prepaid opportunities and challenges in policy and regulation · merchant/group of merchants. •...

© 2012 Network Branded Prepaid Card Association

Presented by the Network Branded Prepaid Card Association and Members

www.NBPCA.org For more information please email:

[email protected]

Prepaid Opportunities and Challenges in Policy and Regulation

http://www.nbpca.org/

mailto:[email protected]

© 2012 Network Branded Prepaid Card Association 2

The information contained on these slides is considered the proprietary Information of the Network Branded Prepaid Card Association (NBPCA). It may not be distributed or reproduced without the expressed written permission of an officer of the NBPCA. The opinions expressed by the presenters during this presentation are exclusively their own and subject to change.

© 2012 Network Branded Prepaid Card Association 3

• Introductions • Prepaid: Messaging in education of government • Why are banks increasingly looking at Prepaid • Who are the Prepaid Consumers • Which legislation is affecting Prepaid now? • Who is currently regulating Prepaid: Federal and State • Where is CFPB on Prepaid • Next steps: Prepaid for your own business

Topic Outline


Panelists •Mark Moore, Aldrich Bonnefin & Moore •Deb Thoren-Peden, Pillsbury •Terry Maher, NBPCA and Baird Holm •Steve Middlebrook, FSV •Moderator: Kirsten Trusko, NBPCA

4

Introductions


Mark Moore is a principal of Aldrich, Bonnefin & Moore, P.L.C., located in Irvine, California. Mr. Moore’s practice focuses on payment systems, with clients in the money transfer and prepaid space. He works with bank and non-bank issuers of prepaid access on launch of prepaid programs, compliance (FinCEN, Regulation E, money transmission, etc.), E-Sign and electronic contracting, among other things. Mr. Moore’s publications include “Mobile Banking: What Happens When the Card Disappears” (2009). He is an Adjunct Professor at the Thomas Jefferson School of Law in San Diego, where he teaches a class on consumer compliance.

Mark Moore

5


Ms. Thoren-Peden is the co-leader of the firm's Consumer & Retail industry team as well as co-leader of the firm's Privacy Group and member of the firm’s Managing Board. Her practice focuses on banking, electronic commerce, privacy, anti-money laundering and the Office of Foreign Assets Control regulations. She represents and advises bank and non-bank financial institutions (both domestic and international), money transmitters, high-technology, Internet, telecommunications, insurance and a variety of other types of companies. Her primary area of practice also includes the Bank Secrecy Act, investment products, electronic funds transfers, gift and prepaid cards, escheat of unclaimed property, web site terms and conditions, privacy programs and policies, co-branding and licensing agreements, advertising, bank operations, bank deposit products and services, Fair Credit Reporting Act, fair lending, interstate banking, risk management, compliance, contract review and outsourcing arrangements. Ms. Thoren-Peden is one of the leading attorneys in the country in the field of electronic payments, Internet banking, gift and prepaid cards. Her area of practice includes the Electronic Fund Transfer Act, state money transmitter licensure laws, NACHA Rules, state and federal laws and regulations related to money services businesses, gift cards, prepaid cards, etc.

Deb Thoren-Peden

6


Terry Maher is a partner with the Omaha, Nebraska law firm Baird Holm LLP. For the past 25 years, Terry has counseled financial institutions and other financial services businesses with respect to their electronic banking, electronic fund transfer, credit card, debit card and prepaid card businesses. He assists financial services clients in addressing regulatory matters, including privacy and security issues, anti-money laundering compliance programs, and money service business licensing issues. Terry also serves as the general counsel to the Network Branded Prepaid Card Association, a nonprofit, inter-industry trade association that supports the growth and success of network branded prepaid cards.

Terry Maher

7


Steve Middlebrook is General Counsel of FSV Payment systems. Middlebrook shares his understanding of payments and an insider's perspective on regulatory and compliance issues. Middlebrook joined FSV from the U.S. Department of the Treasury, where he served as Senior Counsel, Financial Management Service. In that role, he provided legal advice for a variety of e-commerce initiatives for the Government, including stored-value, prepaid and debit cards; mobile payments; and internet-based collections and disbursements. He also advised on regulatory compliance, privacy, data security, intellectual property and other legal issues. A graduate of Georgetown University Law Center, Middlebrook remains active in the American Bar Association Business Law Section and co-chairs the Electronic Payments and Financial Services subcommittee.

