So-called neo-banks have been getting a lot of press lately for “reinventing” the financial services industry. It appears that everything old is new again.
It might help to start by defining what a neo-bank is. Companies like Chime, Monzo, N26, Revolut, and Simple are often described as neo-banks, challenger banks, or digital banks. They have no branch network, offer individuals the ability to open accounts online, and encourage customers to primarily interact with them digitally.
In the United States, these companies do not have bank charters. They place their deposits with a third party, and oftentimes they are using that bank’s processing platform or a third party.
Has there ever been another financial service that works with third parties to offer products primarily aimed a new generation of financial services customers?
The list of actual banks reveals the answer. All of these banks, with the exception of BBVA, have experience in serving as a bank for prepaid program managers. (BBVA has issued prepaid cards for its own programs in general spend and incentives categories.) They have experience in managing the third-party relationship, onboarding customers, and making transactions happen for cardholders.
The only difference here is that program managers who position themselves as neo-banks offer accounts with a different back office structure.
Looking at the history, it is easy to see the parallels between the next generation of “banks” and the prepaid industry.
Over a decade ago, prepaid companies were marketing to “Gen. Y,” who grew up and were replaced by “Millennials” as the next big target market, who themselves are being replaced by “Gen. Z.” Prepaid cards were leaders in offering tools like mobile alerts, person-to-person transfers, and remote deposit capture. Payroll cards also were the first to offer services that allowed people to access their direct deposits early.
Another place where prepaid cards took the lead was in offering high interest savings accounts. Companies like NetSpend offer saving accounts through their prepaid programs that pay up to 5% in interest.
The first real challenger bank was launched by a prepaid company – Green Dot, who took the lessons it learned from years in the prepaid industry and built a new product type.
The point here is not that prepaid did it first, but rather that the neo-banks, challenger banks, or whatever you want to call them, do not need to reinvent the wheel. Instead they can learn lessons from the experience of prepaid programs. They also should look at the issues that prepaid programs are facing and see where there is common ground. Both product types face issues when it comes to FDIC insurance and brokered deposits, customer service across the value chain, and preventing fraud. Understanding these commonalities will create a better environment for companies and accountholders alike.
New Member Q&A: CPI
The Innovative Payments Association is pleased to welcome CPI Card Group as one of its new principal members.We spoke with Peggy O'Leary, the Prepaid Sales Director, about CPI's role in the industry and where the industry is going.
1. What is your company’s role in the payments market (program manager, issuer, processor, service provider, etc.)?
2. What kinds of payments products do you support?
CPI provides prepaid card manufacturing, retail packaging, and personalization services for GPR (General Purpose Reloadable), gift and retail merchant cards. Clients benefit from CPI’s experience in card manufacturing and custom secure packaging development. Our full service design team can create a unique look from a variety of substrates, core materials, finishes and embellishments. Choose from advanced personalization solutions including CPI On-Demand™, our flexible, zero-inventory print-on-demand solution for prepaid and traditional card fulfillment options.
3. What kinds of special features do your programs offer?
Clients can work with CPI’s in-house custom design team or provide their own designs, and receive a dedicated client service representative. Focusing on trends for next generation prepaid products, CPI’s subject matter experts help select advanced treatments and card embellishments – such as foil, deboss, silk screen and glitter – to develop solutions to meet the needs and budget of the client. Custom and specialty packaging options are available for retail and mail delivery from the industry leaders in data and product security.
4. What do you think the future of payments holds in the next five years?
Customization and personalization are crossing over to next gen demand. Cardholders expect ease-of-use and improved aesthetics. Advancements in contactless and digital are creating the need for a new generation of creative solutions beyond just cards.
As summer nears its end, the payments world is keeping busy.In the latest episode of the IPA Innovative Payments Podcast, we review some of the recent news from the world of payments and regulation. The episode includes highlights from our members only publications and other news from our member companies.
We look at new product launches, recent acquisitions, and regulatory issues.
If you are a member and aren’t seeing the IPA Update and Government Update in your inbox, let us know, and we’ll make sure you get on the list.
Not a member? Reach out today and talk to us about the benefits of joining. Go to www.ipa.org to learn more.
Below are links to some of the items mentioned in the episode.
To read Bloomberg’s story on the Consumer Financial Protection Bureau’s responses to requests to end CIDs, visit: https://news.bloomberglaw.com/banking-law/kraninger-holding-the-line-on-cfpb-investigative-demands
To read Walmart’s digital currency patent application, visit: http://appft.uspto.gov/netacgi/nph-Parser?Sect1=PTO2&Sect2=HITOFF&p=1&u=%2Fnetahtml%2FPTO%2Fsearch-bool.html&r=1&f=G&l=50&co1=AND&d=PG01&s1=20190236564&OS=20190236564&RS=20190236564#Cite_@inthepixels
To learn more about the IPA’s compliance boot camp, coming up in September, please visit: https://www.ipa.org/newsroom/2019/registration-for-the-2019-boot-camp-is-open/
What are “faster payments” and what do they mean for the payments industry?
In the latest episode of the Innovative Payments Podcast, Kim Ford, the director of the U.S. Faster Payments Council answers these questions for us. We discover what the definition of faster payments is, who the players are, and what faster payments mean for the future of the industry.
Payment companies such as Zelle and Venmo offer one version of faster payments. Organizations like NACHA and the Clearing House also are doing work to speed up transaction processing settlement. Additionally, there are plenty of signs that the Federal Reserve is likely to get in on the action.
Speeding up transaction and settlement times will no doubt change the industry. Everyone involved in a transaction will no doubt see changes, but Ford expects that slower payments will continue to be an option. Companies will need to figure out what role faster payments will pay in their strategies and day-to-day business.
To learn more about the U.S. Faster Payments Council, you can visit: https://fasterpaymentscouncil.org/
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