Captive Markets in Everything

by Henry on March 6, 2009

The Irish Times

RYANAIR SAYS it is serious about plans to charge passengers for using the toilet on its aircraft. “It’s going to happen,” chief executive Michael O’Leary told journalists yesterday about the proposal, which garnered huge publicity worldwide when he threw it out as a vague possibility last week. Mr O’Leary said aircraft manufacturers had told him there were technical and safety issues about using a coin-operated system on toilet doors, so the proposal now was that passengers would swipe a credit card to gain entry. He said that if the airline was prevented from charging passengers on the way in to the toilet, it would impose the charge when they were on the way out.

When and if Ryanair introduce their proposed transatlantic service, I wouldn’t be surprised if they charge more for the toilets, to extract the maximum benefit from their enhanced bargaining strength two hours or so into the journey.

I’ve always thought that the social expectations associated with Ryanair flights are a microcosm for a certain kind of gung-ho libertarian ideal of market society, in which every possible social interaction is conducted through the cash nexus (if Michael O’Leary thought he could get away with charging you for the attendants’ smiles, he would). There are some quite clear efficiency benefits to this – externalities are internalized, and if you are determined just to travel (and to carefully work around their ways of squeezing you for extra cash) their flights are very cheap indeed. But you can also expect that they will charge you for everything that they possibly can, and take full advantage of every bargaining asymmetry going. This is pretty unattractive to people to me, but it may perhaps be attractive in principle to others (I have no doubt that O’Leary is using the ‘charging for toilets’ story quite calculatedly to drum up publicity for his company). Perhaps these people discover whether they like it in practice as well as in principle the next time they weave their way from the airport bar to board a three hour flight, and discover that the strip on their credit card has become demagnetized …

Update: Thanks to commenter Ray, it appears that Michael O’Leary has admitted he was taking the piss (sort of; reading between the lines of his statement, and knowing a little bit about O’Leary, I’m strongly inclined to think that he at least investigated the idea’s feasibility) .

“Boeing can put people on the moon, design fighter aircraft and smart bombs, but they can’t design a bloody mechanism to go on doors that will accept coins,” he admitted. Mr O’Leary also confessed that it would not be possible because some “bureaucrat in Brussels” had decreed that establishments where food and drink is served have to provide toilets free of charge.

If it hadn’t been for those meddling Brussels bureaucrats, he’d have gotten away with it!

{ 60 comments }

1

Yusifu 03.06.09 at 10:23 pm

They may reconsider if someone without change (a working credit card, whatever) suddenly begins having intestinal problems inflight.

2

Henry (not the famous one) 03.06.09 at 10:26 pm

He said that if the airline was prevented from charging passengers on the way in to the toilet, it would impose the charge when they were on the way out.

He’s stealing an idea that Jessica Mitford came up with 50 years ago, when she charged guests at a fundraiser $5.00 to get in and $25.00 to get out. So maybe we can’t blame this on libertarianism.

3

dsquared 03.06.09 at 10:26 pm

the reason that you know it’s a joke is that Ryanair makes an ungodly amount of money selling drinks and is hardly likely to eat into that trade.

the strip on their credit card has become demagnetized …

you’ve been away too long Kieran, Europe has chip & PIN now, and we’ve stopped using paper cheques. The mobile phones are better too.

4

Kieran Healy 03.06.09 at 10:28 pm

Henry, not Kieran.

5

harry b 03.06.09 at 10:38 pm

That’s a first!

6

Jacob Christensen 03.06.09 at 10:49 pm

@dsquared/Henry: Just to twist the knife – At the ripe ol’ age of 44, I’ve never owned a check book. We went digital in Denmark in … 1984.

But try and find a 2 kroner-coin for a public toilet, when you need one…

7

dsquared 03.06.09 at 11:01 pm

Sorry Chris.

8

Henry 03.06.09 at 11:02 pm

Has some economic sociologist written somewhere on the retention of checking in the US? Stuff the typewriters – this seems like a lovely refutation of pretty well any economic efficiency account of institutional change you could possible come up with.

9

dsquared 03.06.09 at 11:06 pm

there is certainly decent money in the subject if you (or Kieran for that matter) wanted to do some research into it. The McKinsey Institute did a big piece on paper cheques back in the 1990s and it is a massive driver of costs in the whole system.

10

Jeff H. 03.06.09 at 11:10 pm

Henry, you seem to be making the assumption that passengers aren’t already paying these costs and benefiting to various degrees from it.

11

John Quiggin 03.06.09 at 11:31 pm

I saw a piece on checks/cheques in on a US site not long ago, but didn’t get around to reading it. They’ve almost, but not completely, disappeared in Australia.

At least comparing Australia and the US, there’s an advantages of backwardness story. The US system, where they send you your cancelled checks was much more convenient than what we had, so Australians were keener to abandon the whole business.

12

Keith M Ellis 03.07.09 at 12:12 am

I think the only reason checks are still used in the US is that they avoid the processing fees of the alternatives. The processing of checks has long been a basic part of having a bank account and, more importantly, doesn’t cost the account holder who deposits (i.e., vendors) anything.

Credit card processing and debit card processing (done by the credit card companies and charged to vendors) and ATM card processing (done by the banks and charged to the account holders) all involve additional charges.

