The Two Ways Banks Make Money
Banks look at you and ask one question: can we make money on your money, or do we need to make money from you?
Once you see this, a lot of confusing things about financial services start to make sense. If you have $100,000 in deposits, the bank uses your balance as cheap funding — lending it out, buying short-term securities, earning meaningfully more than the 0–3.5% they pay you. You're profitable just by existing. The bank doesn't need to do anything else to you. This is why wealthy customers get fee waivers and humans who answer the phone. The math works.
If you have $800, the spread is maybe a few dozen dollars a year. The math doesn't work to their liking. So banks invented a different game.
Overdraft fees. Maintenance fees. Minimum balance fees. ATM fees. The stated justification is that small accounts cost money to service. This is technically true and mostly irrelevant. Processing a direct deposit costs very little. Running a debit card costs very little per swipe. What you're actually paying for is everything else — the marble lobbies, the private bankers for clients on the other side of the line, decades of accumulated technical debt, executive compensation packages. Banks could run leaner. The technology to make basic accounts nearly free to operate has existed for a long time. Fees cover the inefficiency, so there's no particular pressure to eliminate it.
What this produces is a price schedule that looks strange if you think about it too directly. A $35 overdraft fee is about 0.003% of a millionaire's balance. It's 4% of an $800 paycheck. The same mistake. Wildly different consequence.
In 2023, the banking industry collected $5.3 billion in overdraft and insufficient funds fees. The distribution of that number is worth sitting with: a small minority of lower-income customers pay roughly 90% of those fees. This isn't a system that occasionally produces inequitable outcomes. It's a system that requires them.
The reason it persists is less dramatic than it sounds. It's not illegal — bank lobbyists work to keep it that way — and the cultural framing does a lot of work. Overdraft fees feel like consequences of individual choices rather than penalties for having no margin. We don't apply this logic consistently. When a wealthy person's assistant botches a wire transfer, nobody suggests they deserved to lose money. When banks make catastrophic, systemic mistakes, the response is bailouts. But somewhere in the distance between those cases and a $35 fee on a $12 overdraft, personal responsibility becomes the operative frame.
For a long time, this was treated as a structural reality rather than a design choice. Small accounts were "unprofitable." The fees were the cost of serving them. Then, in the last decade, a handful of neobanks found a way around it.
The mechanism is interchange. Every time you swipe a debit card, the merchant pays a processing fee. A slice of that fee flows to whoever issued the card. Small per transaction, but it accumulates. If enough people spend on your cards, you can build a business entirely on that revenue stream — without touching customer balances, without punishing their mistakes. I spent three years at Chime and watched this work directly. We served customers who had been habituated to being charged by their bank for the act of being poor, and made money without doing that. It was a principled approach facilitated by new technology, so Chime's model didn't require regressive fees.
Not every neobank got this right. Some found ways to reintroduce fees under different names, or layered predatory credit products on top of the free checking. The interchange model has its own distortions (more on this later). But it demonstrated something the old arguments couldn't survive: the "unprofitable customer" was always a choice, not a constraint.
The banks that said otherwise were lying, or had convinced themselves of something convenient. Those tend to look the same from the outside.
The system that charges poor customers more for basic services isn't a natural feature of finance. It's what you get when the people designing the product aren't the ones paying the fees. Change that alignment and the product changes. Not always, and not automatically, but the incentives run in a different direction.