Banking UP

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:

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

The Federal Reserve today issued the final rules on the Durbin Amendment, and it’s an ultimate win for retailers, although I predict some battles to come from the banking industry and consumers before the dust settles.

The Amendment, part of the sweeping Dodd-Frank financial overhaul legislation, allows the Federal Reserve to put limits on the interchange fees that merchants pay banks when you swipe your debit card at their cash registers.

Today, those fees are ranging between 1% and 2% of the amount you purchase and have added up to $16.2 billion that merchants paid in 2010. As of October 1, 2011, the planned effective date for the new rule, those fees will be a maximum of 21 cents plus 0.05%, nearly 48% percent lower than before for a typical transaction of $40.

Lower fees sound like a good thing, assuming the savings are passed on to consumers and assuming that the banks can still afford to run the networks that make debit cards work safely and reliably.

If they can’t, consumers will see new fees tacked on to their bank debit cards and will respond by moving to lower fee alternatives. That, in turn, will prompt the banks to innovate their financial products while being mindful of not letting hidden fees get out of hand, for fear of sparking the regulatory backlash cycle all over again. And in the end, I predict consumers will gain fair, simpler, more transparent banking options, and retailers won’t be left holding the bill. But it will take a few tries to get there.

For background on hidden interchange fees, read Why You Should Care About Hidden Interchange Fees in 2011

For the details of today’s ruling, read the Fed memo posted by PYMNTS.com

Disclosure: Plastyc, a company that offers prepaid card services (prepaid cards are a sub-category of debit cards)is not directly affected by the proposed interchange rules, which only apply to prepaid card issuers with assets of $10 billion or more.

Below is an excellent video created by Bank 2.0 author Brett King.

This is exactly what we are seeing at Plastyc: strivers provide the core of the growth among the under-banked, not fresh immigrants.

Their motivations for being prepaid card accountholders?

• Resetting their finances in a way that avoids further overdrafts (checking accounts) and debt (credit cards)
• Choosing a product that costs less, has good mobile access, and does everything they need

Visa estimates that strivers are about 48MM in the US. A majority of them is Caucasian, 30% African American, and 7% Hispanics.

Read the article by Zachary Ehrlich in MyBankTracker

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.