prepaid cards as checking accounts
DESCRIPTION
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.TRANSCRIPT
Prepaid Cards a better substitute for
checking accounts
than you think
Patrice Peyret
CEO, Plastyc Inc.
Did You Notice?
Checking & Debit Alternative
by American Express
A New Kind of Checking Account
by Green Dot Bank
2 new checking account services based on prepaid cards
2
Why?
No more functional difference
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≡
Cheaper to operate
Can earn greater interchange
More eligible customers
More differentiation & innovation
Plastyc’s Mission
Provide the power of a bank account via any browser or mobile device
to anyone, irrespective of:
• Income
• Age
• Bankability
… through a fast-iterating platform
• Prepaid-based
• Proven & scalable
• Highly customizable
Deliver the power of a DDA at Everyone’s Fingertips
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Plastyc at a Glance
Best-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 fees
Leading advocates of “Good Banking”
First of CFSI’s Compass Principles “champions”
First of CFPB’s Project Catalyst partner in prepaid
Direct to Consumer
UPside and iBankUP brands, sold online
Private-labeled Services
Powering H&R Block’s Emerald cards
More to be announced…
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Direct to Consumer
Platform Services
We know consumer
interactions AND
banking technology
Open-Loop Prepaid Cards: a Short History
1999-2000 birth of open-loop cards
• EBT cards (funded by government)
• Payroll cards (funded by employers)
• Teen cards (funded by parents)
Next Estate VisaBuxx
2002-2009 AFS lead & grow cash loads
• GreenDot
• NetSpend
• AceCash
• RushCard
• Emerald
2010-2012 Validation
• GDOT, NTPSD go public
• CFSI “Compass Principles”
• Suze Orman steps in
• Amex Bluebird
• Chase Liquid
• DirectExpress
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Pooled
Account
How do Prepaid Cards Work?
Note: only prepaid card accounts assigned to
ID-verified cardholders are re-loadable
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GOOD
THRU 03/14 DEBIT
CARDHOLDER NAME
0000 1234 5678 9010
Issuing
Bank
Card sub-
account
ROUTING # ACCOUNT #
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
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Who Qualifies?
ID-Verified, OFAC-
checked Applicants
Verify ID: - Documentary (face-to-face) - Non-documentary (online)
Office of Foreign Assets Control: Specially Designated Nationals (SDN) and Blocked Persons List
Exclude suspicious accounts opened by: - ID Thieves - Tax fraudsters - Applicants with prior abuse of cards
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Benefits of Prepaid for F.I.’s
Reduced operating costs: ≤$50/year versus >$200 for checking
Earn greater interchange when designed for exemption from Durbin amendment
Enroll more customers: can be opened to people on CHEX list
More differentiation through easy-to-add options: rewards, built-in savings, mobile top-ups...
Promising Economics…
General Purpose Reloadable (GPR) Prepaid cards are no longer “glorified gift cards”
Full check services: paper check writing (on-demand) & check depositing (via smartphones)
Same ACH routability, FDIC insurance and Reg E protection as checking accounts
… Without Sacrificing
Quality
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Addressing Key Pain-Points for Customers
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Write checks to your
landlord1 Cash checks
more conveniently2
Build a safety net
automatically
Save on everything
Get rid of tedious calling
cards
1: Even if on Chex blacklist 2: By smartphone
Prepaid Cards Business Model
Merchants & Network
Interchange
Visa association fees ATM negative interchange
Regulatory supervision
Consumers
Monthly fees ATM fees
Bill Pay fees Support fees
Program Mgmt fees Tx Processing fees
Check issuance costs Live Agents costs
Risk Management costs
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Operating
Revenues
Operating
Expenses
Customer
Acquisition
Expenses
Identity Verification
Plastic Printing & Shipping
Marketing & Advertising
Fulfilling the Promises of Prepaid Economics
Limit 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 products
Minimize distribution friction
Avoid branch servicing don’t invite cardholders to branches for services already automated elsewhere (cash withdrawals & deposits, check deposits…)
Advertise cost-effectively leverage existing communication channels, advertise online only on limited CPA basis, beware of celebrity co-branding
Maximize account longevity
Communicate often with cardholders through no-cost channels under-banked customers are not “under-mobile-phoned”
Offer differentiation that “sticks” automated savings, mobile banking…
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Two Ways for F.I.’s to Deploy
Issue prepaid cards in own BIN
Best for banks with existing prepaid BIN
F.I. is Issuer + Program Manager + Distributor
F.I. has P&L & Risk ownership of program
F.I. gets transaction processing and program
management services from providers like
Plastyc + a Processor
Private-label prepaid cards
from a BIN-sponsoring bank
Best for small Community Banks & Credit Unions
F.I. is Distributor & receives part of the Interchange
Provider like Plastyc brings the BIN sponsoring bank
& Processor, and has P&L and Risk responsibility
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Program Management & add-on services
Transactions
Processor
F.I. as private label
distributor
Card Payment Network
Issuing Bank
(BIN
Sponsor)
F.I. as Program Manager
Transactions
Processor
F.I. as
distributor
Card Payment Network
F.I as Issuing Bank
Program Management
Service Bureau
Business Model as Issuer in own BIN
F.I issues
prepaid cards
in own BIN
Merchants & Network
Interchange
Network fees ATM negative interchange
Regulatory supervision
Consumers
Fees: Monthly, ATM,
Bill Pay, Support
Program Mgmt Tx Processing
Check issuance Live Agents
Risk Management
Identity Verification
Plastic Printing & Shipping
Marketing & Advertising
Receives
Pays for
Business Model as Private Labeler
F.I private-labels
prepaid cards from a
BIN-sponsoring bank
Merchants & Network
Interchange
Network fees ATM negative interchange
Regulatory supervision
Consumers
Fees: Monthly, ATM,
Bill Pay, Support
Program Mgmt Tx Processing
Check issuance Live Agents
Risk Management
Identity Verification
Plastic Printing & Shipping
Marketing & Advertising
Receives
Pays for
Drafting a Marketing Plan
Define product message
Refine customer motivators: financial discipline, convenience…
Decide product features & pricing
Identify easy & efficient channels
Online? existing website(s)
Retail? Branches Evaluate channel efficiency:
Cost Per Acquisition, activation ratio, load ratio
Identify initial consumer audience
Turned-down applicants? Others?
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0000 GOOD THRU 03/14
DEBIT
CARDHOLDER NAME
0000 1234 5678 9010
Your Logo
Here
Plastyc, Inc. 55 Broad Street, Floor 7
New York, NY 10004
212-671-1015
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