I pay all my bills online via my debit card (linked to my bank “checking account”, which doesn’t pay an interest on balances) and there’s sometimes a fee charged for processing, sometime not.

The only exception is paying rent on my apartment lease to my landlord. That’s via personal check, there’s no alternative (other than a cashier’s check from the bank). This is annoying, but it’s simply because this is usually (but not always) a smaller business that doesn’t require paying the money for being able to process credit cards (retailers do, of course, but landlords don’t because people usually pay their rent with, you know, money they have and not money they are borrowing).

If there weren’t A) occasional extra fees for paying with debit/credit cards; and B) vendors such as landlords who don’t accept debit/credit cards; I think that checking would completely disappear in the US. And, really, I think it’s only a matter of time.

13

Cranky Observer 03.07.09 at 12:33 am

> Has some economic sociologist written somewhere on the
> retention of checking in the US? Stuff the typewriters – this
> seems like a lovely refutation of pretty well any economic
> efficiency account of institutional change you could possible
> come up with.

There isn’t much in the way of consumer protection in the United States, but what little there is is based on the exchange of paper documents through the US Mail. Pay your bills with any of the convenient on-line services that have been around since 1990 or so (phone based then, and later modem) and you have essentially given up any slim hope you might have had of invoking law in a consumer dispute. The court decision declaring that PayPal was not a bank and was not subject to any financial regulation or oversight cemented the raw deal.

Cranky

14

P O'Neill 03.07.09 at 1:52 am

What we need now is the media stunt Irish betting company Paddy Power offering odds on whether the media stunt Irish airline is serious about charging for toilets.

15

grackle 03.07.09 at 2:41 am

What Cranky said.

16

Stuart 03.07.09 at 2:56 am

There isn’t much in the way of consumer protection in the United States, but what little there is is based on the exchange of paper documents through the US Mail.

In the UK it is almost entirely the opposite – you are almost always recommended to pay by credit card as recovering the cash from bad transactions from the CC companies is generally very easy (partly because of regulation, but also probably because most problems are for small amounts and eating the loss is often better than potentially losing a customer), and they get the hassle of chasing down problem businesses through the courts when it is worth their time to do so.

17

MH 03.07.09 at 3:56 am

11: They haven’t sent canceled checks back to you in the U.S. for several years now.

18

Maurice Meilleur 03.07.09 at 4:01 am

Correct me if I’m wrong, but hasn’t there been, and isn’t there still, a way of exchanging money common in many if not all European states that predates plastic and doesn’t involve checks? I refer to wire transfer. When I was an exchange student in Germany in the mid-1980s I used to wonder why my host father, who was an architect, had his bank account number on his stationery–why in fact practically any commercial entity gave out their bank account numbers so freely. I learned that it was because wire transfer was the norm for business transactions that did not involve handing over cash.

Wire transfer, as far as I know, has never been used so freely in the US, and certainly not by the average citizen paying her rent or utility bills, for example. It was always checks or cash until credit cards arrived, and for a long time credit cards were the only digital/electronic way the average consumer did business. Even today in the US any electronic payment that draws money directly from a bank account at a point-of-sale transaction as far as I know requires a card with the imprint of the credit processing companies Visa or Mastercard, which (as previous commentators have noted) charge vendors a processing fee. (And so, of course, does PayPal.)

That surely must have something to do with why checks have held on so much longer here, and why no one uses them across the pond.

–And, come to think of it, anther factor must be that World War II gave European states the chance to modernize their banking industry and commercial infrastructure as they rebuilt, along with so many other things–something that did not happen in the US during the same time period. We were too busy building very large cars and drinking very large Manhattans.

19

Rafe 03.07.09 at 4:01 am

Hold a sec, surely there is some kind of health issue with hindering people’s access to toilets, particularly on long haul flights. Are there supposed to be no standards for air travel at all? Or is it because they are in international airspace that they are somehow permitted to do this? They couldn’t land their planes in MY country if I were dictator!

20

Maurice Meilleur 03.07.09 at 4:05 am

MH: but practically any bank has the cancelled checks around, and many scan them digitally and store the files for reference. I can look at mine online through my credit union. Processing that paper has got to add quite a lot to the overhead of any bank.

21

Tom T. 03.07.09 at 4:13 am

Are wire transfers free in Germany (i.e., is the cost built into the bank account structure), or is it that the processing fee is less than the alternatives?

22

Bruce Baugh 03.07.09 at 4:16 am

Maurice, you can do wire transfers in the US, and they’re strongly favored for reasons I have no clue about by many collection agencies. I went through a patch in the mid-90s of getting severely into debt (my roommate and I both had rapidly degenerating cases of depression, on top of other problems; I learned a lot about how to make money matters worse), and the biggest payments went via wire transfer at the agencies’ instructions. If I ever found out why that was SOP, I’ve since forgotten.

23

MH 03.07.09 at 4:17 am

I know you can get pictures of canceled checks, but I don’t know what is involved at my bank as I have never needed a canceled check in my life. Yet I somehow feel nervous not receiving a stack of them every month.

As for wire transfers, I would guess that the lack of a float period is a sufficient explanation for why they never caught on here.

