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Everyone likes to believe that they are rational, especially when it comes to money. But people often make irrational choices, despite what economists would have us believe. While irrationality might seem like a bad thing, it can be harnessed to help people achieve their goals. By understanding human foibles, financial services providers can design products that will direct that behavior down positive paths. Both individual customers and the provider’s bottom line can benefit from recognizing that even seemingly bad behavior can be turned towards good outcomes. In the latest episode of our podcast, we talk with Kristen Berman, the co-founder of Irrational Labs, and Brad Swain of the Common Cents Lab at Duke University, about what their research shows when it comes to money management and what that can mean for product design. For example, people of all kinds will often say they want to achieve a goal but do things that are counter to that goal just because something else is easier. Leveraging the path of least resistance preference can turn into more savings for customers and less risk for providers. Our guests talk about why encouraging borrowers to pay off their loans early might be a win-win for lenders and borrowers. They also talk about how financial can build good behaviors into the onboarding process for accounts and loans. You can listen to our podcast on iTunes, Google Play, or your favorite podcast app. Please subscribe and leave us a review. If you want to learn more about our guests’ research, you can visit the Irrational Labs Web site at and the Common Cents Lab web Site at https://advanced-hindsight.com/commoncents-lab/ If you want to stay on top of new developments in the industry, plan to attend the Innovative Payments Conference in Washington DC, April 6-8. Learn more and register at: https://www.americanbanker.com/conference/innovative-payments Interested in becoming an IPA member and helping to shape the future of payments? Reach out today and talk to us about the benefits of joining. Go to www.ipa.org to learn more.
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Our wallets have become more than our billfolds and pocketbooks, but unless we stop to think about it, it is easy to ignore how all the little changes add up. If you are a card manufacturer, though, you need to think about what the how tools like tap and go cards, mobile payments, and wearables are reshaping business and daily life. Peggy O’Leary, CPI’s Director of Sales and Client Services in Prepaid, sees payments innovation reshaping everything from what we do at the checkout counter to the design of our wallets. In this episode, we talk about how these changes open up new opportunities for financial institutions, payments providers, retailers, and consumers alike. Contactless payments mean that cards no long need to be card-shaped. What does that mean for the shape of our purses and wallets? What does it mean for the kinds of products that can be used as a payment form factor? Our physical reality could change because of changes in payments. Mobile wallets allow for the instant delivery of not only payments credentials, but also of information ranging from special offers to directions to information on how a purchase might affect a shopper’s budget. What does this mean for financial institutions and retailers? In a wide ranging discussion, Peggy and the IPA talk about some of these possibilities and the promises and pitfalls that come with them. If you want to learn more about CPI and their manufacturing capabilities for all kinds of payments tools, you can visit their Web site at: https://www.cpicardgroup.com/ If you want to stay on top of new developments in the industry, plan to attend the Innovative Payments Conference in Washington DC, April 6-8. Learn more and register at: https://www.americanbanker.com/conference/innovative-payments Cash remains an important part of the payments landscape, so access to cash can be a powerful tool for a variety of programs. In an emergency when payments systems are down – the aftermath of a hurricane for example – cash can keep an economy going and ensure that people get their needs met as rebuilding starts. Incentives programs can use cash as an instant motivation. And cash can make it easy to transact without concerns about acceptance. ATMs have been an important tool for debit card holds to get cash and make deposits, but mobile technology makes it possible for anyone to use an ATM if they can receive text messages. It isn’t even necessary to use a smartphone in many cases. So, cash access can extend to anyone with a mobile phone. In the latest episode of the Innovative Payments Pod, we talk with PIN4 and its subsidiary, HalCash International, about how cardless transactions can help payments companies deliver services to their customers. PIN4 is working with IPA member MasterCard on its MasterCard Cash Pick-Up service in the United States and working with a variety of companies in countries like Spain to deliver instantly available cash payments to individuals. They have used their technology for incentives and gaming payments, but have plans to make it available for use cases like disaster payments and helping companies suffering system outages. If