Recently in Unbanked Category

Convenient billpay starts with self-service, so KioskMarketPlace.com recently published a guide describing the benefits bill-payment kiosks provide and how they can add to both the biller's and the retailer's bottom line.

The bill-pay kiosk business has been growing steadily for years, but according to industry insiders, it has started gaining even more traction in the marketplace in the last two years, in no small part because of advances in technology and the growing demand for convenience, as well as an economic recession that has caused customers to manage cash flow more closely.

But self-service billpay also helps the silent third party in the billpay equation -- the retailers, such as grocery stores, that take bill payments at their customer-service counters or through their cashiers.

Approximately a quarter of the U.S. population is either unbanked or underbanked, according to the Federal Deposit Insurance Corp. Nine million households in the United States are unbanked, while another 21 million are underbanked.

Although a significant part of the self-service market is the unbanked and underbanked, said Rockville, Md.-based Pay-Ease CEO Marc Meisel, the largest part of the market is that which caters to all communities.

"It really services the banked as well as the unbanked," he said. "[But] there is a tremendous, growing underbanked population. And the question has been how to get to them, and the kiosks have been seen as the answer."

Both billers and retailers are cashing in by offering the self-service option.

"Our experience has been that if you provide people with more options to pay, they're just more likely to pay you," said Ed Walsh, spokesman for the Chicago Department of Revenue.

For retailers such as Homeland Supermarkets, having bill-pay kiosks provides a laundry list of benefits, from cutting labor costs to increasing customer traffic and spending.

Bankers may think they aren't doing anything wrong; they're just trying to provide a return for shareholders. So from their perspective, they're doing the right things. In that case, why are customers reacting so strongly? Because bankers are also doing things like overtly passing on costs in the form of fees, which infuriates the customers who are expected to pay them. And bankers are also making cuts in customer service, which not only angers customers, but it basically encourages them to walk out the door.

It doesn't have to be this way. As Gallup Chief Economist Dennis Jacobe, Ph.D., discusses in the following conversation, there are ways to do the right thing, both by the bank's P&L sheet and by its customers. But banks need a more educated view of customers and their own place in the consumer economy. In short, Jacobe says, they need to "think behavioral economics."

GMJ: What do you mean when you say banks should think behavioral economics?

Dennis Jacobe, Ph.D.: Behavioral economics is the study of the ways that emotion affects how people make decisions and, ultimately, how they behave. I think the debit card fee debacle provides a good example of how emotions play a role in consumer decisions.

The Dodd-Frank Act required changes in how much banks charged for processing debit card use. When the Fed issued the standards required by the act, bank management tended to feel that the imposition of limits on the fees they could charge retailers for debit transactions were totally unfair. As a result, many banks seemed to think it was OK for them to replace this source of income by adding debit fees to their customers' accounts. If they were questioned by their customers, they could explain that this was the result of a change in government policy. Thus, the debit fee pricing decision was a financial calculation aimed at replacing what had previously been a revenue source.

Unfortunately, this finance-focused approach to replacing the bank's lost revenue ignored some of the basic tenets of behavioral economics. From a behavioral economics perspective, one of the worst things a company can do is to begin charging a new fee for a service that had previously been free.

GMJ: And we all remember what happened.

Dr. Jacobe: Yes. Predictably, there was a huge backlash. And the situation was worsened by the way the proposed consumer debit fees became entangled with the anti-bank story line. Not only were these fees perceived as unfair, but they were also perceived as a way for greedy bankers -- who had been bailed out by U.S. taxpayers -- to gouge their customers. Further, the price-leader way of introducing these fees doomed them to failure.

GMJ: Price leader?

Dr. Jacobe: This is a tactic we often see in the airline industry: One airline announces a fee increase hoping the others will follow and match it. In this case, when some banks announced a debit fee increase, others did not follow the leader. As a result, it's not surprising that the banks that were trying to increase debit fees felt forced to rescind them before they went into effect.

This is all too reminiscent of banker efforts to charge for teller transactions many years ago. A terrible customer backlash led management to forgo teller use charges. However, it led to different forms of product packaging, which is a behavioral economics approach: Some banks offered a variety of discounts for not using the bank teller. In that instance, a behavioral economics approach changed a lose-lose scenario to a win-win.