24

Maurice Meilleur 03.07.09 at 4:32 am

Bruce, I know you can do wire transfers in the US–and I imagine someone like a collection agency would insist on using them, because it means no BS. The money is in your account, or it isn’t, and it goes right into their account.

That there is no float period is precisely why I wonder why wire transfer didn’t/doesn’t catch on in the US. When my wife and I paid the electricians who rewired our house last year, they didn’t give us a bill with an account number so we could have our bank wire their bank, which would have been instant and certain payment; they gave us a bill and we handed them a check.

Obviously for some people a check is a sign of aspiration, a token of good intentions, or a diversionary tactic, and not a reflection of the reality of their account. I have to believe that processing checks as the norm costs just that much more to small and medium-sized businesses in the US in processing and delays that would not be involved if the customer client either paid immediately and directly, or did not. And since more of what happens in the banking and finance industry represents the interests of business and not consumers, you’d think this would be a no-brainer.

25

The Raven 03.07.09 at 5:13 am

“I think the only reason checks are still used in the US is that they avoid the processing fees of the alternatives.”

They are also faster than any honest online payment system I have seen. (I don’t count direct-withdrawal systems as honest.) I recommend them to anyone who wants to save time.

26

BillCinSD 03.07.09 at 5:54 am

How much does Ryanair charge for urinating on their seats?

27

John Quiggin 03.07.09 at 6:01 am

In all sorts of minor respects, Americans collectively seem to be less inclined to innovation than others. Other examples are the persistence of one-cent coins and dollar notes, reliance on retail taxes rather than VAT/GST (and the associated practice of quoting the pre-tax price) and the continued rejection of the metric system. Of course, there are examples going the other way, and plenty of reasons for disliking innovations (like the subject of this post) Still there are some problems with the stereotypes about US dynamism and Euro sclerosis.

28

Matthew Kuzma 03.07.09 at 7:32 am

I wonder what price they will charge for the service. I also wonder how they’ll deal with people who don’t have credit cards. I don’t know about Ireland, but it’s very common for low-income people in the US to not have credit cards and often not even have a bank account. This opens up a rather harsh two-tier system where many poor people pay a lot for the simple ability to move money around, something that people with checking accounts and even debit cards do easily. So anyway, I wonder what happens when you have someone on your plane who simply can’t pay for the toilet.

29

bad Jim 03.07.09 at 8:25 am

Checks in the U.S. are free and easy. I avoid on-line payments because writing checks gives me an opportunity to exercise my fountain pen (else the ink clogs). Wire transfers are far from routine, entailing a bank visit and incurring extra charges.

I’ve been inquiring into setting up a master trust account and four sub-trust accounts for my mother’s children, and at first glance it appears that the most efficient way to make the requisite monthly distributions will be to write checks. (Sigh)

What actually happens here is that people use plastic for the smallest transactions, buying a coffee or a soft drink, which small retailers hate because they have to tithe to the card companies. I try to be a virtuous and anonymous troglodyte by keeping my wallet stuffed with currency.

30

Ciarán 03.07.09 at 8:38 am

Only on Crooked Timber would a post about cackling Michael O’Leary and his toilets lead to a chat about cheques in the USA.

Anyway, try to remember that we all live in the great shareholding civilisation now. A dump on a Ryanair flight will soon be a dump for democracy. With arses wiped by the hidden hand.

31

Ray 03.07.09 at 9:42 am

O’Leary admitted it was all a publicity stunt…
http://www.irishtimes.com/newspaper/ireland/2009/0307/1224242448956.html

32

ejh 03.07.09 at 9:44 am

Europe has chip & PIN now

London does. Much of Europe probably does. My corner of Aragón mostly doesn’t.

I travel by Ryanair quite a lot – enough, I may say, to hate them very deeply. In discussions I usually invoke the Goodfellas sequence “fuck you, pay me”. But it’s either that or five hours’ drive (in a car I don’t have) to the nearest alternative affordable flight.

Maybe the worst thing is they way O’Leary and his supporters plainly get off on this sort of thing – let’s see how far we can take the piss (as it were) out of the passengers and then laugh at them for complaining. Capitalism where the aim is to be a lousy human being.

33

Paul 03.07.09 at 1:31 pm

“What fools these mortals be!”

34

harry b 03.07.09 at 1:52 pm

JQ – I don’t agree that the resistance is higher when it comes to coins and bills — witness the completely stupid fussing of Brits every time anything like that changes. The difference there is in the political structure; the US has a political system that is very unwilling to make unpopular decisions, and very willing to waste public money.

35

Matt 03.07.09 at 2:04 pm

_reliance on retail taxes rather than VAT/GST _…

Some of this, I think, is that many of these taxes are put in place by small administrative units in ways that I suspect wouldn’t work well w/ a VAT. (Maybe I’m wrong on that, though- I’d be happy to be corrected.) Sales tax isn’t national, like a VAT usually is, but is usually done by the states. Additionally, many cities also have their own sales tax. While I’m sure a VAT might be easier to use than a sales tax, if each are compared at just a single national level, I wonder if this is so when the taxes are split up among so many administrative units, some quite small.

36

Danny Shahar 03.07.09 at 4:18 pm

37

MH 03.07.09 at 5:22 pm

Speaking of, I just opened my mail this morning to find an offer from the credit card company with a special rate if I put my phone and cable bills on their card. It wasn’t a very good deal, but somebody is clearly trying to change things.