you want to learn more about PIN4 and the Mastercard Cash Pick-Up capability, you can visit their Web site at: http://pin4.com/ If you want to stay on top of new developments in the industry, plan to attend the Innovative Payments Conference in Washington DC, April 6-8. Learn more and register. Interested in becoming an IPA member and helping to shape the future of payments? Reach out today and talk to us about the benefits of joining. Go to www.ipa.org to learn more. Recently, fintechs and large banks have clashed over who should have access to customer data. Fintechs often rely on connections to their customers’ bank accounts in order to deliver products and services. Banks, on the other hand, do not want to be deposit hotels where customers are storing money until they can move it some place better because they worry about losing the customer. Additionally, banks are worried that allowing outside companies to access their customers’ data will lead to more identity thefts and hacks. An example of this is the recent disruption connections between PNC Bank and Venmo accounts. In December, PNC Bank customers could not connect their bank accounts to their Venmo accounts. The Wall Street Journal reported that the bank had updated its data security systems and that led to it blocking access from a company called Plaid, which is a data aggregator that works with multiple fintechs to provide connections to bank accounts. PNC did suggest in tweets that its customers use Zelle, which is a person-to-person app provided through a consortium of banks. Plaid links third-party apps to bank accounts using a process called screen-scraping, which essentially allows the app to log into a customer’s bank account by storing their logon credentials. PNC was not the only bank in this kind of conflict. The American banker reported on Jan. 2 that J.P. Morgan Chase also planned to block screen scrapers of all kinds. This is interesting because in October 2018, Chase has signed an agreement with Plaid and three other companies to provide data through a secure API, according to the American Banker. The Wall Street Journal reported on Jan. 13 that Visa has struck an agreement to acquire Plaid, which will further shake up the Fintech industry. But Plaid is not the only player in the data sharing space. Since companies are not thrilled by their customers handing out login credentials to third parties, a group of financial services companies created the Financial Data Exchange to facilitate secure data sharing through an API. (Visa is a member of the Financial Data Exchange.) In the latest episode of the Innovative Payments Pod, the IPA talks with Don Cardinal, managing director of the Exchange about its API and how it works. You can find it here or wherever you get your podcasts. Data sharing is critical to many Fintechs as they work to help aggregate customers’ financial data and help their users make financial choices. The payments industry will no doubt be affected by the outcome of this merger and the outcome of the conflict that is playing out in the background. The payments industry is entering 2020 with a lot of baggage from 2019. The resolution of many of these carryover issues will shape the business in the years ahead. The first thing likely to come up is the issue of brokered deposits. While it seems like a technical question about insurance pricing, whether or not a deposit is classified as core or brokered can have a big effect on the costs of bringing new Fintech to consumers. The Federal Deposit Insurance Corporation has released a proposed rule that would formalize its definitions and treatment of brokered deposits. This critical issue will be one of the Innovative Payments Association’s top priorities in 2020. The FDIC is not the only regulator facing changes in 2020. The Consumer Financial Protection Bureau is facing lawsuits that could alter both its structure and its regulations. This would have ripple effects through out the industry. The CFPB is facing one lawsuit hat argues that its structure is unconstitutional. At the same time, it has been sued by PayPal, which is arguing that the Prepaid Accounts Rule, which went into effect in 2019, also is unconstitutional because its disclosure requirements violate the First Amendment. If PayPal were to win its suit, then the rule would be thrown out for all of the payments products, leaving the industry where it stood in 2012. Of course, the elephant in the room is the 2020 election. The outcome of the election, especially when it comes to which party controls the House and Senate, could set the stage for new legal and regulatory fights in the future. In the latest episode of the Innovative Payments Podcast, the IPA’s CEO, Brian Tate, discusses these issues shaping the future of payments in 2020 and beyond. We talk about the future of the CFPB, including the PayPal lawsuit, which could deregulate much of the industry. In addition, we talk about brokered deposits and the FDIC’s proposed regulations. Finally, we don’t ignore the elephant in the room, but talk about the effects that the 2020 election might have the on the future of payments regulation. If your company is a member of the Association and you need a login for the site, a subscription to one of the newsletters, or more information on