Financial institutions and their regulations create complexity that isn’t needed with small, local transactions.
Financial transactions are becoming increasingly regulated–often for good reason. Regulations help prevent terrorism, arms dealing, corruption, and the invasion of your privacy. This trend is most apparent in international transactions, which are becoming more and more common between both trusted and untrusted parties.
While these regulations protect us from risk, they also create additional complexity and cost, especially for small transactions. As a result, it’s common to consolidate many small payments into one before settling up.
Even so, processing payments through financial institutions can be unnecessarily cumbersome for transactions between trusted parties where the risk is low. The overhead of sending payment may not be worth the minimal benefits.
Ultimately, only irreversible payments can be regulated, because the irreversibility requires institutional infrastructure that must be centrally regulated (cryptocurrencies being a recent exception). Confidential IOUs between two individuals are inherently simpler.