Steve Middlebrook

8


Kirsten Trusko is the President of the Network Branded Prepaid Card Association, a non-profit trade organization that works to Educate, Advocate, Protect and Promote the unique power of Prepaid to government, media, and consumers through meetings, forums, roundtables, conferences, and hearings. Prior to NBPCA, Ms. Trusko spent 7 years at KPMG Consulting/Bearingpoint co-founding and leading 2 practices: Prepaid, Consumer Driven Healthcare. Prior to consulting, she founded and led for Fortune 500 firms, secured and unsecured commercial and consumer lending and payment businesses including Beneficial, Whirlpool Financial, Transamerica, Case. Her post-graduate studies were with Yale School of Management’s Executive Management Program, she has an MBA, and graduated from University of Washington in Business.

Kirsten Trusko

9


NBPCA: What We Do • Educate: Act as a fact-based source of information to educate Consumers,

Government and Media on the types of uses and unique applications for network branded prepaid

• Advocate: Set a high bar for the industry by advocating a Code of Conduct and Leading Practices across prepaid product sets

• Protect: Preserve consumer choice, and businesses’ ability to offer a fully featured competitive product set.

• Promote: Assertively highlight the unique benefits provided by network branded prepaid products to customers of all types including consumers, government, media, and businesses

NBPCA: Who we are

• The non-profit, inter-industry trade association founded in 2005 focused on network branded (open-loop) prepaid cards, with membership uniquely representing the entire value chain

Network Branded Prepaid Card Association Educate. Advocate. Protect. Promote.

10


Overview of Prepaid Samples of messaging used in educational events with government (Legislators, Regulators, Law Enforcement)

11


Credit products draw funds from a credit line.

Debit products draw funds from the consumer’s checking account.

Draw funds from a pre-funded account Can be funded from 1 of 3 sources: consumer, commercial government.

Pay Later Pay Now Pay Before

Closed Loop

• Issued and funds held by single merchant/group of merchants.

• Customer ID validation per merchant policies.

• Merchants internal network

• Issued by highly regulated • financial institutions (CIP, KYC, AML,

etc) • Visa, MasterCard, Amex or Discover • Must clear Card Networks

Network Branded

Payment Card Models

12


1. Mercator Advisory Group. Prepaid Market Forecasts 2011-2014 2. http://www.paymentssource.com/statistics/

Est 2014 total $648B

Open Loop $354B, CAGR 34.5%

Closed loop $330B, CAGR 8%

Prepaid vs. Debit vs. Credit 2012: Prepaid is ~1/3 volume of Either Credit or Debit

0

200

400

600

800

1000

1200

1400

1600

2006 2007 2008 2009 2010 2011 2012 2013 2014

$211.7 $240.0 $275.1 $354.9

$409.6 $462.0

$522.6 $593.8

$683.6 $700.0

$858.0

$994.0

$1,127.0 $1,210.0

$1,387.0

$1,545.0

$1,146.0 $1,251.0

$1,355.0 $1,371.0

$1,241.0 $1,288.0

$1,396.0

Total Loaded onto Prepaid

U.S. Annual Debit CardPurchase Volumes

Visa and MasterCard AnnualU.S. Credit Card PurchaseVolumes Combined

13


Applications by card type Closed Loop Open Loop

Payroll (Corp funded)

Gift

Government: Social Security/Unemployment

FSA/HRA/HSA (Corporate Funded)

Employee & Partner Incentive

Consumer Incentive (Corporate Funded)

Court Ordered Payments

Government: Food Stamps, TANF, Benefits

Telecom

Travel

Relocation

Money Remittance

Campus

General Purpose Reloadable

Green = consumer funded, Blue is corporate or government funded

“Prepaid” is over 30 types of cards “Closed Loop “ vs “Open Loop” are very different

14


Consumers

Consumer reloadable

Travel

Online

Campus

Remittances

Open loop gift

Corporate

Payroll

Incentives & rebates

Healthcare & insurance

Meal vouchers

Business travel

Corporate purchasing

Public Sector

Public Benefit & Welfare programs

Emergency assistance & disaster relief

Pension, Social Security

Travel & cash management

Payroll, incentives

Different Opportunities for Different load sources

15


Re/Load Networks

Acquiring Processor Network

Program Manager

Issuer Processor Issuer

CONSUMER

Financial Institution. Heavily regulated at Federal and State levels. Must follow all AML, KYC, etc. AND strict network rules

Provides transaction processing for the Financial Institution, and often provides customer care.

