Banking UP

Modern cars have a reliable fuel gauge. Actually, they have a conservative fuel gauge: when the empty light goes on, you still have ample miles to go, so that you can find a gas station before it is too late.

Money Gauge

Not so with your bank account: even if you have online – or cell phone- access to your account, you just don’t know how much money is really left. Recent credit card transactions may not have settled yet. Checks you wrote may not have been cashed. So, your balance is usually optimistic and you don’t have as much money available as you are being told.

Your bank likes it that way: it will earn more interest on your unpaid card balance and collect fees on your unexpected overdrafts.

Collectively, banks are expecting to rack up $27B in checking account overdraft fees for the year 2009 alone.

Could your money have an accurate gauge?

If you go for an online account based on a prepaid card, like iBankUP, your balance will be accurate, thanks to the prepaid nature of the service.

As purchases are made, the balance is automatically adjusted downwards.

If you write a check against the balance of the card account, the amount of the check is also reflected right away, instead of waiting for the check to be cashed by the recipient.

You get a “no-surprise balance”. Whenever the balance is slightly off, it actually displays a lower amount than really available, either because an authorization hold from a restaurant (or, ironically, a self-serve pump at a gas station) has not been removed yet, or because a check expires or remains un-cashed.

Hypocritical greed…

At least, Gordon Gecko, the character played by Michael Douglas in the 1987 movie “Wall Street”, was admitting it openly: “greed is good”.

Many providers of financial services for the underserved and disadvantaged seem to be sharing this motto, but they are very covert about it. Of course, they would like to be seen as acting for the greater good of their non-privileged customers, but the price of their products screams otherwise.

Take those prepaid cards supposed to help new residents or un-banked people achieve the American dream: they are precisely those with the highest purchase prices and with the outrageously named “convenience” fees levied at every transaction.

This is Robin Hood in reverse: wealth is being transferred from the less fortunate to the rich -and sometimes famous-, all under the pretense of doing some good.

…combined with shameless exploitation…

Unscrupulous service providers are taking advantage of the simple fact that under-served people are also often “under-complaining”: there is almost no risk of being sued or publicly lashed by consumers with limited access to the media, who can’t afford lawyers, or are simply afraid or ashamed of being publicly identified as victims.

The result? Fees and charges imposed on those who can least afford them.

OK, so maybe the shameless exploitation of under-served, under-complaining customers doesn’t necessarily have its roots only in hypocrisy and greed. In fact, another big culprit is complacency.

… all fueled by pervasive complacency

As I have argued in an earlier post, banks and financial services providers tend to preserve the status quo of an inefficient industry with too many intermediaries and too many Vice Presidents.

Very few market players have the discipline and willingness to structure themselves leanly and resourcefully. Newer entrants are often – but not always- at an advantage because they don’t have to shed a legacy of prior business and process structures.

So, who’s wearing which hat?

The great thing about financial products like consumer prepaid cards is that fees must be posted visibly on websites; this is mandated by the payment networks and by regulations. So anyone can go and see for themselves how much various products will cost them.

Below is a ranking chart based on published fees as of November 12, 2009. The “tips of the hats” are admittedly un-scientific, but the dollar numbers are.

And here below are the same numbers, as  a percentage of the money circulated in the cards, assuming a monthly circulation of $320 on average.