As the industry gears up for 2016’s Power of Prepaid, April 27-29 in Washington, DC, Ashley Csaki, Senior Director of Content and Experience at Momentum, speaks with our Ryan Harris about prepaid.
Ashley: My name Ashley Csaki, Senior Director of Content and Experience at Momentum and, it is my pleasure to be speaking with Mr. Ryan Harris, Senior Vice President at The Bancorp. Welcome Ryan.
Ryan: Good afternoon.
Ashley: Ryan, we hear the word innovation a lot, especially in finance, but at this moment, what does innovation mean for the prepaid community?
Ryan: For The Bancorp especially and certainly, I think, for the rest of the prepaid community, innovation is certainly a word that we hear a lot and as it is applied to prepaid, I think, we would all agree that it is no different. Quite honestly, innovation - and what is innovative – is really probably in the eye of the beholder. Over our history, our team has worked on hundreds and hundreds of projects and programs where we're providing an innovative solution for a company that may be table stakes for another company.
What we see as innovative is really a platform for growth with prepaid and that's what we really look at. Prepaid is really more of a platform for innovation than actually a set of innovative products itself. Prepaid is a platform that has enabled both banks and non-traditional financial service companies the ability to offer financial vehicles to people that it would generally turn away.
For example, just as a health benefits company has a payment problem that it needs to solve, prepaid can be a platform to allow them to maybe give them access to an individual’s flexible spending account and the benefits that are on that account, all the while being able to split out that payment from a full cart of groceries.
That is very, truly innovative in the eyes of the healthcare community. On the flip side, it gives a lot of non-traditional financial service companies the ability to help people get into the mainstream. For me personally, I believe innovation in the prepaid industry will have to do in the future as much with how we reach, interact, and educate our card holders and enable them to use our prepaid products as anything.
When I think back 13 years ago to when myself and a number of my colleagues here at The Bancorp really got into this industry I don't think we would have ever imagined the problems that we've been able to solve with the prepaid platform. So it's been a lot of fun along the way.
Ashley: What is your response to those who say that the CFPB’s proposed rule for prepaid will stifle innovation? Is that a real threat?
Ryan: Well, as of the time we're having this call and as we're recording this, we do not yet know what the final rule ultimately looks like. So my hope is that the CFPB will have heard the concerns of the industry and made the appropriate adjustments to make that not a threat.
However, I don't think we're going to get everything that we've asked for. So, I think, we're realists in that regard but, quite honestly, without some pretty significant adjustments, especially to what is defined as a prepaid account, I believe there is a real threat to innovation.
There are many products out there where there's not an on-going consumer relationship contemplated and, as such, those products that are more disposable by nature simply just do not generate the kind of return and the margins necessary to absorb the additional obligations and consumer protections that could come along with that. So your question - if those margins shrink - there will either be fewer products available or prices will have to go up. This will be the real threat to the adoption of products when, quite honestly, lower tech and the lower margin and less expensive products would exist.
Ashley: Overall, what was The Bancorp’s response to the CFPB’s proposed rule? What do you agree with, and what do you think needs to change?
Ryan: Sure. Well, our response is roughly 80 pages in length and we are applying for a number of different items for which the CFPB had asked for comments. Not going into the entire length of what our response was, but generally speaking, I think it was apparent that the CFPB had listened to the industry on a number of fronts yet, at the same time, there were a number of areas that they could improve upon when they release the final rule. I would say generally that our positions are very closely aligned with those that the NBPCA had actually commented on in their letter. I’ll go over a couple of those.
First of all, I believe we agree with the need for consumers to have access to product disclosures prior to acquisition. It's one of the areas, I think, we can all agree on. It's a position of The Bancorp that we've long held and a standard that we generally hold all of our programs to today. Quite simply, consumers need to have information to make more informed buying decisions and certainly in a clear and concise manner. We think that some of the proposals in the proposed rule will ensure consistency among all product providers and, hopefully, this will lead to less consumer confusion in the future.
A second area where we feel that they’re headed in the right direction is we do believe that as Prepaid products have evolved to carry many of the same features as their DDA account equivalents; they also need to carry with them the same protections under Reg E or similar protections under the Reg E, especially those protections that are under the payroll cards today. As we've seen the payroll cards over time, we've been able to adapt and meet those requirements, and given the right amount of time, I think, we'll be able to do the same with more of the general-purpose type cards. That being said, we largely agree with others in the industry that there has to be a threshold by which an account relationship is established and those Reg E protections that are afforded to Payroll cards can't just be generally extended to all prepaid products because there are real opportunities for fraud in the system if we make that broad of a sweep.
As for the areas that we as an institution believe need to be revisited, there's a number of them, and in particular, we believe that the proposed compliance to date, the incidents-based fee requirements, limitations on the retail exemptions, and requiring both the short and long form disclosure prior to acquisition of the prepaid account really add very little in terms of consumer protections and value. At the same time, they create significant burdens and processes which will be very costly to implement, so we would really like to see a number of changes to the CFPB's proposed approach on those items.
Ashley: All right. Finally, what is next for the prepaid industry? Are there any new or emerging technologies that have you really excited?
Ryan: Well, certainly, the prepaid industry has been feeling the full weight of regulation the past few years, and with the CFPB's final rule due out here in approximately a month, I think, 2016 promises to be really no different. Some would probably suggest that the regulatory framework is catching up with the industry’s innovation in many respects so, I think, we'll spend a lot of time in the next year and a half to two years implementing the upcoming rules and adapting our products to meet those tests of compliance. Hopefully, after this CFPB rule comes out and we implement it, we can focus on getting products back in the consumer's’ hands and providing more innovation.
As far as new and emerging technologies, to us the continued adoption and proliferation of tokenization and the consumers’ understanding of it provides exciting opportunities for prepaid and delivery of these products. There are a lot of new ideas out there so we'll have to kind of wait and see how those are received by consumers. I think, right now, with EMV, tokenization, a lot of the mobile wallet products that are out there, there's a lot of new things being thrown at consumers and we just have to really wait and see which of those the consumers are going to most readily adopt. As we talked about it a little bit earlier, it all comes down to solving payment problems. If there's a payment problem to solve, there's likely a role for the prepaid platform in helping solve it.
Ashley: Absoluetely. Well, those are all the questions I have for you today. Thank you so much for taking the time to speak with us and I certainly look forward to hearing more from The Bancorp’s at the NBPCA’s fifth annual Power of Prepaid.
Ryan: Excellent, it was my pleasure, Ashley.
The opinions, findings, or perspectives expressed in this content are those of the participants and do not reflect the official policy or position of The Bancorp, Inc., its affiliates, or its or their employees.