Building a financial ladder for 100M Americans


Published on

The payment card industry can improve the lives of 100M+ Americans by:
- keeping underbanked workers away from check cashers
- providing a safe and gradual way of building up credit

This can be done by:
- leveraging existing products: prepaid cards and secured credit cards
- developing a dedicated mobile application for guiding first-time credit card users set by step
- developing a public portal for employers and employees to sign up for prepaid cards as alternatives to checking accounts

Published in: Economy & Finance
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Building a financial ladder for 100M Americans

  1. 1. Building a Financial Ladder High Impact Durable Growth Opportunity for the Payment Industry
  2. 2. BANKING UP Overview The payment industry can improve the lives of 100M Americans by expanding its own business on 2 fronts: • Expand “prepaid cards as checking” to the 100M employees of the 2M Small & Medium size Businesses in the US • Add secured or unsecured credit cards to the wallets of prepaid cardholders by leveraging their prepaid usage for decisioning and securitizing Here is how… 2
  3. 3. BANKING UP Financial Services for Everybody Everybody deserves access to these Rather than this Checking Account Savings Account Debit Card Prepaid Card Bill Pay Secured Credit Card Credit Card Installment Loan Rent to own Auto Loan Internet Payday Pawn Payday Loan Overdraft Deposits Payment Short Term Credit Very Short Term Credit 3
  4. 4. BANKING UP 2009-2014 Industry Scorecard Delivered new deposit + pay service & some savings Reduced offering post recession Status Quo Prepaid Card as Alternative to Checking (with some savings options) mostly marketed by non-banks Internet Payday Pawn Payday Loan Overdraft Secured Credit Card Credit Card Installment Loan Rent to own Auto Loan Deposits Payment Short Term Credit Very Short Term Credit 4
  5. 5. BANKING UP What the Card Market Must Do Now Leverage Prepaid As Stepping Stone Towards Score-able Credit Products To Reduce Need For Very Short Term Credit Prepaid Card as Alternative to Checking Secured Credit Card Credit Card Internet Payday Pawn Payday Loan Overdraft Deposits Payment Short Term Credit Very Short Term Credit 5
  6. 6. BANKING UP Build a Financial Ladder Access to Checking & Payments for All New Generation of Prepaid Debit Cards • No credit check, no CHEX exclusion • FDIC insured, Reg E consumer protection • Handle all forms of payments: card, paper checks, ACH Access to Short Term Credit for Many Secured or un-secured Credit Cards • History of prepaid card usage feeds credit decisioning • Savings in prepaid card, if any, used as security deposit • Just-in-time financial advice & free access to FICO score 6
  7. 7. First Rung of the Financial Ladder Make prepaid cards used as checking accounts available to the 100M employees of the 2M Small & Medium size Businesses
  8. 8. BANKING UP From Casual Shoppers to Motivated Workers Prepaid Cards as checking alternatives are now a proven product… … but they are not sold where people are in the mindset of getting their financial lives in order for the long term The workplace is the MAIN source of revenues and the BEST location to motivate people to step on the first rung of the ladder. Prepaid Card Payslip 8
  9. 9. BANKING UP Where are the Payroll Cards? Less than <25% penetration among US Employers Almost no penetration of SMBs with < 100 employees Changes to payroll systems to issue cards Verify vendor compliance with payroll card regulations Direct deposit mandate not possible in all states Not an alternative to checking accounts for Employees Cannot receive wages for more than 1 job Lose the card when leaving the company Usually not connected to cash load networks (Green Dot, Moneygram, Western Union, rePower, ReadyLink…) Bare bones service: no mobile app, no rewards program… PAYROLL 9
  10. 10. BANKING UP How General Purpose Prepaid Cards Will Help  Most useful to Employees • Use the card for multiple jobs; keep the same card when switching job • Load own cash on the same card • Deposit paper checks directly into the card with Mobile Check Load (if employer only pays by check)  Easiest to deploy for small Employers • No need to change anything to existing payroll systems (including paper check based) • No involvement in managing issuance and termination of cards • No regulatory compliance risk  Same consumer protection as Payroll Cards • New generation of GPR cards with FDIC insurance + “Reg. E Lite” protection + no monthly fee for direct depositors Source: Small Business Administration 10
  11. 11. BANKING UP Solution: Open Portal for Employers and Employees Private Sector Employees / Firm Number of Firms Number of Employees Annual Payroll 5-9 978,993 6,431,931 $218B 10-19 592,963 7,961,281 $284B 20-99 481,496 18,880,001 $746B 100-499 81,243 15,867,437 $691B 500-999 17,671 58,427,653 $2,996B Total 2,152,366 107,568,303 $4,935B Public Sector Employees State & Local (excl. education) 8,956,000 Total Employees 116,524,000  Describe how GPR cards work for payroll  Ready-to-print flier for employees  Select choice of GPR Prepaid Cards for employees to sign up for Source: US Census Bureau Source: Bureau of Labor Statistics  Instantly deployable (public website) 11
  12. 12. BANKING UP Participating GPR Prepaid Cards Requirements:  Monthly fee ≤ $5  Free online sign up  Mobile check load available  Combination of: • CFSI’s Compass Principles • Visa’s “designation*” for prepaid • FDIC’s Safe Account template Benefits to Prepaid Card Providers:  New Cardholders with very high Direct Deposit activity  Performance- based, low acquisition costs http://www.DirectDeposit.Center * As published June 2, 2014 12
  13. 13. BANKING UP Portal Design Requirements:  Responsive Web Design for PC, mobile and tablet access  Clean, flat UI  English & Spanish  Tracking of inbound links  Detailed activity reporting for GPR Card providers http://www.DirectDeposit.Center http://www.DirectDeposit.Center http://www.DirectDeposit.Center 13