GMJ: But most banks have shareholders. Don't those shareholders expect banks to make up the lost revenue?

Dr. Jacobe: Of course, and banks have approached this in various ways. Many banks have instituted new fee structures and/or cut services. Generally, they have suffered significant customer defections and a loss of loyalty and engagement among those customers who remain. These changes in the bank operating model -- and in combination with the overall decline in Americans' confidence in the nation's banks -- may explain at least in part why bank loyalty fell sharply as 2011 came to a close.

Given the current regulatory outlook -- and the recess appointment of Richard Cordray as the first head of the new Consumer Financial Protection Bureau -- it seems likely that the bank operating model will continue to change and evolve in the months and years ahead. Instead of making product and service adjustments in the traditional finance-driven way, bank management would be well-advised to make these changes in a customer-centric way -- and in a way that reflects behavioral economics.

GMJ: You mentioned customer engagement. How can banks promote customer engagement when consumers may be wary of the banking industry overall right now?

Dr. Jacobe: That's another area that needs some behavioral economics application. Given the changing banking model, some banks have reacted by cutting back on employees. That may make financial sense in the short term. The fewer people on the payroll, the lower the operating costs, and cost cutting is required when revenues are declining.

But that short-term gain -- and precisely how it is achieved -- needs to be viewed in a behavioral economics context, because customer-facing employees remain consumers' most preferred provider of banking services and may be a bank's best hope for promoting customer engagement. Gallup's 2011 proprietary retail banking study showed that the most powerful drivers of customer loyalty and engagement remain branch visits and call center interactions with a real person. So the last place to cut should be front-line employees, because when fewer people are providing what matters most to customers, loyalty and engagement can easily take a significant hit.

GMJ: Give me an example.

Dr. Jacobe: Cut back on people too much, and customers get longer times in the branches and on the phone. If you have fewer people to serve your customers, if you don't spend the money training tellers and bankers, then you don't have enough people providing top-quality customer service. Worse yet, a dehumanized approach to customer service can play right into the story line of greedy bankers who don't care about their customers.

GMJ: So banks can't assume that their websites can make up the difference in customer service.

Dr. Jacobe: Gallup's research shows that Internet and automated channels aren't the same. Customers use them, and they have a significant place in building relationships, but they can't replace human interaction. This may be disappointing to companies that have invested a lot of time and money in new technology assuming it would take care of most customer needs and cut employee costs.

According to the study, though online and automated banking channels are important to relationship building, they have become table stakes in building customer relationships. Banking consumers continue to use new channels while showing little tendency to substitute for -- or abandon -- live interactions through traditional branch and phone channels. Of course, this doesn't mean things won't change over time, but this is the situation bank management faces today.

GMJ: Which means that employees are still important in building customer engagement.

Dr. Jacobe: Employee engagement is more important today than at any time since the Great Depression because of lack of confidence in the banking industry and the declining confidence in individual banking companies. Most Americans don't seem to fully recognize the vital role our banking system plays in the success of the U.S. economy. Fully engaged bank employees can be important advocates for banking and their institutions by explaining to consumers and small-business owners alike not only the key role banking fills but also why banking needs as many advocates as possible right now.

GMJ: How does behavioral economics jibe with customer engagement?

Dr. Jacobe: That 2011 banking study also shows that individual banking companies have been able to significantly differentiate their customer engagement and loyalty over the past several years. Customer engagement is built on a hierarchy of responses, and the bare minimum of them is that the company executes and fulfills basic expectations. Banks that are too short-staffed don't have the people to do what banks are expected to do and keep wait times short, thus failing to meet customers' transactional requirements.

GMJ: How can banks engage their customers?

Dr. Jacobe: Customers become engaged only when four emotional needs are met: they feel pride and passion for the brand they bank with, they believe the bank has integrity, and they're confident they'll always be treated well and fairly. It's financially imperative that banks provoke this response. Fully engaged retail banking customers are much more likely to say they intend to open a new account or take out a new loan over the next three months than are actively disengaged customers. And actively disengaged customers are much more likely to switch banks.