Under direct supervision / contract of Financial Institution, designs & runs the card program, and often provides customer care

Switches transactions, provides risk management and strict operating rules and regulations

Retail sites where prepaid cards are sold to consumers; Online, Retailers or Malls, Financial Institution Branches

Provides transaction processing and customer support for merchants

Merchant selling, or accepting value loads to a prepaid card OR A money service business operating a network to provide reload services and sites

Network Branded Prepaid Value Chain Different business partners play different roles in the anti-fraud effort

Seller/ Distributor

16


Why Prepaid is Attractive to Banks, Especially Now

17

Steve Middlebrook [email protected]


Total load estimates by 2014 total $648B Open Loop $354B, CAGR 34.5%

Closed loop $330B, CAGR 8%

Prepaid Projected Growth

NOTE: CAGR Based on 2006 to 2013

Billi

ons o

f Dol

lars

18


• Sponsored by U.S. Treasury • Federal benefit payments: SSA, SSI, VA, RRB, OPM • 3.2 million enrollments, over 2 million active accounts • Adding 100,000 cardholders per month • Supports Treasury’s initiative to eliminate paper checks for

benefit payments by March 1, 2013. • 2011 Survey: 95% of cardholders “satisfied” or “very

satisfied” with the card.

Government Adoption Lends Stamp of Approval to Prepaid

19


Government Adoption Lends Stamp of Approval to Prepaid

States and Territories Use Cards to Deliver Benefits • 54 use cards for SNAP • 38 use cards for TANF • 29 use cards for other forms of assistance

– Unemployment Insurance – Child Support – Refugee Assistance – General Assistance – Energy Assistance

20


Dissatisfaction with Traditional Bank Accounts Drives Prepaid Growth

• Durbin Amendment and other regulatory reforms have significantly decreased certain forms of bank income.

• In response, Banks have eliminated free services, increased minimum balances and added/increased fees.

• Lots of media coverage given to “Bank Transfer Day” and the consumer shift from large financial institutions to community banks and credit unions.

• Less coverage given to the shift to prepaid. • “The desire to avoid incurring hidden bank fees is a factor in

the adoption of prepaid cards.” – Pew Charitable Trusts, focus group study

21


Bank Responses to Durbin

22


The Prepaid Consumer and Why They Like Prepaid

23


Using a Prepaid Card is Significantly Cheaper Than Being Unbanked

With a prepaid payroll card: No check-cashing fees

Convenient access to pay

Decreased transportation costs

• Collecting checks

• Cashing checks

• Paying bills

• Buying money orders and postage

Sources: Visa USA and FSV Payment Systems

$330

$62

◄Bill Pay, Express/ Convenience Fees

◄Postage

◄Check Cashing

Annual Cost of Financial Services

24


Who is the Prepaid Card User? •43% of prepaid debit card users are Gen Y’ers. •1/3 of prepaid debit card users earn >$45,000 •GPR cardholders are well-educated: 34% have a college degree or higher.

25

Source: Aite Group’s survey of 500 U.S. consumers who use alternative financial services, Q1 2011

They are choosing prepaid from their other financial product choices

Who is a General Purpose Prepaid Cardholder?

25


How consumers use Prepaid •6 in 10 African-American prepaid cardholders pay bills with their card. •Half use cards for everyday purchases. •Cards are also used as money management tools – helping to control spending and for emergency use. •1/3 use their cards 2+ times a week. •62% use their card multiple times a month, average 7X per month.

