Starve A Banker

A relatively new site called GetDebit provides information about “non-credit” card products.

In the US, debit cards that are linked to a bank account, and prepaid cards that are not, get both categorized as “debit” products and have that word printed on the front of the card.  So, GetDebit actually deals with both debit cards and prepaid cards. (In Europe, prepaid cards do not have the word “debit” printed on them, and have other differences like not being necessarily embossed).

GetDebit stands out in its editorial approach: they do write articles about specific products and services without seeking advertising dollars from the companies behind them. This is worth noting in a world where infomercials are almost impossible to distinguish from genuine articles.

Granted, their business model is indeed to advertise products and place the highest bidders at the top of the pages, but they also mention products and do in-depth analysis without asking for ad dollars.

Evidently, we are praising them because they wrote a piece about the API that our company, Plastyc, released last week. And we have never paid them any advertising dollars.

NBA All Star and Phoenix Suns’ forward Amar’e Stoudemire is doing the hard work: visiting high schools in person to teach teens how best to handle their money.

Today, I am visiting Washington High School in Phoenix to present “The Fundamentals of Finance” seminar, in partnership with Plastyc, to encourage responsible money management skills.

Before you can spend money, you have to earn it (actually not all companies providing payment and money services  to teens seem to agree with this evidence, see an earlier post on this).

So, here is Amar’e posting his “Earn Money” financial tips for teens on the Huffington Post.

Frankly, I was quite taken aback when I saw all the media buzz around “Kwedit” in the otherwise serious financial and payments trade press a few weeks ago.

While many of us are busy devising new products and services that allow people to be more responsible with their money, Kwedit essentially encourages young users to buy virtual goods with money they don’t have yet.

This is introduced the exact same month when the CARD Act finally starts making credit cards less accessible to users less than 21 year old with the hope of curbing student debt and reducing the abuse of young users by big card companies.

Given the pedigree of the founders and investors, there is no doubt that Kwedit will execute nicely on a product that is not only useless, but is pro-actively contributing to the disastrous level of financial illiteracy in this country.

So, I was delighted to hear that Stephen Colbert devoted his “The Word” segment to Kwedit.

Here its is: “Kid Owe”

Two weeks ago, New York City got a chance to celebrate the launch of Like Us Entertainment and enjoy exclusive audio trailers of the new college radio soap opera, The Like Us Show,  at Stir Lounge, in mid town Manhattan.

Targeting young adults, Like Us Entertainment has created a radio soap opera dealing with current issues college students face. The Like Us radio show, which started airing February 1, 2010 at college radio stations across the nation, addresses topics such as Abusive relationships, Eating disorders, Finances, Peer pressure, Substance abuse, and, of course money. The episodic radio drama revolves around three college girls, attending the fictional ‘historical black university’ Atlanta University, whose social and personal lives drastically change after an unthinkable tragedy. This is the first coming of age radio drama featuring an all African-American cast.

Like Us Entertainment, a production company specializing in TV, film, and radio, was founded by CEO Shirley Vernae Williams in an effort to fill a void in the African-American and ethnic entertainment industry. She wanted to offer a solution to the lack of minorities in programming and management. Targeting young adults, Like Us Entertainment has teamed up with Kristen V. Carter, former writer of MTV’s “America’s Next Best Dance Crew” and BET’s “The Black Carpet”, to present “Like Us”. Like Us Entertainment is working to accomplish its main mission of addressing the cultural and social issues affecting today’s youth, and maximizing African-American presence in images, roles, and entertainment.

My company, Plastyc, chose to sponsor the launch of the Like Us Show, because money matters are one of the main struggles for African-American students. Even more so now that the Credit CARD Act of 2009 is taking effect, and will restrict access to credit cards to anyone under the age of 21.

Russell Simmons’ Rush Card prepaid Visa card has been pretty much the only offering so far, targeted at African-Americans.

It turns out that the Rush Card is in fact one of the most expensive ways to manage money. It comes loaded with fees, either for each payment transaction or for monthly maintenance, at rates that are astoundingly high.

Check my previous post entitled “Not Quite Robin Hood…” to know more about which services have which fees

On Feb. 22, new first of many new financial regulations to protect consumers takes effect. It’s not a moment too soon. Banking, especially retail banking, is ripe for change, and the new regulations provides the catalyst that will help shift the power from the bankers to the consumers with technology fueling the reaction.

A key piece of new regulation, The Credit Card Accountability Responsibility and Disclosure Act of 2009, act includes important provisions that go into effect in three weeks. One important change makes it illegal to provide credit cards to people under 21 unless an adult over 21 co-signs for the card or the younger adults show proof that they can pay off the debt. Other provisions limit certain fee types and gee charging methods for most credit cards.

In response to this and other new regulations, traditional banks are scheming up new ways to charge customers, as Ron Lieber at the New York Times profiled here. The banks customer-unfriendly reaction will drive increasing numbers of individuals to discover that there’s a new game in town and embrace change.

That new game in banking is technology. It makes it possible to service people’s payment needs in new ways that are better, faster and more affordably than before,

In particular, people who have long been overlooked and underserved by the old banking establishment – the young and people with low balances — will adopt new products and services online, on cell phones and on cards that are more accessible, more affordable and that meet their needs better than the corner branch of a large bank.

It’s unlikely that people will see these innovative new products come first from large banks. Their overhead costs – including large executive salaries and real-estate leases — are too high, and they have too much to lose from change to undercut their existing business. But in response, over time, even the traditional banks will be forced to innovate without fee-gouging in order to compete for customers.

These new services will come in many varieties. There are good examples in a recent report by analyst firm Forrester Research titled “Hot Banking Banking Tech Companies to Watch In 2010” . For instance, Bling Nation works with community banks to provide local payment services using contactless tags affixed to the back of cellphones. And Econiq helps community banks and credit unions coach customers about financial services based on their life events such as a new child. (My company, Plastyc, Inc., is also mentioned the report. It has no commercial ties to Forrester Research.)

And in my conversations with industry innovators, I’m hearing exciting ideas for new ways to embed payment services into other products and services that people use on a daily basis.  Here are three examples:

• Merchant debit accounts. Rather than dragging consumers further into debt, some merchants of durable goods like appliances or used cars, are securing recurrent direct debits from un-banked but dutifully employed consumers, by encouraging them to sign up for a prepaid card account into which salaries can be direct-deposited by employers and from which monthly payments for access to the goods can then be directly debited.
• Paying for cell phone services. Consumers who use prepaid cell phones for themselves or their family will be able to top up those phones with airtime right from within a payment card account, instead of having to buy “scratch cards” or obtain a “PIN” and redeeming them over the phone
• Cause-related services. Non-for-profit organizations like the Economic Empowerment Initiative or Amar’e Stoudemire’s Each One Teach One foundation are coupling their financial literacy programs with prepaid cards for teens.

These examples are transformative because they flip the payment services model by aligning the vendor and the customers’ interests in finding effective, affordable, reliable payment options. This alliance is especially promising for customers who are not served well by traditional financing options.

In order for these next generation services to transform banking, people have to trust them. So many of them will be linked to safety nets such as FDIC insurance and payment networks such as Visa.

Even with those safety nets, change will stem from the early adopters and those feeling left out or angered by the old consumer banking establishment.

But very quickly, smart consumers across the economic spectrum will realize that there’s a new game in town and power balance is shifting from the bankers to the consumers.