38

Righteous Bubba 03.07.09 at 5:39 pm

Speaking of, I just opened my mail this morning to find an offer from the credit card company with a special rate if I put my phone and cable bills on their card.

Obviously the card companies are hoping you wind up paying interest, but a bunch of people I know pay this way anyway: if there’s any kind of reward system on the card and you pay at the right time – as you presumably would have anyway – you wind up with no penalty and a flight somewhere.

39

Katherine 03.07.09 at 7:09 pm

Re wire transfers – does the US not having standing orders and Direct Debit?

40

Nick 03.07.09 at 7:37 pm

if Michael O’Leary thought he could get away with charging you for the attendants’ smiles, he would
But airlines do this already as a matter of course – emotional labour & all that. (Erm, ‘breakthrough service’ as my former employer, Cosmo-Demonic Airlines of Heathrow used to term it).
Of course, Swissair made the mistake of owning up to this in an ad some years back, and look what happened to them . . .

41

Bernard Yomtov 03.07.09 at 8:32 pm

In the US at least there is a difference between wire transfers and the kinds of electronic payments systems that banks have available for their customers. Funds moved by wire transfers are, as has been noted, immediately available, but there is a fee for this, in the range of $10-12 in my experience. (What is particularly annoying is that my bank charges for receiving the transfer – making me pay to make a deposit in effect).

The consumer electronic payment systems usually involve no fees. For some vendors, like utility companies for example, the payment is made overnight. Smaller ones, not set up to receive electronic payments, are actually just issued checks by the bank, and this takes at least as long as mailing a regular check, though it is more convenient.

One reason checks are still used – the reason I still use them – is that some people prefer to be paid on the spot and don’t want to pay credit card processing fees. This includes many service workers – plumbers, piano tuners, and so on.

On the subject of innovation, a practice I would really like to see spread here is the use of table-side credit card processing at restaurants. Now you get the check, wait for someone to come back and pick up the credit card, and wait again for them to run off and process it and come back for the signature.

42

Detlef 03.07.09 at 8:38 pm

Maurice,

I´m from Germany and I hope I can answer some of the questions asked.

In daily life here you use cash or debit cards. Credit cards aren´t liked here (especially by shops) because of the percentage fee they have to pay the credit card company.
If needed, credit cards are mostly used for hotel reservations, renting a car. Things like that. And anyway, credit cards in Germany are usually “pay the full amount of money next month”. Making only minimum payments is practically unknown here. And many Germany don´t like them because they “hide” the consequences of spending. :)
Using cash or a debit card I immediately see the “damage” to my bank account balance. Using a credit card, it´s hidden till next month.

For money transactions generally a bank account is essential. So much so that the German courts have ruled that everyone (with a permanent address) is entitled to one. It´s considered a basic right. If I remember correctly local thrifts or the “Postbank” are the banks of last resort. They can´t refuse to open an account for you.

With regard to account fees, it depends.
In my case, my account is with a local thrift (savings bank?).
They offer three different options for a bank account.
I´ve got the “private (“Giro”) account inclusive”. Which means I pay a monthly fee of Euro 5.99. That includes:
– debit card with chip and pin
– no additional fees for money transactions
– credit card
– online banking
– no fees for getting money from any ATM belonging to any German thrift
(and according to their advertising that´s around 24000 in Germany, If I use the debit card at a non-thrift ATM in Germany or Europe, I do have to pay a fee.)
– monthly account statement sent home to me (Important! See below.)
(If I need a current printed statement I need to get to the bank of course and print it out.)

They´ve got 2 cheaper options for bank accounts too. One for Euro 2.99 and one for free. Both without credit card, one with a limited number of free money transactions
per month and one with a fee for each money transaction.

Now as I said, practically all money transaction in Germany are done using bank accounts. Direct electronic transfers between two accounts which take usually 1-2 days. Your wage will get transferred from your employer´s business account directly to your private bank account (You would have a problem getting employed without a bank account). Likewise unemployment benefits, social security etc. is transferred directly to your bank account.
And all transactions involving rent, utility bills, repayment of loans are generally done the same way.

In my case:
– rent
I deal with it using a “Dauerauftrag”. It´s a standing order to transfer at the first workday each month the rent (money) from my account to the account of my landlord.
(I can change/delete it any time I want.Takes 5 minutes at my local branch.)
– utilities (telephone, electricity etc.) or a newspaper subscription, monthly/yearly insurance payments
Here you´ve got 2 options.
Option 1: You get the bill each month / year and “manually” transfer the money. Either using online banking or going to the bank and fill out a money transfer order. After which the money will get transferred from your account to the recipient´s account.
Option 2: You allow in writing to automatically transfer (direct debit?) the money owned to them each month. They initiate the payment but you still get the bill of course.

And here´s the important fact mentioned above. You have a 6 week grace period (is that the right term?). Meaning you can take back any money transfer that happened in the last 6 weeks. You don´t need any reason. You just visit your bank, point out the transfer you want to cancel and the bank has to do it.