National Urban League Study 2011

26


Consumers’ cost is lower

Low HighCash 103.68$ 576.46$ Basic Bank Checking Account 179.00$ 464.00$ Prepaid Card without Direct Deposit 265.92$ 333.75$ Prepaid Card with Direct Deposit 97.56$ 238.95$

2011

$- $100.00 $200.00 $300.00 $400.00 $500.00 $600.00

Low

High

2011

$103.68

$576.46

$179.00

$464.00

$265.92

$333.75

$97.56

$238.95

Prepaid Card with Direct Deposit Prepaid Card without Direct Deposit

Basic Bank Checking Account Cash27

Prepaid vs Checking vs Cash Cost comparison for a basic checking (i.e. Avg. balance below $1,500)


Which Pieces of Legislation are Currently Affecting Prepaid?

28

Mark Moore [email protected]

And Deborah Thoren-Peden

[email protected]



• Durbin • International Remittance Rule from Dodd --

Frank • Menendez bill • Privacy • Prepaid Access • UDAAP

Legislation Effecting Prepaid Now


Regulation E – Remittance Transfers

• Feb 7, 2013 Effective Date • Not limited to depository institutions • Coverage Issues (“remittance transfer”) • Obligations

– Disclosures (pre-payment; receipt or combined) • Fees (US and foreign – taxes) • Exchange rate • Amount and date to be received • Estimates allowed (if no correspondent banking relationship)

– Transaction cancellation rights – Error resolution rights (inaccurate amount;

computational error; failure to make funds available in amount or on date disclosed)

30


Remittance Transfers – Problems?

• Use of estimates, versus lawsuits • Error resolution – 180 days and burden of proof • “Failure to Make Funds Available” problem

31


Who is Currently Regulating Prepaid – Federal and State Levels

32

Mark Moore [email protected]

And Deborah Thoren-Peden

[email protected]



Who is Currently Regulating Prepaid - Federal

• OCC (including some, but not all, former OTS guidance and interpretations).

• FDIC (supervisory and deposit insurance) • Federal Reserve (supervisory and Durbin) • CFPB • FTC • OFAC • FinCEN (including Prepaid Access Rule) • IRS (including health care payments products) • Treasury (Government Payments Rule)

33


Prepaid at the State Level

• Limitations/prohibitions on fee/expiration • Disclosure requirements • Payroll • Licensure • Escheat • New Jersey proposed legislation • Class action lawsuits

34


Where is the CFPB on Prepaid?

Terrence P. Maher 402.636.8297

[email protected]

35


CFPB

36

• The CFPB (bureau) is the first federal agency tasked solely with the responsibility for regulating consumer financial protection in the United States

• In addition to supervising big banks (with limited supervisory authority for banks under $10 billion), the bureau is responsible for regulating non-bank mortgage lenders and servicers, payday lenders, private student lenders, debt collectors and debt relief services, credit bureaus and other financial service providers


CFPB

• The main functions of the bureau are to: – Conduct rulemaking, supervision, and enforcement for

federal consumer financial protection laws – Restrict unfair, deceptive, or abusive acts or practices – Create a center to take consumer complaints – Promote financial education – Research consumer behavior – Monitor financial markets for new risks to consumers – Enforce laws that outlaw discrimination and other

unfair treatment in consumer finance


CFPB

• Whistleblowers • Supervision of non-bank financial services

providers – larger participants • Consumer complaints • Field hearings and information requests • Supervision and Examination Manual • Diversity policies and practices


CFSI’s Disclosure Box Several programs are piloting now: Green Dot, Plastyc and Ready Credit Cordray statement from CBA - Focus on disclosures vs fee caps or prohibitions NBPCA position statement

39 39

Disclosures: A Big and Recurring Topic


Your Next Steps in Prepaid


• Identify and analyze funds moving away from you to prepaid • Review key sources of industry data – NBPCA, etc. • Consider prepaid solutions to fit with your overall strategy:

– Consumer programs, e.g., GPR cards

– Commercial programs, e.g., payroll cards

• Identify use cases in your client base, especially unique ones

• Determine best product offerings to fit you key use cases • Identify partners to supply the products you need

– Processing only or program management partner?

• Set your plan to go to market, or expand current offerings

Develop A Prepaid Strategy

41

prepaid opportunities and challenges in policy and regulation · merchant/group of merchants. •...

Documents