your company’s membership, you can contact Steffanie directly at: shousman@ipa.org. Interested in becoming a member? Reach out today and talk to us about the benefits of joining. Go to www.ipa.org to learn more. A core mission for the Innovative Payments Association is to help create a regulatory environment that helps the payments industry thrive. Doing this requires a partnership with members to keep track of legislative, regulatory, and policy developments at the state and federal levels. In the latest episode of the IPA podcast, our government relations director, Grant Hannah, talks about how the IPA provides resources for members to keep track of changes in legislation, regulation, and other areas of public policy. He also explains how members can engage their elected officials and how the IPA can support those efforts. If your company is a member of the Association and you need a login for the site, a subscription to one of the newsletters, or more information on your company’s membership, you can contact Steffanie directly at: shousman@ipa.org. Interested in becoming a member? Reach out today and talk to us about the benefits of joining. Go to www.ipa.org to learn more. In the latest episode of the Innovative Payments Podcast, the founders of the Falls Fintech Accelerator talk about how they plan to help financial start-ups move from being an idea in development to being a product in market. Nikkee Rhody and Trent Sorbe, the founders of the Accelerator describe the program they have developed for entrepreneurs, the kinds of companies they are looking for, and why Sioux Falls, South Dakota, is the place to be for financial innovation. If you are interested in learning more about the accelerator, you can visit https://www.fallsfintech.com/. As part of its commitment to fostering payments innovation, the IPA has become a sponsor of the accelerator. If you are interested in being a part of the next generation of payments, you should consider joining the IPA. The Association works every day to help create an environment where payments can through good government relations, fighting fraud, and providing opportunities for the industry to network and learn. Reach out today and talk to us about the benefits of joining. Go to www.ipa.org to learn more. One lesson Fintechs can learn from the prepaid industry is that financial regulators will come directly to them in the event of any violation of financial regulations. They cannot rely on bank partners or anyone else to take care of compliance for them. We can look back a few years to see an example of how this might happen. In 2013, the Federal Deposit Insurance Corp. (FDIC) placed a consent order and assessed a civil money penalty against Achieve Financial Services LLC, a prepaid program manager. The obvious question is – how could the FDIC do this, when Achieve was not a bank? The Federal Deposit Insurance Act gives banking regulators the right to take action against any non-bank third party that is an “institution-affiliated party.” The definition includes: (4) any independent contractor (including any attorney, appraiser, or accountant) who knowingly or recklessly participates in-- (A) any violation of any law or regulation; (B) any breach of fiduciary duty; or (C) any unsafe or unsound practice, which caused or is likely to cause more than a minimal financial loss to, or a significant adverse effect on, the insured depository institution. This means that like prepaid program managers so-called challenger banks or Neobanks can be subject to direct action from regulators even if they are working with a third-party bank to deliver services. The banks already know they are not immune from regulatory scrutiny from their partners, and in the case of Achieve, the regulators also laid a consent order and civil money penalty on the issuing bank. Fintechs who want to succeed would benefit from taking the time to read the consent order against Achieve. It details the expectations that the banking regulator had for a non-bank entity. Some of the provisions would be worth adding to a compliance program well before a consent order. A few of the actions required of Achieve include:
As shown by the RushCard penalties in 2015, the Consumer Financial Protection Bureau (CFPB) has taken up the mantle of enforcing most consumer financial protection laws. Nonetheless, it is worth noting that the Achieve action was taken two years after the CFPB’s founding, and the actions that led to the enforcement action also took place after the CFPB was created. Regardless of who the governing regulator is, Fintechs need to realize that once they are handling consumers’ money, they need to have in-house compliance programs. They cannot depend on third-party banks alone to comply with consumer protection and anti-money laundering rules, or the Bank Secrecy Acts, for them. As Fintechs develop the next generation of financial services, they should look to the lessons of the prepaid industry, which has blazed a trail through these kinds of partnerships. 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.
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.
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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.
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