– any one time payments
Say I order something from Amazon.de. Here I´ve got the option between paying with my credit card or direct debit telling them my bank account number. Generally Germans (both shops and customers) consider direct debit safer.
If I use my credit card and something goes wrong, I have to contact the credit card company (probably a call center) and tell them to please cancel money transfer xyz. Either because the amount of money was wrong or because someone stole my credit card number. Which means that either the shop or me has to take a loss.
Authorizing a one-time direct debit from my bank account means that I can cancel any transaction (remember 6 week period) if I discover something wrong. And the shop knows my bank account number. Given that I can only open an account with proper identification the shop knows that they can track me down if I cancel the payment after receiving the goods.

The whole system also avoids “bounced checks”.
If you have a regular income German banks normally won´t hesitate to authorize a money transfer even if it means that your bank account will be in the “red”. You will of course have to pay an overdraw interest rate but no extra fees. But not authorizing a money transfer because that might result in an overdraft of for example $50 or $100 would be ridiculed in Germany.
Two caveats here.
If you are low income (social welfare) and the thrift / “Postbank” had to accept you because of the court rules mentioned above, they can decline to allow any overdraft.
And if you stay in the “red” for months on end, you will receive a polite telephone call asking you to meet with a financial adviser at the bank to discuss your financial situation.

43

Lester Hunt 03.07.09 at 8:52 pm

Despite being one of those “gung-ho libertarians” I feel no compulsion to support this measure. After all, the airline passenger is already paying for using the toilet, and in the marketplace, not via the comparatively unjust and inefficient nexus of the public revenue system.

44

Detlef 03.07.09 at 8:56 pm

Sorry. Seems comments here don´t like listings. Probably my fault.
This is a new try. If it works, could a moderator please delete my comment above?
Just decide which one is more readable. :)

In daily life here you use cash or debit cards. Credit cards aren´t liked here (especially by shops) because of the percentage fee they have to pay the credit card company.
If needed, credit cards are mostly used for hotel reservations, renting a car. Things like that. And anyway, credit cards in Germany are usually “pay the full amount of money next month”. Making only minimum payments is practically unknown here. And many Germany don´t like them because they “hide” the consequences of spending. :)
Using cash or a debit card I immediately see the “damage” to my bank account balance. Using a credit card, it´s hidden till next month.

For money transactions generally a bank account is essential. So much so that the German courts have ruled that everyone (with a permanent address) is entitled to one. It´s considered a basic right. If I remember correctly local thrifts or the “Postbank” are the banks of last resort. They can´t refuse to open an account for you.

With regard to account fees, it depends.
In my case, my account is with a local thrift (savings bank?).
They offer three different options for a bank account.
I´ve got the “private (“Giro”) account inclusive”. Which means I pay a monthly fee of Euro 5.99. That includes:

– debit card with chip and pin

– no additional fees for money transactions

– credit card

– online banking

– no fees for getting money from any ATM belonging to any German thrift
(and according to their advertising that´s around 24000 in Germany, If I use the debit card at a non-thrift ATM in Germany or Europe, I do have to pay a fee.)

– monthly account statement sent home to me (Important! See below.)
(If I need a current printed statement I need to get to the bank of course and print it out.)

They´ve got 2 cheaper options for bank accounts too. One for Euro 2.99 and one for free. Both without credit card, one with a limited number of free money transactions
per month and one with a fee for each money transaction.

Now as I said, practically all money transaction in Germany are done using bank accounts. Direct electronic transfers between two accounts which take usually 1-2 days. Your wage will get transferred from your employer´s business account directly to your private bank account (You would have a problem getting employed without a bank account). Likewise unemployment benefits, social security etc. is transferred directly to your bank account.
And all transactions involving rent, utility bills, repayment of loans are generally done the same way.

In my case:

– rent
I deal with it using a “Dauerauftrag”. It´s a standing order to transfer at the first workday each month the rent (money) from my account to the account of my landlord.
(I can change/delete it any time I want.Takes 5 minutes at my local branch.)

– utilities (telephone, electricity etc.) or a newspaper subscription, monthly/yearly insurance payments

Here you´ve got 2 options.

Option 1: You get the bill each month / year and “manually” transfer the money. Either using online banking or going to the bank and fill out a money transfer order. After which the money will get transferred from your account to the recipient´s account.

Option 2: You allow in writing to automatically transfer (direct debit?) the money owned to them each month. They initiate the payment but you still get the bill of course.

And here´s the important fact mentioned above. You have a 6 week grace period (is that the right term?). Meaning you can take back any money transfer that happened in the last 6 weeks. You don´t need any reason. You just visit your bank, point out the transfer you want to cancel and the bank has to do it.

– any one time payments

Say I order something from Amazon.de. Here I´ve got the option between paying with my credit card or direct debit telling them my bank account number. Generally Germans (both shops and customers) consider direct debit safer.
If I use my credit card and something goes wrong, I have to contact the credit card company (probably a call center) and tell them to please cancel money transfer xyz. Either because the amount of money was wrong or because someone stole my credit card number. Which means that either the shop or me has to take a loss.
Authorizing a one-time direct debit from my bank account means that I can cancel any transaction (remember 6 week period) if I discover something wrong. And the shop knows my bank account number. Given that I can only open an account with proper identification the shop knows that they can track me down if I cancel the payment after receiving the goods.

