When we explain PayPerks to our friends and even some investors, the first question we often get is, “why wouldn’t someone have a bank account?” The shortest answer, and the one that’s easiest for most banked people to understand, is that many people don’t have a spare $100 to maintain a bank’s minimum balance requirement. We know this is only part of the story but often, that explanation alone is enough to answer someone’s question. So we use that and then move on.
Today I spotted this story on CNN highlighting the rise of poverty in America and the infographic illustrating the poverty rate by state caught my eye. (It’s the red map below.) When I juxtaposed it with the FDIC infographic (the blue map below) illustrating banked status by state, it became clear to me just how much we oversimplify the answer.
Poverty Rate in America (in red) & Unbanked Rate (in blue)
The darker the color, the higher the percentage of poverty or unbanked
While there is definitely a correlation between people’s income and banking status – you can see a lot of similarities between the maps – it’s clear that there isn’t a one to one correlation. Look at the difference in California, Alabama, South Carolina, Tennessee and Kentucky to name a few. While these states don’t have the highest poverty numbers, they do have the highest numbers of unbanked people. If income were the primary driver of banking status (e.g. banked or unbanked), then we’d expect these maps to look exactly the same. Clearly we’re not telling the whole story.
CFSI’s Underbanked Consumer Study (PDF download) reveals that the primary reason unbanked people prefer prepaid to having a bank account is that they can “only spend the money they have” – e.g. they can’t overdraft. The second, by a long shot, is that swiping a card is faster than writing a check. The third is that prepaid cards are accepted more places than checks. The cost of maintaining an account did show up on the list but it was only mentioned by 40% of unbanked (as compared to close to 60% who mentioned the overdraft issue).
So the moral of the story you ask? People who don’t have bank accounts aren’t necessarily poor. They are people who plainly don’t see the value in having a bank account. Yes there’s overlap but probably less overlap that you (or even I) might think.
Paybefore selects PayPerks as this month’s company to watch in their June 2011 issue. PayPerks is honored to be among the prestigious group of previously featured companies such as TxVia, Mango, and AccountNow. We hope to be able to follow in their footsteps.
The article, see below, provides a nice overview of what PayPerks does and tells some of the story about how PayPerks came to life. After reading the article, my mom exclaimed: “Now, I finally understand what you do!” (Hi, mom!)
In addition to thanking Paybefore for featuring us, we want to thank our pilot partners Comdata and MasterCard. MasterCard has been an early and strong supporter of PayPerks, providing everything from research to financial support for our pilot and we are proud to be one of MasterCard’s Partners in Prepaid.
You can view the article below or download it by clicking on the download button at the bottom of this viewer.
PayPerks is Paybefore's Company to Watch in June 2011 by PayPerks Inc
Next up on my conference circuit is the Underbanked Financial Services Forum, this year in New Orleans. Its one of the few conferences I go to where I have trouble choosing which session to go to – everything is relevant, interesting and timely. And the attendee list is so diverse: “everyone from missionaries to mercenaries” to quote Arjan Schutte‘s intro.
As I sit here watching demos of the finalists from the Core Underbanked Innovators Challenge, I am struck by how much the content and format of these demos differs from the traditional demos at a Finnovate, for example. Its the reason why I’m so excited by innovation in this space.
These products are not innovative in their technology – they’re innovative in their customer centric approach. GoalMine (which is getting my vote, btw) elicited uuuuus and aaaahs for their feature which allows people to move money from their prepaid card to a savings vehicle in 30 seconds. There are probably a dozen companies who COULD have this functionality but only one (as far as I know) which does. While a savings feature for the LMI segment could seem like a stretch to a tradItional financial services company, GoalMine manages to package it as an obvious extension to GPR. And I bet that has to do with a customer centric approach to innovation.
Note: Stay tuned for more updates from Arlyn from the conference here on the PayPerks blog or follow us on Twitter@PayPerksB2B.
Our very forward thinking partner MasterCard just launched a new portal to propel new growth in prepaid. As an intro to the site, you can check out an interview they did with me at the Prepaid Expo.
The portal, designed to foster collaboration between the various players in the prepaid value chain, highlights research, best practices and news on innovation, regulation and technology.
In perusing the site today, it occurred to me how unusual the prepaid industry is. It is unique in that there’s so little vertical integration. Rather, companies collaborate and outsource core components of their business and share in the upside with their prepaid partners. (This explains the portal name: Partners in Prepaid.)
Investors always ask us the question: “Why can’t Green Dot/NetSpend/insert Program Manager name here do this themselves?” to which we always respond, “There’s a big difference between can and will”. Which I still stand by.
But today I’m adding a new answer to the list: “Prepaid, by design, is built on outsourcing”.
Today I had the privilege of sitting on a panel discussion entitled the Regulatory Effects on Payroll Card Programs with Cathy Beyda (the authority on Payroll Card legislation and an attorney at Paul Hastings) and Dawn Steele (Sr. Corporate Counsel for ADP). Honored to be in such great company.
