Starve A Banker

We often get asked by websites and portal operators: “could I offer a prepaid Visa card to my un-banked visitors?”

Until now, we would answer with an offer to link their pages to a prepaid card enrollment site like UPsideCard.

Now the team at Plastyc, headed by Justin Surman, has created aWeb Services API which allows businesses to display and process prepaid Visa card enrollment forms inside their own pages, without sending their visitors somewhere else.

The Card Enrollment & Account Management API running on the enrollment servers:

• accepts the user data captured in the forms
• validates the data for obvious formatting or entry errors
• passes the user data to a card processing platform to perform the Customer Identification Process (“CPI”) required by law
• returns an Identifier for the new cardholder and the ACH routing and account numbers corresponding to the card being newly created

This allows the site hosting the user enrollment form to know immediately if a visitor is eligible for a prepaid re-loadable Visa card, and, if positive, to know which bank transfer number is allocated to the imminent cardholder.

Of course, the actual card will take a few days to reach the cardholder by postal mail. Nevertheless, the card account can be immediately loaded with funds via:

• the ACH network, for example for tax refunds and unemployment benefits
• Green Dot MoneyPaks which can be purchased in cash at 50,000 locations across the US

even before the card has reached the card holder and been activated.

The Web Service API also offers several methods covering simple prepaid card account management tasks:

• Retrieving the complete list of cardholders enrolled via the EnrollCardholder method
• Retrieving the details of the cardholder account
• Retrieving a list of transactions from a cardholder account, during a set interval of dates
• Allowing a cardholder to share money with another cardholder
• Letting a cardholder suspend his/her card in case of suspected loss of theft

View the SlideShare above for a more detailed overview.

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.

Here is a re-posting of an article I wrote for the Huffington Post.

“Earn it before you spend it.” Like most parents, I have been giving this basic money management advice to my two children since they moved beyond the pocket-money stage and started economic lives of their own.

Now the financial crisis has breathed new life into this old adage. As consumers, we’re moving away from huge mortgages and over-loaded credit cards as a way of life and going back to the basic patterns of our late teens and early twenties: stash our earnings, spend some, earn more, stash more, repeat.

This is good. Basic money management — spending only what we earn as opposed to digging ourselves into a big hole of debt – will help solve a lot of personal finance problems. Because, as we all know, the interest on debt, especially credit card debt, costs a lot.

But eliminating debt is not enough. Even the basics of earning money and spending it using a standard checking account can cost a lot. A recent study by management advisory firm Bretton Woods, Inc. measures the yearly cost of bank checking accounts between $200 and $350 based on basic usage patterns mentioned by the Office of the Comptroller of the Currency and by a Consumer Union Report in prior surveys.

So we’re paying a median of $275 every year just to move money in and out of a basic checking account.

When we are young, before we start serious saving or equally serious borrowing to finance kids and buy houses, a checking account is our primary banking service. So, if, like my kids, you are one of 51 million people in the U.S. between the ages of 18 and 29, you are unknowingly spending a collective $10 billion to $17 billion in checking account fees yearly.

What if you kept those billions in your pockets instead of lining bankers’ pockets? That would be a substantial and immediately useful stimulus package.

Beyond the Basic Checking Account

One alternative is to use cash for everything. But if you’re cash-based, chances are that on payday your employer will give you a paper check that you will have to cash at some check-cashing place, where you will pay a substantial fee for the service. The same Bretton Woods study shows the cost of cash-only living to be between $165 and $315 per year. That’s not much of an improvement compared to basic bank accounts.

Another alternative is to opt for prepaid card accounts. According to Bretton Woods, consumers who choose a network-branded prepaid card could pay 35-70 percent less in fees than if they use low-balance checking and debit accounts, making prepaid cards a far more cost-effective, valuable financial tool for many.

There are many sources of prepaid accounts. Some non-for-profit organizations like the Community Financial Resources offer a one dollar per month prepaid card, which, when used occasionally for ATM withdrawals, amounts to about $50 per year. Credit Unions also strive to offer lower-cost services than traditional banks. They tend to be less Internet-ready than larger institutions, but several of them have low-cost prepaid cards that you can manage online.

And a new generation of online-only prepaid accounts offers many of the same services of a traditional checking account but with fewer fees and constraints. If you shop carefully and choose a service that offers FDIC insurance, you’ll get the same level of safety as a bank checking account. There’s no retail bank to visit, but you can log-in anytime via any Internet-connected PC or cell phone, and get email support at no cost.

How much exactly can you save? The example I know best is the iBankUP service offered by my company: its yearly cost for a usage pattern similar to the Bretton Woods study is $55. This is about $220 less than the median price of a checking account.

Using this kind of service instead of a bank checking account, the 51 million people in the 18 to 29 age range would collectively save $11 billion.

Finally, an $11 billion stimulus package from the banks to American consumers, not the other way round.

From the Huffington Post, Monday Nov 23, 2009.

Forget bailouts. Forget regulations. Forget stimulus packages and executive pay caps. If we want to see real recovery, we need to see real innovation.

Yet the traditional financiers of innovation, venture capitalists (VCs) are fiddling while Rome is burning. A recent survey of US venture capital activity shows that the three sectors with the least investment in the second quarter of 2009 are:

• healthcare
• retailing/distribution
• financial services

Quick, what are three sectors of the economy that the U.S. depends on for a sustainable recovery? You got it.

Read the full article here :  Patrice Peyret: Unhappy With Your Bank? Blame Silicon Valley.