Future Banking

The Big Short, a movie and book about the housing crisis, garnered a lot of buzz throughout the U.S. since its limited December 2015 theatrical release. Adding to the momentum was an Oscar win for Best Adapted Screenplay. The movie has become so popular (and was Hollywood-approved in the first place) because the general sentiment in this country is that the financial sector is systematically corrupted by greed.

While it’d be nice if there were some magical Easy button we could press at the polls to put people in place to fix these problems, we, the people are the only ones capable of creating change with our wallets. Here’s the basic premise:

  1. Taking your money out of the bank means you have to convert it to digital currencies to avoid stockpiling cash, which is a huge security risk unless you’re a bank or government.
  2. Converting your cash to digital currency without a bank can be accomplished with online payment services (PayPal, Google Wallet, Apple Pay, Bitcoin, World of Warcraft gold, etc.).
  3. None of these online payment services are insured by the Federal Deposit Insurance Commission, so you can’t get direct deposit.
  4. Prepaid debit cards and secured credit cards both securitize their debt through banks (in slightly different ways), which are FDIC insured. Therefore, you can get a direct deposit with a prepaid or secured card.
  5. Since you’re using direct deposit through an intermediary, you’re no longer an individual personal account holder with the bank. Instead, you’re in a class whose individual accounts through the card issuer represent one B2B enterprise account with the bank.
  6. A class-action lawsuit is more likely to be settled in your favor than an individual one though the payout will be significantly less as it involves more people and power.
  7. Unbanking and indirectly depositing all payments protects your money better and costs the banks money without hurting the government.

Here’s a bit more detail on how I came to this conclusion.

The Perils of Becoming Unbanked

Having worked in the financial industry throughout my early career, I was for a time an unbanked bank whistleblower and have survived (and even thrived) as such for over five years now. By not depositing my money into a bank, I also didn’t have direct deposit.

The majority of my clients are in the tech sector, so I’m able to make a decent living just off my PayPal invoices. Most tech-based companies pay independent contractors through PayPal, however, there is still old money influence and some web-based businesses still pay by check or direct deposit.

Without a method of direct deposit, however, I would be cutting myself off from a large percentage of possible high-value corporate clientele. It’s a measuring stick used by companies with an old-money mentality to verify if you have a bank account. If you have a bank willing to accept direct deposits in your name, you’re seen as more likely to be a person who can be trusted.

By definition of being a bank whistleblower, I feel that I should be trusted more than the system does. For some reason, the banks and government don’t like people willing to blow the whistle and speak the truth. Being cut off from the system, I have to operate as both an independent contractor and entrepreneur. That is to say I need to be able to take care of both my immediate situation and building a sustainable future. I joined the growing populations of cord-cutters, pirates, and content marketers but still needed direct deposit to diversify my liquidity, so I obtained several prepaid debit cards via student loan deposit accounts and ones underwritten by Green Dot, MetaBank, and others. By using these cards, I’m in a class with the card issuer (Visa or MasterCard) against the bank in an adversarial system. It’s an indirect deposit that (at a freemium cost) protects my investment against the bank.

This transformed me into the class of the underbanked.

Fortunately, although there are few living whistleblowers, I’m not the only underbanked independent contractor and entrepreneur in the world. There are 21 million underbanked American adults alone, and we represent a sizeable part of populations around the world, according to a report from The World Bank.

The Unbanked Union

There’s power in numbers, and although neither Occupy nor Obama nor The Big Short created any significant change in our immediate surroundings, they continue to fuel an overall change in thinking about finance.

The unbanked industry is a large one. According to the CFED, 9 million Americans are unbanked, meaning they do not have an FDIC-insured checking or savings account in which to deposit money. These people rely solely on cash or other liquid currencies (which includes any foreign currency, tradeable commodity, or digital currency) to carry their net worth and revenue.

Another 21 million households (which includes me), have an account (as a representative of the class of the creditor of my secured credit deposit account) but rely on alternative financial services (the prepaid debit account).

It’s important to understand what classes you’re in because that is how you keep your assets secure. If you have a dispute with PayPal, there’s not as much regulation as there would be if it were Bank of America, even during the brief period in 2010 when PayPal deposited its liquidity into Bank of America.

Once PayPal did that, they become the customer of Bank of America, not you. Unfortunately, the FDIC and SEC wouldn’t allow it, and this eventually led into PayPal separating from Ebay, for many of the same adversarial reasons.

PayPal can no longer rely on Bank of America (nor any of the nearly dozen deposit banks it transferred liability to) and must remain solely responsible for any litigation against it. Although PayPal customers could still form a class and file a class-action, in the worst-case scenario (PayPal dissolves and all the money disappears), that class would have no one left to sue but the government taxpayers, of which Bank of America is not one.

This means that the 9 million unbanked households who rely solely on liquidity are the most at risk of being ending up broke and alone. Being reduced to the minority makes these people the most at risk financially, career-wise, and economically. They’re the most likely to require government assistance throughout their lives.

The 21 million others are the yellow zone, in who have diversified their risk and are simply testing the waters. The more households that learn to rely solely on the security of liquid currencies, the larger both of these minorities get, and the more powerful the classes are.

Fighting Devils with Demons in an Adversarial System

Lil Wayne has a popular lyric, “Sometimes you gotta fight the devil with a demon,” and this statement rings true. Unions were formed for a reason.

Imagine going through a divorce. The U.S. legal system is set up in an adversarial manner, meaning the lawyers representing each party in a case can’t have any current or prior interest in the other party. In layman’s terms, you and your ex can’t hire the same lawyer or law firm.

In the collateral loan industry (mortgages, auto loans, etc.), insurance ultimately protects the loan because the insurance company is not the underwriter of the loan. In order to protect yourself as an individual, you need to pay both the insurer and the lender in order to keep your loan. This is so important that banks regulate you maintain certain levels of insurance in order to balance their own risk.

The specific third-party contractor I worked for in the mortgage industry before I became a whistleblower was an insurance company owned by the lender. This meant the insurance company and lender were no longer adversarial, the divorcing couple hired the same lawyer.

The judge should have reprimanded the lawyer, but failed. That fuels the distrust of the 30 million unbanked and unbanked individuals in the United States. Hollywood bet $28 million on that distrust (the budget of The Big Short), and grossed over $123.9 million from people who felt Hollywood deserved their money more than the banks.

The Importance of an Entrepreneurial Spirit

Hollywood is often lambasted for leaning liberal, but the industry is more entrepreneurial than anything else. Hollywood invests and gambles its liquidity, and, although none of us will ever look or act like Brad Pitt or Angelina Jolie on-screen, we can live with an entrepreneurial spirit.

Taking on the risk, rolling up our sleeves, and determining our own directions does take work. It is difficult operating without a safety net and being my own boss. Truth be told, even working for myself, I find my boss is tough. Unfortunately, I also micromanage myself obsessively.

Not everyone wants to take those types of risks, but there are enough of us that are to disrupt any industry. But by moving money out of the banks, trusting them less, and forming larger unions, we are building a much more solid foundation. The minority can become the majority, and we can create a machine bigger than the banks and let the next generation figure out how to destroy that one.

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  • Mauricio Morgan

    the thought of not having a bank account scares me! But at the same time it makes me feel in control of my money.

    • Markz

      Great point Mauricio, I feel the same. Where is the next revolution?!