  14. 14. BANKING UP Employees Employers No more trips to check casher No change to Payroll Better than Payroll Cards No compliance issue Card Providers Avoid check issuance fees New revenues New cardholders with very high rate of Direct Deposits Card Networks New Acquisition Channel Portal More cards More revenues Benefits for All Players http://www.DirectDeposit.Center 14
  15. 15. BANKING UP Completing Work On The First Rung Prepaid Card ✓Available ✓ Confirmed interest from several “Prepaid Cards as Checking” ✓ Existing templates for good products criteria: • CFSI’s Compass Principles • FDIC’s Safe Account Template • Visa’s new prepaid card designation label →To be finalized → Product criteria (fees & features) for participation in portal → Build the Portal → Recruit participating Prepaid Card providers → Source of Financial Literacy material for Portal → Initial marketing push to launch Portal http://www.DirectDeposit.Center 15
  16. 16. Second Rung of the Financial Ladder Leveraging prepaid card usage for issuance of secured or unsecured credit cards
  17. 17. BANKING UP Overcoming the Credit Score Quandary Credit cards report to all 3 Bureaus… … but reasonably priced unsecured cards are unavailable without a sufficient FICO score … while applicants to FICO-indifferent secured cards often don’t have the money for a security deposit. Prepaid Cards can be a source of :  Decisioning data for credit cards  Security deposit funds for secured credit cards Credit Card 17
  18. 18. BANKING UP Prepaid-To-Credit Pathway Give Prepaid Cardholders Access to Credit and Help (re)build FICO Scores Prepaid Card usage history = input to the credit card issuance decisioning process If credit card is secured: use prepaid savings purse as security deposit User has now 2 cards: • Prepaid Card = “everyday payments” - always safe to use • Credit Card = “credit building payments” - use with caution. Prepaid and Credit cards are operationally separate for compliance with CFPB & Treasury requirements Prepaid Card (Secured) Credit Card 18
  19. 19. BANKING UP The Financial Ladder in a Mobile App Manage Both Cards • Prepaid: balance, history, savings, write checks, top up phone, manage rewards, contact customer service • Credit: balance, history, pay card bill, contact customer service Obtain Just-in-Time Financial Advice Take interactive financial tutorials as they are pushed from time to time to the phone to increase credit line and become eligible for other financial services PREPAID CREDIT Username Password 19
  20. 20. BANKING UP Consumers Prepaid Card Better access to credit Providers Build up FICO score Motivate usage Credit Card Providers New referral revenues New revenues New cardholders with easier decisioning Card Networks New Acquisition Channel More cards More revenues Benefits for All Players CREDIT CREDIT CREDIT PREPAID Username Password CREDIT PREPAID PREPAID PREPAID 20
  21. 21. BANKING UP Completing Work On The Second Rung Deposit Pay Save Prepaid Card Security Deposit Secured Credit Card Un-secured Credit Card Decisioning PREPAID Username Password API ✓Available ✓ “Prepaid as Checking” platform ✓ Savings sub-account ✓ API for access to transaction history and mgmt. of savings ✓ Mobile App for handling Prepaid Card with push messaging channel →To be finalized → Credit Card Providers interested in the security deposits and/or usage history of prepaid cardholders → Source of Financial Literacy / Credit Scoring Advisory for Mobile App → Mobile App update for Credit CardCREDIT 21
  22. 22. BANKING UP Summary  Industry-wide growth initiative – Foster GPR adoption in the workplace – Provide safe pathway from prepaid to FICO score-building credit  Immediate positive impact on 1/3rd of the US population  Easy to scale  No new untested product  Will grow both the prepaid and credit card businesses 22
  23. 23. Appendix Business Models, Workplan & Resources
  24. 24. BANKING UP Employees Employers Card Free sign up Free access to portal Networks New Transactions Card Providers No check issuance fees Revenues New Card Revenues New cardholders with very high rate of Direct Deposits Merchants Marketing costs Per activated card fee Portal Issuers and Processors Existing Costs Bank Portal Operator Pays • IT Hosting & Operations • Portal marketing • Due diligence for employers registering for a micro-site Portal Operator Gets • Per activated or per-loaded card fee from Card Providers Workplace GPR Cards Portal Business Model Processor http://www.DirectDeposit.Center Online Sign Up 24
  25. 25. BANKING UP Consumers Prepaid Cards Card Free sign up Providers Networks Pay interest on balance & annual fees Earn lead-generation New Transactions Credit Card fees Revenues Providers New card New cardholders with easier decisioning Merchants revenues Marketing costs Per activated card fee Issuers and Processors Existing Costs Bank Prepaid-to-Credit Pathway Business Model ProcessorOnline Sign Up CREDIT CREDIT CREDIT PREPAID PREPAID PREPAID PREPAID Username Password CREDIT 25
  26. 26. BANKING UP Milestones and Deliverables Item Category Delivery First Rung: GPR Cards Portal for Workplaces Build Employees/Employers GPR Portal Technical Q4 2014 Agreements with first Prepaid providers Legal Q4 2014 Initial market awareness campaign Marketing Q1 2015 Measure number of active cards & gross $ volume Analytics Ongoing Second Rung: Prepaid-to-Credit Pathway XML template for prepaid-originated decisioning data Technical Q1 2015 Mobile App for managing prepaid + credit card & distributing financial advice material Technical Q2 2015 Agreements with 1 secured & 1 unsecured Credit Card provider Legal Q2 2015 Initial marketing campaign to select prepaid cardholders Marketing Q3 2015 Measure number of active card pairs, credit balances, FICO scores, credit incidents Analytics Ongoing 26
  27. 27. BANKING UP 1-212-671-1015 Banking Up 55 Broad Street, Floor 7 New York, NY 10004 27