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The deposit gap
Banks use that gap to pay for physical branches. In a digital banking environment, the same money would stay in customers' pockets. The yield is also uneven: high-income customers get paid interest, and the lower the income, the less the bank pays.
Zero-yield deposits abroad
The pattern repeats in other countries. At the big incumbent banks in Brazil and Mexico, about 70% of deposits earn zero, and the other 30% earn some yield, generally for the highest-income customers and corporations.
Fees and remittances
Fees add to it. About $100 billion leaves the US as remittances, with people paying 5 to 10% on each transfer, and some pay up to $15 a month for a bank account. Moving money is just moving bits, so in a more competitive environment those costs trend toward zero.
Why do banks pay so little on deposits?
A bank earns money on the spread between what it charges borrowers and what it pays depositors, a figure called net interest margin. Many deposits sit in checking accounts that customers keep for convenience, and banks have little reason to pay competitive rates on them. Customers who move money to higher-paying accounts tend to be the ones with the largest balances. The Federal Reserve also pays banks interest on the reserve balances they hold at the central bank.
Why are international remittances so expensive?
Transfers often pass through a chain of correspondent banks, and each one charges a fee. Providers also add a margin on the exchange rate, which does not show up as a line-item fee. The World Bank tracks the average cost of sending money, and it has stayed above the 3 percent target set in the United Nations Sustainable Development Goals. Mobile and digital providers generally charge less than banks for the same transfer.
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