It's very difficult to emotionally engage people who are irritated by being kept in line for a long time. And the customer-facing staff knows it -- they are quite capable of looking over the counter and seeing lines of impatient, angry customers. When that happens, bank employees can be forgiven for losing some of their own engagement, which has costs of its own. Disengaged bank employees are not good brand or banking ambassadors. They're brand killers. Banks need employees who are positive about their banking institution and positive about the role banking plays in making the economy function.

GMJ: What's your outlook for banking in 2012?

Dr. Jacobe: U.S. banks face a hostile environment in 2012. The European banking situation is likely to continue to remain volatile and unresolved. The U.S. economy is likely to continue to struggle. Most importantly, the intense political environment of the 2012 presidential election is likely to increase the demonization of the nation's banks -- and the regulatory activity of the new Consumer Financial Protection Bureau -- while ignoring the vital role banking plays in the U.S. and global economy.

I think it is important that bank management recognize all aspects of this operating environment -- including Americans' perception of the banking business -- as they make their strategic decisions in the year ahead. They need to recognize that their business decisions can become political issues and act accordingly. Most importantly, they need to think behavioral economics.

-- Interviewed by Jennifer Robison

CINCINNATI--(BUSINESS WIRE)--RushCard announced today a new feature that allows many of its cardholders to get access to their money even faster. Members who have their paychecks and certain other payments directly deposited on their RushCard may be able to receive their funds up to two days early.

"At RushCard we are committed to helping our customers realize their financial goals"

"In an effort to keep our customers out of pay day loans and other high priced lending products, we're enabling many of our customers to access their direct deposit up to two days early," said RushCard founder, Russell Simmons. "Our members can now enjoy increased flexibility and peace of mind knowing that RushCard will help them meet any financial challenge."

As part of RushCard's robust suite of money-saving solutions that include comprehensive budgeting tools, online bill pay, money transfer services, and many other valuable services like prescription discount plans, the new early access feature helps cardholders to take greater control of their finances.

"At RushCard we are committed to helping our customers realize their financial goals," said RushCard CEO, Rob Rosenblatt. "Underbanked and unbanked consumers need innovative financial products and services to help them achieve their financial objectives."

Recently, RushCard announced RushGoals, a new tool and a cashback reward that helps hard-working members and underserved customers achieve their financial goals. In each month in which a Cardholder maintains an average daily balance of $500 or more across their RushGoals sub-accounts, the Cardholder will be rewarded with $2 that will be applied toward their RushCard fees.

To learn more about the Prepaid Visa RushCard and its financial empowerment program, visit www.RushCard.com.

About UniRush LLC

Headquartered in Cincinnati and New York City, UniRush LLC provides members with access to services that enable them to achieve their personal and financial Goals. The RushCard offers the more than 60 million Americans without access to a traditional banking relationship an array of basic financial services via the Prepaid Visa RushCard. Benefits of the program include direct deposit, card-to-card funds transfers, online budgeting tools, the ability to withdraw funds at more than 850,000 ATMs globally, the ability to use the card wherever Visa debit cards are accepted, and a suite of health products to help those underserved by the insurance industry. RushCard is issued by The Bancorp Bank pursuant to a license from Visa U.S.A. Inc. and may be used wherever Visa debit cards are accepted. The Bancorp Bank; Member FDIC. For more information about UniRush and RushCard visit www.rushcard.com or find us at Facebook.com/Rushcard or on Twitter @RushCard.

If you follow this blog with any regularity, you know I've been writing a lot lately about prepaid debit cards, which are increasingly becoming a challenger to traditional checking accounts.

I caught up with RushCard CEO Rob Rosenblatt this week to give him a chance to respond to my criticism of its new RushGoals savings program and what I consider high fees on the company's prepaid cards. Here's what he had to say.

Who typically uses prepaid debit cards? Give me an overview of a typical user profile.

To begin with, the user base right now is extremely broad and it is growing, in large part because of -- and by the way, I come from the banking community, so I'm well aware of the impacts of the Durbin amendment and the CARD Act before it -- the combination of those two pieces of legislation have made the banking system ill-suited to serve those customers that typically don't maintain large balances with them.