The whole system also avoids “bounced checks”.
If you have a regular income German banks normally won´t hesitate to authorize a money transfer even if it means that your bank account will be in the “red”. You will of course have to pay an overdraw interest rate but no extra fees. But not authorizing a money transfer because that might result in an overdraft of for example $50 or $100 would be ridiculed in Germany.
Two caveats here.
If you are low income (social welfare) and the thrift / “Postbank” had to accept you because of the court rules mentioned above, they can decline to allow any overdraft.
And if you stay in the “red” for months on end, you will receive a polite telephone call asking you to meet with a financial adviser at the bank to discuss your financial situation.

45

Maurice Meilleur 03.07.09 at 9:32 pm

Detlef, that all sounds so eminently reasonable. Which means that system is sure never to catch on the US. The parts about people looking down on credit cards, about the right to a bank account, and about the ability of consumers to reverse even pre-approved wire transfers sound especially un-American. (More people are starting to use automatic bill-paying services, though I’m guessing most banks won’t let you walk in six weeks after a transfer and have it reversed. Regular consumers don’t have that kind of power here.)

Too-little-known fact: in the US in many jurisdictions, a bank can refuse to open an account for you if they don’t like your credit rating–even if you have an initial cash deposit in hand and aren’t interested in a credit card or line of credit with them. I have heard that more and more private utility companies–increasingly the norm in the US even for services like water, for a long time now the norm for power and waste disposal–will not start service with people whose ratings they find untrustworthy, at least not without an additional security deposit.

If we tacked pay toilets in airplanes onto that–which I understand now may or may not have been O’Leary’s idea of a joke–we’d be moving closer to Libertaria in Steven Lukes’s The Curious Enlightenment of Professor Caritat. There, for example, you bought the train journey from one company, the right to use a seat on the train from another, and the right to use the rails from a third.

46

Detlef 03.07.09 at 10:34 pm

Well, my second try looks better although I have lost the “head”. :)
I tried to answer Maurice using a German perspective.

Bernard,

In the US at least there is a difference between wire transfers and the kinds of electronic payments systems that banks have available for their customers. Funds moved by wire transfers are, as has been noted, immediately available, but there is a fee for this, in the range of $10-12 in my experience. (What is particularly annoying is that my bank charges for receiving the transfer – making me pay to make a deposit in effect).

What do you mean by “wire transfers”?
I assume that any money transfers made between banks in Germany are probably using the Internet (although a secure form of the Internet :) ).
As in, I authorize a money transfer from my bank account (local thrift) to a bank account in another German state. So local thrift computers –> state thrifts computer server center –> then either to a another state thrifts computer server center or the national server center of a private bank –> local thrift computer or local branch of a national bank.

Takes 1-2 days. Probably reasonable once you know that any bank involved wants to slow down the money transfer. :)
(The technology certainly allows faster transfer times.)
As in, for 1-2 days they can play around with our money. Multiply that with a million transfers every day and the overnight interest rate profits suddenly promises real profits for the banks.

And why would they charge you “for receiving the transfer”?
Looks like they´re ripping you off. Any bank likes money transferred to them. It allows them to use your money overnight to make a profit for them.

The consumer electronic payment systems usually involve no fees. For some vendors, like utility companies for example, the payment is made overnight. Smaller ones, not set up to receive electronic payments, are actually just issued checks by the bank, and this takes at least as long as mailing a regular check, though it is more convenient.

That seems ridiculous. Don´t the smaller ones have bank accounts too?
A company (large or small) doesn´t need to be “set up to receive electronic payments”. The banks where they have their accounts need to be able to deal with electronic money transfers.

I am a partner in a small business here in Germany.
We never thought we needed our own system to “receive electronic payments”.
When we write a bill, we just include at the bottom the 2 business bank accounts we have. Leaving our customers a choice. :)
If we received a check, we would have to go to the bank and deposit it there. Filling out some forms and costing us time. To say the truth, none of our customers ever tried to write us a check. If they did we´d immediately be suspicious.

And I´m not even mentioning the fact that some letters might be lost.
How would we prove that a letter with a check didn´t reach us? Whereas in the current situation we just have to look at our bank statements. They advised us that they paid us. And if the bank statements 3-5 days later don´t prove their statement we can start to ask questions.

One reason checks are still used – the reason I still use them – is that some people prefer to be paid on the spot and don’t want to pay credit card processing fees. This includes many service workers – plumbers, piano tuners, and so on.

Ah, but a check is still a piece of paper.
And who knows if your check doesn´t “bounce back”?
Cash or a debit card however are direct payments. No question needed about cash. But a debit card is also depending on your overall financial health. :)
If the payment is authorized, you´ll have it immediately too.
In my experience – unless you deal with black-market workers who prefer cash – a debit card is preferred.

Simply put, a debit card is accepted everywhere in Germany. Just like cash.
A credit card is accepted in some places. A check won´t be accepted anywhere.
For the simple reason that a check can´t be checked immediately against your bank account (and its limits).

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des von bladet 03.08.09 at 8:29 pm

Simply put, a debit card is accepted everywhere in Germany. Just like cash.

Less simply, but I think more accurately, put: a German debit card is accepted everywhere in Germany.

Neither my British (Visa) debit card nor my Dutch debit cards have ever shown the slightest sign of being accepted in Germany. (The EC is said to be contemplating doing something about this, of course, but it is unlikely to apply retroactively.)

