Moving
Toward a More Cashless Society Everyday...
The overall trend moving away from cash
and checks and moving toward cards (plastic) continues to gain
with even greater momentum as recent surveys indicate. Americans
are turning to debit cards as their preferred method of payment.
The survey conducted on behalf of the Pulse
EFT Association found that 54.3% of Americans surveyed prefer
to use their debit card. 17.7% use their credit card, 15.4%
pay with cash and 12.6% still use checks.
Compared
to previous 24 months
The recent change of 8.7% of American
consumers switching from paying via cash to paying via debit
card is attributed to the use of paycards issued by employers
to their unbankable employees.
The drastic change of 6.1% in the
usage of checks was caused by those individuals who could not
manage their bank account. Banks require minimum balances and
charge excessive fees for non-sufficient funds and overdraft
protection. Instead of switching to cash, these individuals
have sought out stored value debit cards or solely rely on their
bank debit card.
This relatively new era in prepaid
debit cards is catching on quickly, causing a major change in
the way consumers prefer to pay for goods and services. Understanding
consumer buying habits and payment choices in a changing world
is critical for the survival of many smaller businesses.
In this report 81.4% of consumers
said that merchants who are not accepting debit cards and credit
cards would soon lose their business if they did not make a
change. The survey also revealed that 80% of the consumers said
they would be very unhappy with any merchant that started charging
additional fees for the use of a credit card or debit card in
their store.
Where the
largest change is yet to happen
The survey shows that the group
considered as the unbankable will be using some type of debit
card in the near future and that by early 2008 98% of the United
States consumers will no longer be using cash or checks.
The major change to
come involves 36.9% of the American population over the age
of 18. It is expected that this huge 1/3 of the consumers will
change their payment means to stored value debit cards over
the next 4 year period.
There currently are several debit
card providers in the stored value product market. Both MasterCard
and Visa have a stored value debit card, which allow marketers
to private label. Others like Pay 2, Netspend and U.S. Cash
WorldCard have developed their own products and a total network.
At present U.S. Cash WorldCard seems to have the strongest platform
and access system. In fact, it is as strong as MasterCard or
Visa making the card usable almost anywhere around the globe.
What is the difference between
a bank debit card and a stored value debit card?
A bank debit card is attached directly
to a checking account. People with good credit have overdraft
protection that allows certain flexibility, but comes with fairly
high fees and costs. The store value debit card is different.
Money deposited on the card is placed in an aggregate bank account
for safe keeping along with the money from thousands or millions
of other cards. Through sophisticated, secured, accounting technology
and software, licensed processing companies monitor in real
time the activity of each and every card by account number.
They record and report every transaction. When money is loaded
to a card, they electronically deposit it into an aggregate
bank account for safekeeping. When money is drawn from an ATM
machine or a purchase is made at a P.O.S. terminal, the processor
electronically transfers funds from the aggregate account to
the merchant’s account and records the transactions and
related fees.
Unlike setting up a bank account,
anyone can obtain a stored value debit card by simply filing
out a short application and proving identity. This card is truly
the answer for the unbankable plus those who have a problem
controlling their spending habits.
A few consumers, who are experiencing
financial difficulties, prefer using a stored value debit card
over their bankcard because of security and access to emergency
cash. A creditor can lien a regular bank account; however, he
cannot lien a aggregate account.
Many consumers find using a stored
value debit card to be less expensive than the bank fees they
experience from NSF checks, stop payment transactions and many
other similar transaction fees.
Stored value products are now in
various types and forms and currently create an over 30 billion
dollar per year industry:
-
Gift Cards
- Employer Paycards
- Prepaid Phone Cards
- And Now Prepaid Debit Card
One third of the consumer base
is ready to make the transition and has been waiting for only
one key element: convenient locations where they can purchase,
activate, load and continue to load their cards. With more than
one third of the population waiting, the race is on with the
card providers. Walmart now has its own debit card; however,
it is still on a gift card platform and can only be used at
Walmart and Sam’s Clubs. Netspend now has its cards being
sold, activated and loaded in Ace Check Cashing centers across
the nation. Many others have tried to get their cards into the
market place through merchants and large retail chains, but
have failed. Why did they fail? These merchants and retailers
did not have the high speed internet access and technology in
place at their counters to accommodate the required process
for activation, loading and reloading such products.
U.S. Cash Inc, a Riverside, California based
organization, was the first to come out with a total solution
for merchants. At the California Financial Services convention
held in May of 2004, Julie Johanning, the Senior Vice President
and Chief Operations Officer of U.S. Cash Inc., was able to
present her products and solutions and compare side by side
to most of her competitors’ products who were in attendance
there. Although each had their own uniqueness, certain features
of the U.S. Cash products really stood out as an advantage.
First, the U.S. Cash WorldCard (the stored value
debit card) has the same platform and access strength of MasterCard
or Visa and is the strongest in the stored value product industry.
Yet she did not have to pay MasterCard or Visa for their rights
and their percentages. Consequently, she realizes a considerable
larger profit margin. Rather than taking the extra profit, she
passes them onto the consumer with lower fees, to the merchant
for higher profitability and for the sales representatives bigger
commissions and residuals.
Julie explained that the greatest weakness U.S.
Cash has had was developing a marketing and sales team to get
these cards in the hands of the merchant to sell to the consumers.
Sounds like a tremendous window of opportunity for independent
sales representatives to make a fortune.
Knowing the merchant requirements to enable
the process of selling, activating, and loading cards plus the
reoccurring business of reloading and serving the cards, U.S.
Cash has spent considerable time, effort and capital in the
development and implementation of a real time, internet based
P.O.S. system, utilizing the latest in technology equipment
and total integratable software system. It is called the FPT
Merchant P.O.S. System. This system is the first totally affordable
solution for merchants. Now with FPT Merchant Systems merchants
and retailers will be able to activate, load and reload stored
value products for the consumers and make money doing it.
U.S. Cash as well announced its joint venture
with NuBanc. By fall of 2004 automated teller machines will
be available for distribution across the nation. These machines
possess the latest in technology and are multi-purpose. Not
only do they serve as an ATM machine to disburse cash, they
accept credit cards, debit cards and stored value cards and,
as well, accept cash for other services. Some of the other services
are the sale and distribution of money orders, gift cards and
phone cards. It accepts payments and will electronically pay
many bills. It will also sell, activate and load the U.S. Cash
WorldCard. The machine as well has a phone attached, hooked
directly to the consumer assistance call center for any needed
assistance or questions.
It is intended that this machine will soon replace
existing ATMs located across the country and provide better
convenience and many more services. In a study conducted and
published May 12, 2004 in the Credit Union Times, Lavonne Kuykendal
reveals the major impact that stored value debit card programs
are creating is on money transfer from the U.S. to Mexico and
Latin American. It states that increased competition for the
money transfer business has sent prices down lower and lower
while providing a tremendous benefit to the consumer. The relatively
new stored value debit card products like that of the U.S. Cash
WorldCard have dominated the competitive advantage. This new
trend has forced even the market leader, Western Union, to respond
and make dramatic change in its pricing.
Pricing at time of this study was
as follows (please note: Money Gram was in the process of a
rate changing; however, new rates were not available at time
of print):
