The Green Sheet Online Edition
June 24, 2013 • Issue 13:06:02
Insider's report on payments
What's in a name?
In the world of marketing, monikers are chosen typically for the imagery they convey. The Kindle Fire is an example. Visa is another example. So, I was struck by how many new names were announced at the Underbanked Financial Services Forum, an annual event presented by the Center for Financial Services Innovation and the American Banker newspaper.
The Forum, itself, has been renamed; the prepaid card company Plastyc Inc. heralded a name change to Banking Up; and Spyke Network, a network that converts check payments to prepaid card funds, said it has been rechristened Ingo - the Good Funds Network. "Ingo, as in put your money in and go, using your mobile," said Drew Edwards, Chief Executive Officer at Ingo Money Inc.
What Ingo does is pretty sweet. Using mobile remote deposit capture (mRDC), sophisticated risk analytics and assorted propriety processes, the network makes it possible for consumers to snap photos of checks using their smartphones and have the funds applied directly to registered prepaid cards.
Consumers register with Ingo through prepaid card programs (four programs are on the network now and others are queuing up) and download a mobile check app to their smartphones.
When they use the app to cash checks they can request immediate availability of funds for a fee (1 percent of the face amount for payroll checks, 4 percent for all others), or they can wait a few days and receive the full check amount.
Edwards is optimistic about the future of Ingo, as it resolves the one significant drawback to using prepaid debit cards in lieu of checking accounts. He estimated that consumers receive over 7 billion checks a year (totaling $5.7 trillion in value) that can't be easily converted to electronic payments.
These include person-to-person payments and paychecks that don't qualify for direct deposit. Until now, getting those dollars onto prepaid cards was a two-step process: first pay to cash the check; then pay to load the cash onto a prepaid card.
Ingo has an impressive list of partners, including Visa Inc. Lisa McFarland, Head of Consumer Prepaid Products at Visa, joined Edwards at the CFSI event, along with Patrice Peyret, CEO of Banking Up, one of the first prepaid card companies to join Ingo.
"We're being driven by consumer needs," McFarland said while explaining Visa's decision to partner with Ingo. Consumers are spending billions of dollars a year using cash, checks and money orders, and Visa wants to move more of those payments to cards, she added.
And Visa is not alone. American Express Co. offers a reloadable prepaid card in partnership with Wal-Mart Stores Inc. Known as Bluebird, the card is described as a "checking and debit alternative."
Alpesh Chokshi, President, Global Payment Options at AmEx, also participated in the CFSI Forum. Joining Chokshi on a panel titled Re-imagining the Consumer Banking Relationship was Jonathan Wilk, Head of Product Marketing at JPMorgan Chase. Chase was the first major bank to roll out mRDC; it offers a prepaid debit card known as Liquid. (Talk about imagery!)
"Prepaid is more than just a product. It's a [multi-trillion dollar] a year opportunity," said Chokshi. He noted that working with Wal-Mart allows AmEx to serve a much broader market than its charge card and credit card products. And it provides scale. As a result, it's the least expensive reloadable prepaid card on the market today, he added.
After just three months of marketing, Bluebird had signed 575,000 cardholders, and 85 percent of those customers "were new to the franchise," said Chokshi.
Chase put significant marketing effort into Liquid, which Wilk described as an introductory, or starter, bank account. It seems to be working: 70 percent of Liquid cardholders are new to the bank; 30 percent were previously unbanked, he said.
The FDIC estimated that one in four U.S. households is either unbanked (they have no direct dealings with banks or credit unions) or underbanked (someone in the household has a bank account but household members also use nonbanks, such as check cashers and Wal-Mart).
The CFSI puts the U.S. underbanked population at 68 million. Collectively, they spend about $78 billion a year on financial products and services (for example, check cashing, remittances and prepaid cards). Edwards said the typical Ingo customer cashes two checks a month, and each check averages $600.
FIS International, a back-end solutions provider for financial institutions and retailers, also supports check cashing to prepaid cards. In a presentation at the Underbanked Forum, Kamila Kibilda, Senior Vice President and General Manager, Retail Payments Division at FIS, revealed that in 2012, 35 million consumers used mobile devices to cash more than 87 million checks totaling $43 billion in value through FIS client programs.
Wal-Mart - which, in addition to working with AmEx, offers its own prepaid debit card, the Walmart MoneyCard - is an FIS client.
"The underbanked market has gone mainstream," said Jennifer Tescher, CFSI President and CEO. She said that's one reason CFSI changed the name of its annual forum; starting in 2014, it will be known as Emerge: the Forum on Consumer Financial Services Innovation.
Clearly, labels like "underbanked" and "underserved" don't adequately describe this growing segment of the economy. Visa uses the term "strivers," McFarland said. I believe an apt moniker would be "alternatively banked."
Whatever the label, it's a misperception to consider these folks poor; increasingly the decision not to use a bank or credit union is a factor of age and technology preferences.
"This is a generational shift we're seeing," said Tescher. Younger adults are less enamored with banks than their elders.
Aite Group LLC reported that 45 percent of the 80 million "millennials" in the United States do not have traditional bank accounts. A recent survey by micro-lender Think Finance found 51 percent of millennials had used prepaid cards in the previous 12 months and that nearly a third of those surveyed had used check cashers. Chokshi said 45 percent of Bluebird cardholders are under the age of 35.
As for technology preferences, the Pew Research Center reported that 97 percent of consumers between the ages of 18 and 29 had mobile phones as of June 2013; 80 percent had smartphones. Among all U.S. adults, 91 percent have mobile phones; just 56 percent have smartphones.
Patti Murphy is Senior Editor of The Green Sheet and President of ProScribes Inc. She is also the founder of InsideMicrofinance.com. Email her at firstname.lastname@example.org.
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