In fact, there were two quotes I wanted to cite for you. The CEO of Bank of America Brian Moynihan has said that they're going to be focusing on the top 20 percent of the most profitable customers and getting rid of the unprofitable ones. And Jamie Dimon, who's CEO of the bank I just left, Chase, mentioned that it cost $350 on average to provide a free checking account each year.

If you think about the overhead associated with maintaining a large branch and ATM system with multi-hundred-million-dollar advertising budgets, every bank in America is having to get more focused.

We define our customer set as anybody for whom the banking industry and more loosely defined check-cashing system don't adequately serve them. Those numbers are somewhere between 60 million and 70 million customers. And typically, they live in urban environments in inner-city areas, where you may see a bank branch once in a while, but you don't see many of them.

I live and work in New York City, and my son is a baseball player, and he practices on some Saturdays about a mile away from Yankee Stadium and it's a little bit of a dangerous neighborhood where he plays, and I have to drive him. In the course of that drive, we sometimes pull over to go get him something to drink, something to eat, and typically we walk into a large drug store, where in the middle of the drug store is somebody behind bullet-proof glass cashing checks at a cost of anywhere from 2 (percent) to 10 percent per check and also doing money transfers for folks who need to send money back home. That business is a little bit murky; it's not well understood.

We believe that there's a customer base out there. It's going to be a little younger than the traditional check-cashing user. There is a high preponderance of single parenting. A lot of these customers have children. Some of them are on some kind of public support, some of them earn hourly wages. Many of them, by the way, are holding down two jobs, so this is a very hardworking population that has very strong aspirations, and actually, interestingly, is relatively optimistic from a psychographic perspective about the future. Basically, they use these cards to give them what the banking and check cashing systems can't do, and that includes, by the way, the ability to have access to my money, the ability to spend in a way that is anonymous that doesn't identify me as somebody that has to pay with cash, the ability to put my money in a place that's safe and sound, and also the ability to pay my bills.

What we try to be is a fairly valued substitute for those that really don't get the proper level of value for the money from banking and check cashing.

Do you find your customers habitually and are putting money into it every month?

The best way to use the RushCard to help manage your financial needs is to direct deposit your paycheck or your government check, and that way the money is on the card immediately. And by the way, we announced today that we're giving customers access to their direct deposited check up to two days early.

But the basic thing there is that there's no fee for direct deposit, the money is automatically loaded; you can get it early in many instances. Basically, we run the highest direct deposit rates in the business and our customers do stay with us longer, and that's because we've been at it for a long time. We've been doing this for eight years. The majority of our cards were acquired over the years through our direct-response television efforts, where we really spent a good chunk of the last eight years defining the category and explaining its benefits. So our customers have made relatively well-considered decisions as opposed to just picking our card off a rack at the front of a drugstore.

Is RushCard really better than a checking account overall? I looked at your numbers and definitely, if someone's making a lot of overdrafts, it's going to be cheaper to go with the Rushcard, but now with changes to Regulation E, overdrafts are opt-in. Do you still see the RushCard as a cheaper alternative to a checking account?

The fee structure in the banking system remains in disarray. You had BofA, who was going to charge a $5 fee in any month in which a debit card was used, and trust me, you had other banks lined up ready and waiting if BofA had survived that debacle. So suffice it to say, this is a customer that typically cannot maintain the average balance required to avoid entirely a monthly maintenance. So you're talking about a customer that is incurring anyway $10 to $15 a month in these account maintenance fees. And to your point, fewer of our customers now are incurring the overdraft fees, but you've got to remember that there's a host of fees that are still sitting in the banking system.

What I'd say to you is, the reasons to get our card are relatively basic. It's about safety, convenience, peace of mind, ability to segregate funds, ability to get access to my funds early if I  direct deposit. So, to your point, if I'm someone who never incurred NSF fees or who opted out, then I may be in a better place (with a bank). But understand that for our customers, NSF fees have been a way of running their lives, and so one of the reasons we think the card is right is it prevents you from even incurring an NSF fee. Trust me when I say that our customer, if given the option, is still going to opt in to an NSF fee and should not be. It's a bad thing; it's a bad way to live.