The nearest German Aldi to my house in the Netherlands even has a sign on the door in impeccable Dutch reminding retail-touristes that plastic is a non-starter, and I recently had the pleasure of interpreting for an American colleague who had just had a large trolley-full of stuff rung up (not at Aldi) and then discovered that none of the means of payment at his disposal were acceptable to the cashier. (Luckily there was a cash-machine (“ATM”) in the foyer.)

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Mike Otsuka 03.09.09 at 7:52 am

I wouldn’t mind so much if they charged by the second at a steeply increasing rate, in order to persuade those who spend an eternity in these vile cubicles doing God knows what to hurry up and let the other half a dozen waiting people have their shot.

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john b 03.09.09 at 11:31 am

@ #14: “What we need now is the media stunt Irish betting company Paddy Power offering odds on whether the media stunt Irish airline is serious about charging for toilets.”

Tick, done.

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Preachy Preach 03.09.09 at 12:19 pm

A friend of mine who works for a rival airline tells me that his work was discussing this (in an office banter kind of way, I must add) and came to the conclusion that the costs of certifying the coin-lock (as nobody else has done this in the past) would be about £50-£100k, and this made it a non-goer…

let the other half a dozen waiting people have their shot.

I know long haul flights are dull, but they’re not that dull.

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Alex 03.09.09 at 4:11 pm

Ryanair already hit the jackpot some years ago, by charging job applicants £50 to read their CVs. They then improved on it by “reconsidering” those unsuccessful applicants who had paid by credit or debit card three months later, thus incurring a further £50 charge. And they invented the “self sponsored ATPL training scheme”, whose result was that a significant proportion of F/Os on the New Generation 737s were actually paying the company to work whilst also being under a return of service obligation.

That is, I think, as close as you can get in a state that ratified the Maastricht Treaty to a real, actual example of the philosophical debate as to the validity of voluntary enslavement. Do I get some sort of prize for steering a thread about airline toilets back to Rawls?

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Bernard Yomtov 03.09.09 at 7:26 pm

Detlef,

What do you mean by “wire transfers”?

A transfer of funds over what is called the “fedwire,” a system operated by the Federal Reserve, which is used to transfer between banks and brokerages and so on. Individuals do not, AFAIK, have access, but must go through an institution to make a wire transfer over this system. The advantage is that the money goes through on the same day, and is instantly available to the recipient. Similar systems are available in Europe and elsewhere, and they interconnect.

This is different than electronic payment systems banks make available to theoir customers over the internet.

And why would they charge you “for receiving the transfer”?
Looks like they´re ripping you off.

You have answered your own question.

Ah, but a check is still a piece of paper.
And who knows if your check doesn´t “bounce back”?
….
In my experience – unless you deal with black-market workers who prefer cash – a debit card is preferred.

Nonetheless many people prefer them. Of course they ask for identification and so on, unless dealing with a regular customer, and bouncing a check is not cost-free, so there are safeguards. It still happens, naturally, but it may be that the cost to the merchant of the occasional bad check is less than credit card processing fees.

Few retail businesses – primarily the occasional restaurant – can survive if they take only cash or debit cards. Taking credit cards is almost a necessity, and some are willing to take checks, certainly from regular customers.

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Helen 03.10.09 at 12:17 am

One thing that hasn’t been mentioned here is whether libertarian objectors might choose to go John Galt.
Libertarians sitting in their own urine: I’d like to see that!

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Danny Shahar 03.10.09 at 2:03 am

We tried; it was too cold to play Gulch in the landing gear bay, and the darned mystic flight attendants kept shouting about cabin pressure or something. I’ve never seen such death premise-ridden evasions in my life!

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nick s 03.10.09 at 6:30 am

O’Leary is bloody good at getting headlines, but the fact that he’s now basically trolling on behalf of his business, instead of engaging in the usual media stunts, pushes Ryanair over from “tolerable shittiness” to “intolerable fuckers”.

Checks in the U.S. are free and easy.

Well, to a point: if you happen to run out of the box you get from your bank, there’s often a charge for new ones. And there’s a thriving third-party market in weird and wonderful custom designs, which to my expat perspective is as weird as the lack of a standard prescription form for doctors. (Though, on that point: paper prescriptions are pretty much extinct in the US, but the standard green sheet of paper, redeemable at any pharmacy, persists in the UK.)

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Slocum 03.10.09 at 2:00 pm

Americans collectively seem to be less inclined to innovation than others.

I think the difference is that Americans collectively seem less inclined to accept anything ‘collectively’. And particularly less inclined to accept top-down innovations (and ‘innovations’) designed by panels of experts and imposed by government fiat. So you end up with a messier system where all the options from archaic to bleeding-edge are available as the government is unwilling to dictate which ones are out, and which ones we’ll all be using now, like it or not.

Consequently, in the U.S. you can pay here with debit card w/pin. Or a credit card. Or EFTs through an online banking system. Or direct withdrawal. Or cash. And god knows why, but ladies (particularly older ladies) seem to love their checkbooks. And they all vote. Personally, I write very few checks, but they are handy occasionally. My bank does not send back the canceled checks, but makes digital images of the checks available for free through their online banking system, which has been handy a time or two when I needed proof of payment.

