August 19, 2012
Here’s something about globalization–on the surface, pretty mundane, but can be interesting (especially if you’re the one faced with it!):
We’re newly arrived in London. Both of us have student visas for Masters programs beginning soon. We’ll be here for 18-24 months, we expect, maybe longer. We have excellent credit in the US. All we need is a mobile phone and an apartment. A local bank account and a credit card/ATM card in local currency would be nice.
Here’s the problem: You can’t get a mobile phone without a local bank account. You can’t get a local bank account until you have a lease. A hotel address will not do. You can’t get a local lease based on any form of international documentation–eg., copies of US bank statements, letters of reference from friends, your bank, landlords, etc. If all of your experience is from outside the UK, it means nothing. If you can find a “UK guarantor” who is sufficiently creditworthy, you can start the process, but we dare say that few of us have such, nor would we wish to impose on such a UK friend for a guarantee if we did have one.
This is the case, apparently, for all who come without a UK employer waiting for them–all who want to rent and have a mobile phone, etc., for the duration of an allowed tourist visa, or as students, immigrants, etc. It seems likely this circumstance applies to thousands of visitors to the UK annually.
So, the only solution that is offered is that the tenant pays 6-12 months rent in advance. With that, the lease can be obtained. With the lease, the bank account can be opened, and with that, the mobile phone can be contracted, and you’re in business.
Setting aside the few days or weeks in limbo until you find an acceptable flat, that’s OK for those who have that much cash to provide in advance. However, even for those, it feels like an insult that all of one’s years of conscientious determination to be creditworthy in an equally advanced country is considered of no value–zero. Also, paying so much in advance clearly reduces the tenant’s leverage in event the flat develops problems which the landlord is not compelled to fix–what power does the tenant have if the landlord has been so fully paid in advance?
What’s the globalization question here? This is it: Why does this system exist, when we are in the year 2012, and how much longer will it survive? Isn’t this “difficulty” all about borders? Wouldn’t it be a great opportunity, considering all the tools of the modern age and globalization, for some enterprising property owner or intermediary, to offer to accept (or guarantee in the case of the intermediary) qualified tenants without all this hassle? Or, to provide such guarantee to the mobile phone company? Or, for an enterprising banker to offer to provide accounts to those who can be qualified, even if perhaps with limited exposure arrangements?
How could this be done, if there was a mind to do so? Without question, there are a number of countries in which credit verification systems are equally advanced as those in the UK. We imagine those would include US, Canada, Australia, and a number of European countries. So, step one could be to verify against those systems in the traveler’s home country. Without today’s internet and fibre-optics lines, this step could take seconds to accomplish.
One might say, however, that there is still a risk–the risk that even with a good US credit history, someone might leave the UK with some remaining obligation unresolved, but all of his/her assets are in the US, making it difficult for the mobile phone company, the bank, or the landlord to collect. Couldn’t that be resolved by an arrangement where a certain amount of the traveler’s cash in a US bank is put into an escrow and held until some of this is resolved? According to the above set of rules, the mobile company and the bank would release their need for protection when the lease is obtained, and perhaps some aggressive landlords would agree that if they could be guaranteed at least 60 days of rent if the tenant leaves without paying, they would be comfortable to be paid on a monthly basis. So, maybe all the tenant with good credit from certain developed countries would need to do would be to put two months of rent in escrow–very doable for most people who are making such pilgrimages. Such a deposit could even be kept in the UK at an established bank or escrow company, even better for the local landlord.
All of this could be made public. People like us could make the necessary arrangements in advance, and when we arrive our hotel in London, we’d already have access to full mobile services, bank accounts, credit cards, ATM cards, and be ready to negotiate a lease. We’d be happy to pay a fee for that!
Is there any doubt such a system could work? It would be to the benefit of thousands of travelers to the UK, and this set of arrangements would also work as it relates to similar rules/circumstances in other countries. Clearly, we have all the technology to make it happen easily and fast, and if we don’t yet have the legal structures to make it foolproof, those could be easily arranged between countries, if there is a will.
And, it seems there is likely sufficient profit for the parties to justify working this out–for the banks, for the mobile companies, and for the landlords.
What are the reasons it hasn’t been done?
1. Perhaps the analysis of the opportunity has not been done, although in this world, it seems unlikely anything with profit potential, especially something that causes such inconvenience, has just been overlooked.
2. Perhaps the analysis of the volume of profits to be obtained reveals that the opportunity is not large enough to motivate the parties to try to address the opportunity. Usually it takes only one competitor to decide that a segment of underserved can be served and a significant volume drawn away from competitors. E.g., if a collective of landlords offered a better solution to prospective tenants, they would get a lion’s share of the traveler business.
3. Perhaps the legal agreements between countries do not yet make it easy to draw on that escrow abroad. That could be resolved between countries, if there was a mind to do so. And, the escrow could be here, as well, in the UK.
4. And, could it be that the banks, mobile companies, and landlords are all too lazy to address it–yet? Or, simply enjoying the low risk present alternative. After all, it’s unlikely this pesky inconvenience is actually deterring anyone from coming to the UK. If we (the landlords, banks, and mobile companies) all just sit quietly, no one rocks the boat, we collectively do not have to take more risk. After all, as landlords, it’s awfully nice to get paid 6 months in advance, isn’t it? This is true until one party starts to offer an easier solution!
I predicted to our Estate Agent here that this system will fall within 10 years. Globalization will tear it down–just my opinion!
What do you think?