Do you think that having no bank branches or ATM to access funds and do other business is a disadvantage? Or do you see not having that overhead is an advantage for you?

I think the answer's probably both. From the perspective of cost structure, there's no question we don't have to find a way to recoup the $350 a year that Jamie Dimon says it costs for Chase to provide checking to any customer.

On the flip side, there's no question that customers need to be able to load their cards and so the best way to make that convenient and easy and cost-free is for the customer to direct deposit. If the customer is unable to do that, then they're going to incur some kind of fee -- the Western Union fee or the Green Dot fee -- and that's not zero, so obviously it's better for us and better for the customer if they direct deposit.

But if you sign up for direct deposit, many banks, including Bank of America, will waive some of these account maintenance fees. So what it seems like you're saying is that maybe right now, if you don't run up NSF fees, free checking might be cheaper, but you're expecting higher fees in the future?

We do feel right now that by and large we are cheaper than most of the accounts offered by the Big Three, because the Big Three have quietly been imposing fees. The CEOs of those companies are on record as saying, one way or another, they're going to have to recoup the fees they just gave up. So while, for example, the BofA $5 debit usage fee has gone away, we don't think that the customer suddenly got a break.

I wanted to ask you about RushGoals, because that was kind of the catalyst for our conversation today. So it's not a savings account?

It's not a savings account. We're not a bank at the moment. We enjoy the services of a bank through a company called Bancorp. But basically, this is a reward product right now, and it was developed in response to feedback from customers that they have trouble segregating their money and what they're looking for is help with their money management.

The RushGoals product makes it easy for you to establish a goal, to segregate the funds in one or more subaccounts. The two dollar a month benefit is just a rebate; it's a small reward for behaving wisely and achieving your goals. But customers told us it's not the reason why they're doing it; they're actually doing it because of the need to set aside funds.

Now, that said, you're right. If you hit the nail on the head and you set aside $500 a month and you keep it aside on average every month for the 12 months, you do earn $24. That equates to 4.8 percent, although to be clear, it's not considered bank interest. Certainly, we'll look at, over time, the appeal of savings to these customers and how we might provide it logistically. But this is something we're able to launch fairly quickly and in a way we think is very appealing to our customers from the standpoint of how they set it up on the Web. It's very intuitive and it's very easy to understand.

So you're planning on going into savings later?

We look at everything and we're always trying to understand, you know, what it is we need to do next to justify our customers' loyalty.

Is Richard Cordray's appointment at the Consumer Financial Protection Bureau going to affect your business at all?

It's always hard to know what an appointment will mean. This is a category that has never been unscrutinized. People do look at it all the time. The category in general is trending toward much greater levels of transparency, uniformity and consistency. Coming from the credit card business as I do, those have been very important factors to me, and I apply the same filter to every business I play a role in.

So I think, in general, we'll watch and wait. But a uniform set of practices means that everyone has to behave in an appropriate way and what's good for the customer should be good for the business.

What do you mean when you say the business has been scrutinized before, who in particular are you talking about?

I'm talking about the fact that there are attorneys general that look at this business all the time.

That idea that you don't see a lot of banks in the neighborhoods that you feel like RushCard serves is interesting. It sounds almost like the banking equivalent of "food deserts" -- areas where there aren't any grocery stores. So the idea is you're trying to bring financial services into areas where there aren't a lot of options?

Yes. I can't speak to our competitors' demographics, but we really do serve an urban customer that traditionally is ignored by the banking system.

It seems like RushCard customers might still need to use a check cashing store. You do cash checks, but it takes up to 10 days, right?

It does, and as a result, (check cashing) is the least used, least effective way to load your card. And it's simply because we have to go through a certain amount of verification to make sure the information the customer has given us matches up. Certainly we'd like to do a better job of that, but because of the customer we serve, it hasn't been an area of focus because we really are focusing on the unbanked.

Neil Weinberg's article, "Why I Love Bank Fees and Regulators Should Too," presented an amusing exposé of the banking industry's pretense of offering "free" services, which are anything but free.

I submit that this pretense helps to explain why the efforts to herd "unbanked" consumers into bank accounts continue to fail miserably.

