Banking Up Blog

Consumers would love to get a better handle on how much financial services cost. Schedules of fees can be maddeningly complicated, and are often difficult to find (or to read when printed in very small type).
I spent a couple of hours today looking for the tables of fees on a dozen of websites selling prepaid card services, and each site had its own way of listing their fees.
Not good.

Senator Charles Schumer of New York was at the initiative of a credit card disclosure law enacted in 1988, when he was a congressman, where all fees are grouped in a “Schumer box“. This has improved transparency quite a lot.
The Center for Financial Services Innovations is now preparing a similar “box” for prepaid cards. The final format of the box has not been published yet, as this is still work in progress.

Below is a sneak preview showing how we are “thinking inside the CFSI’s box” and preparing to follow their recommendations. This fee box is for our mainstream UPside card product.
Expect a few tweaks here and there as the model gets refined and finalized.

Prototype of the Fee Box for the UPside Visa Prepaid Card:

As this is my last posting of the year 2011 on the Banking Up blog, I realize that our prevailing customer theme and product trend for the year was all about one thing: saving money.

This has been a year when financial woes have dominated the macro-economic news at the level of entire countries and even continents. Of course, individual consumers have suffered greatly, with the number of people in financial distress hitting records unseen in several decades.
In this dire context, protecting people’s money should be everyone’s priority in the financial services industry. Regrettably, many large banks and financial institutions have been featured on the front pages of newspapers because they have continued to protect their own money at the detriment of their customers. No wonder 2011 has seen a flurry of regulations intended to stem financial misdeeds: the implementation of the Dodd-Frank Act, the Durbin amendment, the birth of the Consumer Financial Protection Bureau.

At Plastyc, we were unaffected by this regulatory turmoil. Instead, the main additions to our service in 2011 were:

1. Allowing customers to reach a “Premium” level, similar to the frequent flyer status of certain airlines, where maintenance and support fees are waived, and where more cash back points are earned;
2. Issuing a free discount card for prescription drugs valid at tens of thousands of pharmacies to all our account holders;
3. Introducing a Rainy Day Reserve allowing people to save money automatically for emergencies or future purchases without having to open a separate savings account.

Here you have it: three different ways to save money. To be candid, our motivation and self-interest are to keep our customers longer. All three money-saving features foster a longer-term customer relationship, in a year when, for the first time, public campaigns were orchestrated to invite consumers to ditch their banks.

Good advice from Charlotte Stallings on My Fox Houston about reloadable prepaid cards:

• read the fine print
• select a card with low or no monthly fee
• get direct deposit on the card to avoid trips to the check casher

Pretty Popular Prepaid Payment Cards: MyFoxHOUSTON.com

On September 6, Congress passed the “American Invents Act”, a rather complicated bill attempting to fix or reduce the issues with filing, granting and post-grant reviewing of US patents.
For a complete version of the act, see http://www.gpo.gov/fdsys/pkg/BILLS-112s23es/pdf/BILLS-112s23es.pdf

“Patents suck”, said Google chairman Eric Schmidt at the Dreamforce conference on September 1. In fact, Google purchased Motorola mobility in large part for its trove of mobile phone related patents, as a “weapon of mass defense”, because patents have become a tool to obtain financial compensation from competitors largely unrelated to the original intent of providing inventors a period of exclusivity on their inventions.

In July, the radio show This American Life, had a great piece called “When Patents Attack!” about “patent trolls” in the Eastern District of Texas who have no other purpose in life than extracting protection money from companies with real businesses and products. Instead of threatening to set the business on fire, mafia-style, they sue regardless of the merits of the patents they have purchased (of course they have not invented anything themselves), and offer to settle out of court for large amounts of money. Patents have become the equivalent of cans of fuels and boxes of matches.

The financial industry has not been spared by patent trolls. Visa, Wells Fargo, MasterCard, Bank of America, Citibank, and many others have been sued for alleged infringement of patents related to digital currency systems that were never implemented by the owner of the patents and would make any software engineer roll on the floor laughing at their triviality.

In an intriguing twist, the America Invents Act is requesting that the Director of the US Patents and Trademarks Office put a transitional post-grant process in place for reviewing  the validity of covered business-method patents. The definition of “covered business-method patents” is explicitly narrowed down to:

A patent that claims a method or corresponding apparatus for performing data processing operations utilized in the practice, administration, or management of a financial product or service, except that the term shall not include patents for technological inventions.

Being no lawyer myself, I interpret the  goal of this post-grant review process as being a way to facilitate the debunking of dubious patents, or the defense against patent trolls. It is rather interesting that lawmakers have chosen financial products and services as the target for this transitional process. I guess that they placed a high priority on limiting the use of patents as a weapon against innovators trying to oil the wheel of a stalled economy.

Many in the payment industry have complained that fees for payment cards or for checking accounts are difficult to figure out.  So much so that respectable institutions like Bretton Woods and Consumers Union have published contradictory conclusions about which products are the least or the most expensive, while looking at pretty much the same set of products.

I have been arguing that fees are usually fairly explicit and can be found on websites or on paper agreements sent by mail to account holders. Evidently, the current action by the State of Florida against a number of prepaid card providers shows that there is still some improvement to be made in the quality of disclosures. Nevertheless, the most important factor in the impact of fees tends to be forgotten: how will people actually use the product?

That’s why we have introduced recently an interactive fee calculator on the iBankUP website. The calculator allows people to specify how they intend to use our payment  service.

We ask 7 questions to our visitors:

1- how much $$ will you direct-deposit to the card every month?

2- how many cash deposits will you make per year (using a Green Dot MoneyPak)?

3- How many cash withdrawals will you make from ATMs every month?,

4- How many bills will you pay (i.e. by writing checks) per month?

5- How many PIN-based purchase transactions are you likely to do every month?

6- Are you accident-prone? How many times per year will you attempt to spend more than you have?

7- How often do you think you will need to call customer support and speak with an agent?

Once a visitor to the site has answered the seven questions, a simple press on the “Calculate” button will produce the total sum of fees that the user would incur during an entire year. Of course, we also show how much fees some of our competitors would have charged based on the same behavior.

You can try the calculator by clicking here.

We also explain the math behind the calculator in an accompanying document.

We sure hope that others in the industry will  do the same and publish their own calculators for all to see.