One of the biggest scams perpetuated upon the poorer classes is the payroll debit card. A service offered by hypothetically legitimate banks, a payroll debit card is a financial product for the "unbanked" - the millions of Americans who are on ChexSystems' shitlist and therefore barred from using ordinary financial products. This is an example of an "unbanked financial product" - any financial product designed specifically to target people banned from engaging in traditional finance. A large number of unbanking finance products have cropped up in recent years, all of which have a number of disadvantages compared to traditional finance. The result is to create a trap in which your money goes in and a very limited number of goods can come out. Bitcoin most certainly functions as a type of unbanking investment by these definitions.
First, unbanking. Let's get this out of the way and define what I call an "unbanked financial product":
- An unbanked financial product does not use traditional financial surveilliance methods such as credit scores or checking blacklists. This makes acquiring the product easier than traditional financial products, which typically require proof of trustworthiness from said financial surveillance methods. Furthermore, unbanked financial products tend to have little or no eligibility requirements at all, not even legal adulthood.
- An unbanked financial product is more expensive than traditional financial products. This means that there are more and greater fees involved in using the product and less benefits or incentives to doing so. Where a traditional financial product may offer interest or rewards, an unbanked financial product offers hidden fees.
- An unbanked financial product has reduced or no interoperability with other financial products. Reduced interoperability could mean only supporting certain kinds of withdrawls or spending, or charging unthinkably high fees for performing transactions with the product. Often times an unbanked financial product only supports interoperability with other unbanking financial products altogether.
- An unbanked financial product makes it easier to spend money than to save it. Unlike other financial products which may satisfy some of the other criteria due to a lack of liquidity, unbanked financial products offer full liquidity but only in very specific ways. This is usually in the form of interoperability with gift cards - the original unbanked financial product before the unbanked were a market segment. Retailers are willing to spend time and money to provide users of unbanked financial products the ability to move their money directly into gift cards. Traditional banks, on the other hand, view the unbanked as horrible customers (which is why they banned them) and refuse to accept compatibility with their financial products.
Examples of unbanked financial products include gift cards, Western Union transfers, prepaid credit cards, payroll debit cards, and so on. The core principle is that an unbanked financial product is intentionally difficult to use and demeans the user. They exist because the purveyors of traditional financial products use financial surveillance methods to avoid unprofitable customers, creating a second-class group of people who are banned from using them. Naturally, they still have a demand for those traditional products, unsatisfied by traditional providers of such products.
A key feature of unbanking products is the additional hassle and fees. While a few provide traditional products at normal rates to the unbanked, the vast majority prefer to roll out separate, more expensive products. The unbanked represent a distinct market group that can be charged more for less service. The payroll debit card, mentioned above, is a prime example. Traditionally, wages in the US are delivered by either check or direct deposit; both of which require an active checking account to recieve and hold the funds. The unbanking version of this is the check cashing business, which will give you cash for your paycheck and take out a rather large percentage of it in the process. Payroll companies saw a huge opportunity and decided to pay a large number of service businesses to replace paper check delivery with payroll cards that have enormous fees, allowing them to muscle the check cashier out of the market.
Looking at the entire unbanked market, they have a barely functional, humiliating version of almost every traditional product. Instead of checking accounts, we have fee-laden debit cards; instead of checks, we have Western Union; instead of credit card finance, we have payday loans. The big glaring exception is investment products - most people who are unbanked are too busy paying banking fees to have money to save. (Being poor is very expensive.) But let's take a look at Bitcoin, which I argue constitutes an unbanked financial product and in particular, when considered as an investment (don't do this), constitutes an unbanked investment vehicle.
Bitcoin was specifically designed for anonymity and to resist governmental control. As a result, it automatically satisfies the first criterion - it has no eligibility requirement beyond access to a computer that supports Bitcoin software. (Even iPhones can handle Bitcoin if you use webapps only, which also bypasses all Bitcoin security but shut up) However, this also means it has zero access to traditional economic systems in USD outside of exchanges. Bitcoin exchanges are where things get very unbanked very fast. Not a lot of merchants actually accept Bitcoin as a means of payment, so if you have Bitcoin and you want to use the economic value it contains, you need to sell that Bitcoin for a more widely-accepted currency. Even most Bitcoin-accepting merchants have to do this. So exchanges are pivotal to the entire economic scheme.
For something so pivotal, however, the exchanges are absolute garbage. If you aren't a long-time reader to my blog, just go and read my article on my failed attempts at Bitcoin arbitrage to see the problems. In more detail: Exchanges have lots of stupid bullshit fees and make it difficult to cash in or out using anything resembling a reputable service. Cashing out from a lot of exchanges (especially smaller ones) often involves getting hit with a non-trivial withdrawl fee. And, none of the withdrawl methods I trusted were available - the most reputable was Dwolla and it just went down from there. There's criteria 2 and 3 for you right there.
The fourth didn't click into place until I saw Gyft - a site that sells giftcards - blatantly advertising how they accept Bitcoin now. And to be honest, what incentive does anyone else have to accept it, other than something that locks your money into a retail store? Gyft most likely has much better relationships with exchanges to liquidate Bitcoin with than individual users; they have the ability to actually accept Bitcoin for trade. And with that, we have Bitcoin, the first true unbanked forex investment scam.