Every online payment provider I've examined requires the user to link their bank account to their online account:

  • paypal.com
  • circle.com
  • coinbase.com

Especially in the US, this isn't the most secure setup. As the mentioned in the link, this requires:

  • trusting the service provider (directly)
  • trusting the service provider's security
  • trusting the service provider to insure your money

This trust is required because most US banks do not provide sufficient security for ACH drafts. Standard overdraft protection suffers from the follow negative consequences:

  • withdraw fund from a backup (usually savings) account
  • apply an overdraft fee
  • put the user into credit (debt) if insufficient funds available (within a draft limit, otherwise the draft is simply declined)

In comparison, some account types provide stricter debit protections that flat-out decline any draft greater than the account balance.

So why don't service provider provide their own account and direct users to deposit money directly into this account? I imagine this could be implemented as so:

  • create a new private service account per user
  • create a public deposit-only account with directions to route the money to account X

I don't know the details so I might just be throwing out harebrained ideas. That shouldn't be an indication that no implementation can exist, because there definitely is a problem. I just don't know if there is a good solution.

  • I've never linked my bank account to my paypal account, but it means that my account isn't "verified." (I think)
    – mkennedy
    Jan 20 '15 at 22:42

The financial services industry, and specifically retail banking, has not always been on the bleeding edge of technological innovation. It usually isn't, and that can be a good thing insofar as avoiding disasters, but your general sentiment is shared by many people. Google "payment startups".

Despite all this, the current system works well. Software had become adept at identifying and mitigating transactions that appear fraudulent, and even if an account is wiped clean, the account holder is not responsible for the missing funds, the bank is. If there is ever an epidemic, banks will drive the change to a different system, not consumers.

Specific to your proposal, the deposit only account seems to violate all three trust-related issues you bring up.

Additionally, linking a bank account can fulfill some know your customer (KYC) requirements, which help reduce fraud and may be required by law. It gives organizations, especially financial services ones like PayPal, a more tangible link to your actual person.

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