate it. The only way to activate the card was to call an automated number. Every time I entered the numbers on the card, I got an error message saying the numbers weren’t valid. I tried over and over with no luck. There was no option at all to speak to customer service. It was just one big loop of rejection. It took me awhile to get a human on the phone and when I did, the customer service representative pretty much told me I was out of luck. She said there was absolutely nothing she could do, that the automated number was the only way in the world to activate the card, and to try and again from another phone. Click. She hung up on me.
I started complaining on social media. The person who purchased the card tried to activate it and had the same experience. It took several hours and a small army to activate the card. There was no “ah-ha” moment. There wasn’t a specific problem that was suddenly resolved. From what I can tell, there was a deliberate decision made to activate the card only because I didn’t go away quietly.
An online friend suggested that the reason why I was unable to activate the card and the reason why I told to try calling from another phone is because I use a prepaid SIM. This person alluded to the idea of a national database of SIM card registries and that prepaid cards over a certain threshold may only be allowed to be activated from a registered SIM.
It was an interesting idea that didn’t sound too far-fetched. It’s my understanding that in order for a prepaid card to offer “pass through” FDIC insurance, the actual owner of the card must be documented. Hypothetically, it sounds possible for a third-party service to use SIM cards to offer something like “identity as a service.” SIM does stand for “subscriber IDENTITY module”.
But I ended up finding the cardholder agreement online and they aren’t using a third-party to validate identity. What they are doing is using a bunch of shady marketing strategies. The card purchased and the money loaded aren’t actually insured by the FDIC. The cardholder agreement states:
“The funds you have loaded on your Temporary Card are not insured for your benefit by the Federal Deposit Insurance Corporation (“FDIC”) or any state or federal agency; however, the funds loaded onto your Personalized Card are insured for your benefit by the FDIC up to the maximum allowed by law.”
Essentially, unless the temporary card is converted into a “personalized card” -which requires identification, it’s not FDIC insured.
CT: It should be pretty easy to get a bank account, right? How would anyone end up unbanked in this day and age?
TH: Tightening regulatory requirements related to compliance with Bank Secrecy Act anti-money laundering regulations (BSA/AML) have accelerated de-risking by banks (also called de-banking). This involves closing the accounts of customers in order to avoid or limit risk -often without ANY warning or justification to the customer.
Very little empirical data is available about the accounts related to law-abiding individuals that are being closed at an increasing pace. Financial institutions are citing regulatory pressure, fines, and potential for criminal prosecution as the primary motives, but a cursory glance at recent actions by some of the world’s largest banks tells a different story.
The leak of documents from HSBC Switzerland in 2015 revealed that one of the biggest banks in the world had enabled tax evasion on a massive and institutionalized scale.
In 2014, BNP Paribas was fined $8.9 billion by the U.S. for playing a pivotal part in allowing the Sudanese regime to trade oil and finance itself, and highlighted the role that the Sudanese regime was playing in the genocide in Darfur. Even more disturbing -the $8.9 billion is not being equitably distributed to the Sudanese people.
I am at a loss as to what problem is being solved by denying bank accounts to newly divorced parents who are unable to show “proof of residency” in the form of a recent utility bill or tax document. I am also confused about what problem is being solved when bank accounts of Coinbase users are suddenly closed without explanation. There is a very real problem of banks aiding tax evasion and corruption, in addition to handling the proceeds of drug trafficking and other serious crimes, and also breaking sanctions laws and ignoring the risk of terrorist financing. Why are Bitcoin users and people without a permanent address being singled out and discarded?
CT: How useful/necessary is it to have a bank account? What kinds of doors does not having a bank account close?
TH: David Schwartz has argued, and I completely agree, that the entire KYC/AML scheme is a massive due process violation. Arbitrary standards keep legal businesses from being able to operate. Money transmitter operators, cryptocurrency companies, and those in the adult entertainment industry are examples of legal businesses actively shut out of banking. That’s enough to close existing businesses and prevent new ones from forming.
On an individual level, being excluded from the formal financial system is expensive. Not being able to participate in direct deposits from an employer often means using an expensive check cashing service. Not being able to pay bills online means extra time and energy securing money orders and sending them out via snail mail.