Our presentation covered three main topics:
- Benefits and Features of Payroll Cards
- Laws relating to Payroll Cards (The Fair Labor Standards Act (FLSA); The Electronic Funds Transfer Act (EFTA) and Regulation E FDIC Act and General Counsel No. 8)
- How to avoid legal pitfalls
It strikes me at ironic that the focus of a talk on the Regulatory Effects on Payroll Card Programs is on how to stay in compliance as opposed to how to use regulation to mandate employers offer their unbanked employees a Payroll Card option.
At the risk of being redundant, let me say once again that Payroll Cards provide a positive social impact. For the un and underbanked consumer, they offer the lowest cost banking solution on the market. They serve as the stepping stone between an all cash lifestyle and formal banking relationships. And they have the promise of providing lenders with better information on which to base loan decisions. States should be helping employers distribute these cards not hindering them through legislation.
Next year I hope to sit on a similar panel. Same title but focused on using government regulations to aid in the proliferation of Payroll Cards.
One more day here from the Prepaid Expo and then back to the NYC. Will continue to live tweet from @payperksb2b tomorrow! You can also read my report from yesterday.
Per my previous post, I’m writing to you this week from the Prepaid Expo in Orlando. If the person in charge of the air conditioning in this place happens to be reading this, would you mind turning it down? I came to Orlando to escape the frigid temperature. Thanks.
Anyhoo. I just finished my first TV spot as PayPerks CEO on a so-called “widely syndicated” show called ‘Prepaid TV’. (link to come post conference)
I had to edit myself to 30 second sound bites but one question I felt deserved a longer answer was: What opportunities for innovation do you see in prepaid’s near future?
To summarize my answer: The biggest opportunity for innovation in prepaid is not in product – it’s in how we communicate the value of the product. This will unlock exponential value as smarter decisions in prepaid increase value for both the user and the players in the prepaid chain.
It occurred to me how mundane my answer would have been at almost any other conference. But for some reason, there hasn’t been much application of game dynamics and behavior economics in the prepaid space. Well, until PayPerks of course .
(For those who don’t know, PayPerks is introducing game dynamics to prepaid: awarding points for behaviors like taking an online curriculum; making signature based transactions at POS; and adding Direct Deposit loads to your card.)
More to come tomorrow. For real time commentary from the Prepaid Expo, you can follow me @PayPerksB2B.
On Sunday I leave the blustery cold of NYC for the sandy beaches, err Marriott convention center, of Orlando, Fl. I will be attending the Prepaid Expo (or follow the conference on Twitter with this tag: #PPExpo). I’m not usually a fan of conferences but this one always over delivers.
In a move to increase engagement post conference, the hyper forward thinking organizers are putting together a video on the state of prepaid. While I didn’t make it on Oprah’s last season, sigh, I did get asked to provide my perspective on some timely issues relating to prepaid.
Below are the questions I’ll be answering on the video. While down in Orlando, I’ll be blogging some more lengthy thoughts on these topics.
- How do you think the recent government regulations on interchange will effect prepaid?
- What are you seeing happening in the mobile landscape and how do you think that will impact prepaid in the coming year?
- What opportunities for innovation do you see in prepaid’s near future?
- Where is this innovation going to come from?
- What has the economic downturn meant for prepaid, past and present?
Stay tuned here on the PayPerks Blog (RSS), or follow us at @PayPerksB2B.
In our ongoing quest to ‘make new friends and keep the old’, we’ve designed several ways for us all to keep in touch.
Here’s how to keep close tabs on what we’re doing and thinking about, with messages for both our users and our partners (governments, employers, program managers, and social impact organizations).
For PayPerks users:
Gain exclusive access to points giveaways and promotions by following us on Facebook and Twitter.
For Governments, Employers, Program Managers / Card Issuers, Social Impact organisations, and for everyone else:
Follow us on Twitter, find us on LinkedIn or subscribe to our blog feed (RSS) in your news reader. For those of you who want to be kept in the loop but prefer less frequent updates, sign up for our quarterly newsletter: a 10,000 ft view on what’s new and exciting in PayPerks land.
See you online!
It looks like the Treasury is seeking $50 million from Congress to nationalize the Bank On USA program, as reported in the Wall Street Journal.
These government efforts are working towards the same goal as PayPerks, to help workers without access to bank accounts avoid the high costs of cashing checks:
Workers without bank accounts typically spend hundreds of dollars a year to cash checks. An unbanked worker can spend $41,600 over a lifetime in check-cashing fees, the Brookings Institution, a liberal think tank, estimated in 2008.
I’m surprised to see the banks participating this initiative. Banks do not generally like to offer accounts to individuals who maintain low balances as these accounts are costly for the banks to maintain and service. Maybe the banks do not plan to make money on these accounts, but rather are just doing it for the CRA credits?
It’s a great thing for more workers to have access to bank accounts. But rather than create a tax-payer funded scheme to promote accounts the banks don’t want to have in the first place, we encourage everyone to take a closer look at Payroll Cards.
Did you see this WSJ article on the end of free checking? Seems like there will be a whole new influx of potential customers for prepaid cards – particularly in the payroll card space.