I guess the Rorschach test here is the metric system. I love it that Americans said hell no to the universal imposition of the metric system. Having used both, I think the English system is inherently better for cooking and carpentry (and, in any case, our homes are already built with 2x4s on 16″ centers and cookbooks are already in cups and teaspoons). I’m indifferent between km and miles for driving, but there was no reason to waste money re-doing all the signs. And for science & engineering, the use of the metric system is obvious. I see no problem with one system for technical use and another for daily ‘human’ uses. Practically, all it means is that it’s necessary to have a set of metric sockets and hex wrenches. And the predictions by official experts that failure to switch would mean doom for the American economy and technology turned out to be so much nonsense.

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rvman 03.10.09 at 7:01 pm

I only use checks here (US) twice a month – my rent, and my water bill (submetered – if I were with the utility, I’d pay them online, too).

The apartment has an online payment system, for a fee. I think they take credit cards, but most everyone pays with a check. The payment is still ‘by wire’, though – the apartment managers just use the check to get the info they need to take payment online (no fee to me), and trash the check. (So, yes, I can either do it totally online and automated, if I want to pay for the privilege, or I can write a check, walk it to the office, and give it to someone who then manually keys the details into their computer, with no fee. Prices come from supply and demand, not costs.)

On German banks – you pay a lot of fees. On my ordinary checking account, the first box of checks is free – I can get all free checks with an upgrade, though I just buy them from a third-party vendor (with wolves! And some puny percentage for Defenders of Wildlife). There is no monthly fee, if I maintain a reasonable average daily balance (low for ‘base’ accounts, higher for free-check versions, even higher for interest-bearing). Deposits and withdrawals are free using checks, at the counter, at the bank’s own ATMs, using the electronic debit system online in some circumstances, using my debit card either as a debit card (with pin) or as a “credit card” (without pin – it is Visa branded, but the transaction is still immediately posted to the checking account. The fees are different to the merchant, but the individual customer doesn’t pay them directly.). I pay fees if I use someone else’s ATM, to both banks, or if I use my bank’s online bill-payment system. (Sellers often provide access to a free(to me) one using a credit card.) Some American banks charge a fee for some of these services for some of their customers. This kind of account is why they run credit checks – they need to be sure you will be leaving enough money with them on an ongoing basis for the interest on the loans backed by that money to cover costs.

I do have a sort-of European-style checking account – no checks, everything done by ATM or debit card, and everything is totally online, up to and including the statements. Going to the website is free, online bill-pay is free (I think – I only use it to backstop Paypal) using the debit card is free, using “in Network” ATMs is free, you can do deposits by mail or electronic transfer, both free. The bank is ING, which I think is Dutch (and everything is garishly orange-themed). They bought out Netbank when it failed – Netbank did have regular checks, but otherwise was fully online. ING even pays interest on the average balance, and has either no or something in the range of $50 minimum balance for the zero monthly fee (my normal bank has an interest option. (I don’t expect this to last forever – they are in the ‘accumulate market share’ period of their business model.) At this point, fees by banks (in the US) are pretty much gratuitous profit – real transaction costs are a few cents or tenths of cents for most transactions. I can’t imagine this isn’t the same in Germany. Virtually everything else can be paid for fee-free with a credit card if you have decent credit, and the grace period on a credit card is long enough that you can avoid any costs if you pay your bill monthly.

I’d guess this is different for non-white non-middle class types in the US. Note that a LOT of people in the US don’t have bank accounts – millions of adults. Most of these are “undocumented workers” from El Salvador or Mexico, who either don’t trust the banks or are trying not to leave a paper trail for “la migra”. They receive cash or paper checks from employers, (depending on the tax-honesty of said employer) cash the check for a fee at a check-cashing service (either a store-front check-cashing company or at Wal-Mart’s customer service desk – Wal-Mart is, as usual, cheaper), pay more fees to wire much of that money to their family in Mexico (again, to Wal-Mart, who are cheaper for international transactions than other options), and have to go around to a bunch of payment centers to pay their utility bills, often for a fee (in many cases, to Wal-Mart, who is a payment center for a lot of the utilities), and then pay rent with a cashier’s check, obtained for a fee (at Wal-Mart, of course). (Wal-Mart is often the lowest-cost bank-substitute for the poor, as well as the lowest-priced retailer.)

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Brussels Dave 03.10.09 at 11:19 pm

predictions by official experts that failure to switch would mean doom for the American economy and technology turned out to be so much nonsense.

Except perhaps for .

Also, bars and restaurants in Brussels usually have Madame Pipi charging a few cents in exchange for a scoot, so I don’ t believe the last bit either.

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Brussels Dave 03.10.09 at 11:21 pm

Damn, sorry. I meant

Except perhaps forthis piece of technology.

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John Quiggin 03.11.09 at 4:21 am

Slocum, we discussed metric and similar issues here. My point then was that all societies have their own sources of inefficiency, and the refusal to go metric (and similar) is the mirror image of lots of the things certain US pundits like to lecture Europe about. And, as with metric, plenty of US pundits don’t find “you’d be 10 per cent better off if only you removed these inefficiencies” impressive enough, and resort instead to “failure to switch will mean doom for the American European economy and technology”

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