MyBankTracker co-founder Alex Matjanec said banks are struggling to make up for lower revenues from debit card interchange caps imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. At the same time, unbanked and underbanked consumers – estimated at 60 million strong in the United States and once deemed unprofitable by banks – turned to alternative financial service companies to provide them access to their funds. In such an environment, banks risk being rendered irrelevant, Matjanec noted.
"As the banking world moves from traditional brick and mortar to more of a digital mindset, it's easier for a lot of players to get involved," he said. "And what happens is banks start to lose their relevancy and consumers become less dependant on them. And therefore banks have less ability to grow the relationships with their consumers."
Matjanec noted that Generation Y consumers, who comprise a large section of the unbanked and underbanked, will one day replace older consumer segments as the dominant banking block. To woo Gen Yers, financial institutions like Regions Bank and American Express Co. are turning to prepaid.
Matjanec cited a recent partnership between Birmingham, Ala.-based Regions Bank and alternative financial services company Chexar Networks Inc. to implement Regions' Now Banking program. The goal of the program is to use prepaid to lure unbanked consumers into bank branches, Matjanec said.
In the case of AmEx, the card brand launched a low-fee general purpose reloadable (GPR) prepaid debit card designed to draw in consumers who could then be extended credit in the future. AmEx dubbed its program Make Your Move. Users can build positive credit histories with AmEx by using the GPR card and eventually be offered the AmEx Charge Card, where balances need to be paid off monthly.
It is essentially the secured credit card model, Matjanec said. He stated, "I walk into a bank, I give them $500. They take my money and they give me a credit limit. There's no reason why a prepaid debit card can't be used in the same way."
Matjanec sees the lines between banks and prepaid card providers already beginning to blur. Green Dot Corp. acquired Provo, Utah-based Bonneville Bancorp in 2011. Matjanec said such a move allows Green Dot to offer its customers secured credit. He expects the number of partnerships between banks and prepaid companies to increase; when partnerships prove successful, banks may simply acquire their partners.
Another blurring of the line is taking place at the physical bank location, where the formal, structured branch is evolving into a casual, quasi café hangout. Matjanec said banks, such as Citibank N.A. with its flagship Union Square branch in New York City, are following the model established by online bank ING Direct, which operates eight cafes in the United States and Hawaii, where people can relax on couches, drink coffee, buy merchandise and have informal conversations about money management.
"The dude that's serving the coffee is the same dude that's going to help you answer your banking questions," Matjanec said.
One may note that this new environment, where individuals do not need to be ING Direct account holders, fosters an open, nonjudgmental atmosphere that would appeal to the financially underserved people banks are seeking to attract.
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