Prepaid Cards as Checking Accounts

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Prepaid cards have come a long way and are now excellent substitutes for checking accounts, at lower operating costs and with more features. …

Prepaid cards have come a long way and are now excellent substitutes for checking accounts, at lower operating costs and with more features.
This presentation explains where prepaid cards stand, who to offer them to, how to implement them with maximum efficiency.

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  • 1. Prepaid Cardsa better substitute for checking accounts than you think Patrice Peyret CEO, Plastyc Inc.
  • 2. Did You Notice? Checking & Debit Alternative by American Express A New Kind of Checking Account by Green Dot Bank2 new checking account services based on prepaid cards 2
  • 3. Why? No more functional difference ≡  Cheaper to operate  Can earn greater interchange  More eligible customers More differentiation & innovation 3
  • 4. Plastyc’s Mission Deliver the power of a DDA at Everyone’s FingertipsProvide the power of a bank account via any browser or mobile deviceto anyone, irrespective of: • Income • Age • Bankability… through a fast-iterating platform • Prepaid-based • Proven & scalable • Highly customizable 4
  • 5. Plastyc at a Glance Direct to Consumer Direct to Consumer We know UPside and iBankUP brands, sold online consumer interactions AND Private-labeled Services banking Powering H&R Block’s Emerald cards technology More to be announced… Platform ServicesBest-in-market LTV: 2 year lifetime, >80% of $ from direct deposits Cost leadership: branchless operations & minimal overhead Foster most favorable consumer behavior: innovative sticky services at lowest feesLeading advocates of “Good Banking” First of CFSI’s Compass Principles “champions” First of CFPB’s Project Catalyst partner in prepaid 5
  • 6. Open-Loop Prepaid Cards: a Short History1999-2000 2002-2009 2010-2012birth of open-loop AFS lead & grow Validationcards cash loads • EBT cards • GreenDot • GDOT, NTPSD (funded by government) • NetSpend go public • Payroll cards • AceCash • CFSI “Compass (funded by employers) • RushCard Principles” • Teen cards • Suze Orman (funded by parents) • Emerald Next Estate steps in VisaBuxx • Amex Bluebird • Chase Liquid • DirectExpress 6
  • 7. How do Prepaid Cards Work? Issuing Bank 0000 1234 5678 9010 DEBIT 03/14 GOOD THRU CARDHOLDER NAME Pooled Card sub- account Account ROUTING # ACCOUNT #Note: only prepaid card accounts assigned to ID-verified cardholders are re-loadable 7
  • 8. Prepaid Cards ≡ Checking Accounts FDIC “pass-through” insurance applies to individual card accounts Routability via ACH allows direct deposits and bank transfers Cards able to receive federal funds have Reg E consumer protection On-demand paper checks enable payments to anyone Walmart Rapid Reload™ allows cashing checks directly to card Mobile Remote Deposit Capture allows depositing of checks 24x7 8
  • 9. Who Qualifies? Verify ID: - Documentary (face-to-face) - Non-documentary (online)ID-Verified, OFAC- Office of Foreign Assets Control: Specially Designated Nationals (SDN) and checked Blocked Persons ListApplicants Exclude suspicious accounts opened by: - ID Thieves - Tax fraudsters - Applicants with prior abuse of cards 9
  • 10. Benefits of Prepaid for F.I.’s Promising … WithoutEconomics… Sacrificing Quality Reduced operating costs: ≤$50/year versus >$200 for General Purpose checking Reloadable (GPR) Prepaid cards are no longer “glorified gift cards” Earn greater interchange when designed for exemption from Durbin Full check services: paper amendment check writing (on-demand) & check depositing (via smartphones) Enroll more customers: can be opened to people on CHEX list Same ACH routability, FDIC insurance and Reg E More differentiation through protection as checking easy-to-add options: accounts rewards, built-in savings, mobile top-ups... 10
  • 11. Addressing Key Pain-Points for Customers Write checks to your landlord1 Cash checks more conveniently2 Get rid of tedious calling Build a safety cards net automatically Save on 1: 2: Even if on Chex blacklist By smartphone everything 11
  • 12. Prepaid Cards Business Model Merchants & Network Consumers Monthly feesOperating ATM fees Interchange Bill Pay feesRevenues Support fees Program Mgmt feesOperating Visa association fees Tx Processing feesExpenses ATM negative interchange Check issuance costs Regulatory supervision Live Agents costs Risk Management costsCustomer Identity VerificationAcquisition Plastic Printing & ShippingExpenses Marketing & Advertising 12
  • 13. Fulfilling the Promises of Prepaid EconomicsLimit Risk Keep enrollment tight in the absence of credit record & CHEX verifications use state-of-the-art CIP with out-of-wallet escalation questions Don’t tempt customers nor regulators to challenge your business no overdraft option, no swipe fees, no links to loan productsMinimize Avoid branch servicingdistribution don’t invite cardholders to branches for services already automatedfriction elsewhere (cash withdrawals & deposits, check deposits…) Advertise cost-effectively leverage existing communication channels, advertise online only on limited CPA basis, beware of celebrity co-brandingMaximize Communicate often with cardholders through no-cost channelsaccount under-banked customers are not “under-mobile-phoned”longevity Offer differentiation that “sticks” automated savings, mobile banking… 13
  • 14. Two Ways for F.I.’s to Deploy F.I. asIssue prepaid cards in own BIN distributor  Best for banks with existing prepaid BIN  F.I. is Issuer + Program Manager + Distributor F.I. as F.I as Program Issuing  F.I. has P&L & Risk ownership of program Program Manager Management Bank  F.I. gets transaction processing and program Service Bureau management services from providers like Card Transactions Payment Plastyc + a Processor Processor Network F.I. as private labelPrivate-label prepaid cards distributor from a BIN-sponsoring bank  Best for small Community Banks & Credit Unions Program Issuing Bank Management &  F.I. is Distributor & receives part of the Interchange add-on services (BIN Sponsor)  Provider like Plastyc brings the BIN sponsoring bank & Processor, and has P&L and Risk responsibility Transactions Card Processor Payment Network 14
  • 15. Business Model as Issuer in own BIN Merchants & Network Consumers Fees: Interchange Monthly, ATM, Receives Bill Pay, Support F.I issues Network fees Program Mgmtprepaid cards ATM negative Tx Processing interchange in own BIN Regulatory supervision Check issuance Live Agents Risk Management Pays for Identity Verification Plastic Printing & Shipping Marketing & Advertising
  • 16. Business Model as Private Labeler Merchants & Network Consumers Fees: Receives Interchange Monthly, ATM, Bill Pay, Support Network fees Program Mgmt F.I private-labels ATM negative interchange Tx Processing Check issuanceprepaid cards from a Regulatory supervision Live AgentsBIN-sponsoring bank Risk Management Identity Verification Pays for Plastic Printing & Shipping Marketing & Advertising
  • 17. Drafting a Marketing Plan Identify initial consumer audience Your Logo Turned-down applicants? Others? Here 0000 1234 5678 9010 0000 DEBIT 03/14 GOOD THRU Identify easy & efficient channels CARDHOLDER NAMEOnline? existing website(s) Evaluate channel efficiency: Retail? Branches Cost Per Acquisition, activation ratio, load ratio Define product message Refine customer motivators: Decide product features & pricing financial discipline, convenience… 17
  • 18. Plastyc, Inc.55 Broad Street, Floor 7New York, NY 10004info@plastyc.com212-671-1015 18