5 Minutes With Ben Jackson
Director of the Prepaid Advisory Service at Mercator Advisory Group
After reporting for the daily newspaper American Banker and editing Prepaid Trends magazine, Ben Jackson made the transition from journalism to consulting. In 2009, he became an analyst for the Mercator Advisory Group and a year and a half ago earned a promotion to director of Mercator’s Prepaid Advisory Service.
EM: How did you get started in consulting?
BJ: I’d been covering banking and prepaid as a journalist and that led me down the path to doing research and consulting for financial institutions and non-profits.
EM: Do you cover prepaid mobile minutes and data or just prepaid cards at Mercator?
BJ: What we do is mostly in relation to payments. Prepaid minutes and prepaid data are important categories – and they’re definitely related to payments – but we defer to other experts on the minutes-side of things.
EM: How many analysts does Mercator have?
BJ: We have 11, but sometimes we work across practices. For example, Sarah Grotta, director of our Debit Advisory Service, might write something about prepaid where she has some experience or some particular knowledge. Karen Augustine, manager of Primary Data Services, does our customer monitor survey series. We do surveys of a nationally representative sample of 3,000 people, and we ask them about payments and their use of different kinds of banking technology and different banking channels.
Tim Sloane was head of prepaid before I took over the job. He was promoted to look at payments innovation across all the different practices – looking at the way new technology is changing the way that people pay. Tim was one of the cofounders of the company, and he started the prepaid benchmarking that we do. He’s spent a lot of time thinking about not just the prepaid market but the payments market as a whole.
EM: What’s your relationship with The Prepaid Press?
BJ: I’ve been a source for some of their articles on how mobile and payments interact outside of phone service. I’ve worked with them on developing content for The Prepaid Press Expos, where we look at how mobile is changing the payments landscape.
EM: Can you tell us about the convergence of payments and mobile?
BJ: Mobile is changing everyone’s daily lives. We all now have these devices in our pocket that have more computing power than was used to send men to the moon. It brings the ability to communicate more, to amass knowledge, and to navigate and research purchases. Adding the payment is a natural extension of that power.
EM: Will mobile continue to grow?
BJ: There is an increasing move toward mobile. You’ll see more mobile players and operators. We’re going to see more third parties come in and get involved in bringing value-added services. They’re looking at things like budgeting tools or accounting tools.
EM: What are the most interesting developments you’ve seen in prepaid?
BJ: Prepaid leads the way to innovation. When you see new types of payment tools come online – some types of mobile payments, for example – those have been led by prepaid. The most famous mobile tool out there is the Starbucks prepaid card.
Another interesting thing is that we’ve seen prepaid providers begin to look at their product as a way of presenting an option and an opportunity to people who might not have other options. It goes beyond basic transactions.
Products are becoming much more robust. They’re adding features and functions. And this is despite a very hostile regulatory and consumer-advocate environment. There’s been this tendency to lump prepaid in with financial services that are not the same thing.
EM: So they’re misrepresenting prepaid?
BJ: They compare it to free checking. To say that a prepaid card and a checking account are somehow comparable is not accurate. A lot of people don’t qualify for free checking, and a lot of so-called free checking isn’t really free.
EM: How would you view the relationship between prepaid and other financial services?
BJ: Prepaid providers have looked at people who don’t want to access traditional accounts, and the providers have built in features that help consumers manage their money, spend more efficiently and access the financial services industry.
For instance, there’s the growth of the smartphone. Five or 10 years ago, most people didn’t have them. Two-thirds of American adults have smartphones now, and a lot of them use prepaid as well. They’ve got an entire online account through that smartphone, and they can do everything from checking their balance to depositing a check. That has really helped them, and they no longer lose a lot of money to check cashing fees.
EM: How are prepaid cards changing?
BJ: There’s the growth of multi-faceted programs where it’s both on the closed-loop gift card side and on the open-loop side. They’re trying to wrap more tools into it. Starbucks connected a prepaid card to the loyalty program, and then it was connected to the mobile app and then it became reloadable. So there are lots of tools for managing funds that have been added to prepaid cards.
EM: What’s ahead with regulation?
BJ: A lot of what happens in the next few years depends on what the Consumer Financial Protection Bureau does. If the regulation is written fairly and not with hysteria, then what we’re probably going to see is prepaid becoming an increasingly popular tool for people who want another way of managing their money and another way of spending and making payments that doesn’t involve accessing a credit line or debit account.
EM: How might the CFPB restrict prepaid?
BJ: So far, they’ve not attempted to set a limit on fees, which is good because it can be hard to manage costs and hard to manage the sustainability – forget the profitability – of a program when there are caps on how much a feature or function can cost.
But they’ve written proposed rules in a complex way. They have a proposed provision that when a prepaid account goes negative and there’s a monthly maintenance fee, it would be regulated as a credit card. Credit cards are a whole different world of customer evaluation. You’re deciding whether to grant someone credit.
Under the proposed CFPB roles, if an account goes negative you’d have to run credit checks and do all sorts of different things. The industry has said that would mean we could never allow these accounts to go negative or give somebody a grace period. It means some people would lose access to prepaid or would not want to use prepaid.
Grace periods are real. A prepaid credit card can go negative by a few dollars because merchants batch their transactions and don’t process them all in real time. When the person makes a deposit everyone is made whole. Everybody knows the cardholder is good for it, and there’s not really a risk here.
There are other proposed rules around when disclosure would have to happen. An example is the Ventra card used in Chicago to ride the city’s elevated trains. It also has prepaid on it. I’m not sure they would be able to do that anymore under the proposed rules because the disclosures would have to be provided before the cardholder gets the card. It becomes difficult to do that in a cost-effective way.
When it comes to offering something like a payroll card, there are certain disclosures that have to be delivered that make it complicated.
EM: What does EMV mean for prepaid?
BJ: Depending on how quickly that happens and how people react to prepaid cards, the prepaid providers may find themselves having to figure out how they’re going to operate in that EMV environment a lot more quickly than they can gather intelligence on that environment. But that probably won’t happen. We know there’s a deadline in October, but everybody’s not going to have EMV on Day 1. It’s probably going to be a long, drawn-out transition.
EM: Do you view prepaid as a force for social good – a way of bringing banking to the unbanked?
BJ: There are two pieces to this. Prepaid is a way to help people who either can’t or don’t want to access traditional financial services. People who can’t use traditional credit or debit cards can use prepaid to shop online, make payments over the phone and do mobile payments. It opens up a world to them that otherwise they would be shut out of.
The other piece is that prepaid is a source for good because it helps other people who aren’t shut out but perhaps aren’t comfortable in that broader financial services market. That includes people who are worried about managing their debt load, people looking for ways to budget and control their spending, and people who are looking for additional security.
EM: So the underbanked aren’t all the same, are they?
BJ: There are two categories. The one everyone thinks about is the poor. The other category is the young – teenagers who haven’t built credit yet but could still benefit from having a mobile phone or being able to purchase something online. Both can benefit from prepaid.
Ben Jackson is Director of the Prepaid Advisory Service at Mercator Advisory Group. Visit Mercator online at www.mercatoradvisorygroup.com.