First, checking accounts are too expensive to maintain for low-balance customers. Second, consumers are regularly disappointed when they are drawn into accounts portrayed as "free" and then wind up being socked with fees and charges. Third, disappointed customers tell geometrically more people about their disappointing experience than satisfied customers tell about their satisfying experience.

Instead of questioning the "financial literacy" of consumers who use nonbank providers, bankers should look at the situation from the consumers' point of view.

Check cashers and other money service businesses offer their services on a fee basis.When customers use their services they expect to be charged fees - and they are.

Bankers portray their services as "free." When customers use their services they do not expect to be charged fees - but they are.

As banks - especially big banks - seek to rebuild their franchises and the public's trust, I'd like to suggest they try a long-forgotten strategy: Honesty.

If it costs $350 a year to maintain a checking account, don't tell people that it is "free" and try to sneak in an assortment of nuisance fees and charges to bridge the gap. It shows dishonesty from the start.

If you want to offer a "free" account, then develop one that doesn't cost much to operate. If you don't know how to do that, then hire someone who does.

Lastly, transparency does not trump stupidity.Publicizing the imposition of a capricious debit card usage fee or a bill payment convenience fee doesn't make it acceptable.It just exposes more people to your folly.

Effectively meeting the needs of the underbanked -- there are an estimated 40 million unbanked or underbanked consumers in the U.S. alone -- now can be added to the list of potential benefits related to mobile payments. Recent initiatives launched by Visa and m-Via demonstrate the opportunity for banks to reach a new customer base through mobile payments.

In November, San Francisco-based Visa launched a prepaid account targeted to underbanked customers in Africa, Asia and Latin America. The product allows users to access funds through a mobile phone for person-to-person payments, to send and receive international remittances, to make purchases at merchants or online where Visa is accepted, and to withdraw funds at Visa-branded ATMs.

Powered by Fundamo, a Cape Town, South Africa-based mobile money platform that operates in more than 40 developing markets and was acquired by Visa in June 2011, the product is being offered through MTN Mobile Money, a mobile payments service deployed by Johannesburg, South Africa-based MTN Group, a telecommunications provider in Africa and the Middle East. MTN Mobile Money's 5.7 million registered customers in 12 countries have access to the Visa product.

A 'Boom' in Prepaid Convenience

Around the same time that product was announced, Palo Alto, Calif.-based mobile payments company m-Via launched its Boom service, a person-to-person mobile payments service targeted to the underbanked. Boom members can use their mobile phones to make money transfers ranging from $5 to $1,000, as well as to make purchases and withdrawals at participating Boom merchants and ATMs. Boom prepaid accounts are issued through Weir, Kan.-based CBW Bank ($8 million in total assets), a wholesale merchant bank.

Given the booming prepaid card market -- the Network Branded Prepaid Card Association (Montvale, N.J.) forecasts that $118.5 billion will be loaded onto prepaid cards in 2012, up from just $18.3 billion in 2009 -- especially in underbanked areas of the world, ventures such as Boom have the potential to be extremely profitable for banks, suggests Rick Oglesby, a senior analyst at Boston-based Aite Group. Because wire transfers have seen success with underbanked customers, he adds, offering them more convenient and less costly ways of transferring money makes a lot of sense.

Boom is especially designed for migrant workers who rely on wire transfers to send money, according to m-Via. These individuals often pay more than $20 per cash wire transaction. In addition, recipients of wire transfers sometimes have to travel for hours to pick up remitted funds. M-Via says Boom aims to be a more convenient and cost-effective alternative. Members can load money, withdraw money and make purchases from their Boom accounts at m-Via's partners, including 7-Eleven, the Allpoint ATM Network, the Diconsa retail network in Mexico, and PayXchange. In total, these partners have in place 150,000 Boom-enabled ATMs throughout the U.S. and Mexico.

But while both the Visa and m-Via initiatives may represent the start of a trend on the supply side toward introducing mobile payment products for the unbanked and underbanked, it's too early to measure customer adoption of these products, says Oglesby. "Whether consumers take it up in great scale is something yet to be seen," he says. "The underbanked tend to be cash-driven; getting them to leverage these types of products can certainly be a challenge."