Hat Tip: Bobsguide.com
Boston, MA - 23 July 2007
Aite Group expects the value of branded and private label prepaid card transactions to amount to US$178 billion by 2010, up from US$113 billion in 2007.
A new Impact Report from Aite Group sizes and forecasts the evolution of the prepaid card industry in the United States. It examines the key trends impacting each major component of the industry value chain.Among key findings, the report reveals that despite rapid industry growth, gaining scale in branded prepaid card processing remains a major challenge for processors and issuers. The report also indicates that the introduction of reload services for branded and private label prepaid cards, the drive to offer private label prepaid card products to small merchants, and the deep integration of branded and private label prepaid cards into various industries' business processes are today's three major trends reshaping the industry.
"In the coming few years, the concept of prepaid will grow increasingly irrelevant as it becomes ever-more successful," predicts Gwenn Bézard, research director at Aite Group and author of the report. "Over time, the subtle distinctions between the various card products, such as debit versus prepaid versus credit, and branded versus private label, will erode as products grow in diversity and complexity and mesh together. By the middle of the next decade, the prepaid card industry will have ceased to exist as a recognizable entity."
Tuesday, July 24, 2007
Monday, July 9, 2007
Anti-laundering compliance costs mount
Hat Tip: Washington Post
By MADLEN READ
The Associated Press
NEW YORK -- Complying with anti-money laundering laws has been much more expensive than banks anticipated, and some still aren't meeting all requirements, a new survey says.
Banks around the world saw compliance costs jump an average of 58 percent over the past three years _ more than in the previous three years, and higher than the 43 percent increase banks predicted in 2004, said a survey commissioned by Swiss cooperative KPMG International.
Among the six regions surveyed, North American banks saw the highest percentage cost increase, with costs rising 71 percent over the last three years. The Middle East and Africa region was close behind with a rise of 70 percent. Banks' compliance costs rose 58 percent in Europe; 37 percent in Asia; 59 percent in Central and South America; and 60 percent in Russia.
Most of the money went toward buying technological systems and hiring experienced personnel to monitor transactions, said the KPMG report, which did not measure the dollar value of the costs.
"A lot of institutions were not automated to the degree regulators were expecting them to be," said Teresa Pesce, U.S. partner at KPMG's forensic practice.
North America respondents said they predict a cost increase of 28 percent in the next three years. Globally, costs are expected to increase 34 percent in the next three-year period.
Many governments require that banks take steps to prevent money laundering. Money laundering involves making certain financial transactions to hide the source, nature or destination of illegal funds. The United States has the Bank Secrecy Act, which was passed in 1970 and amended by the USA Patriot Act of Oct. 26, 2001. It has since been used increasingly to stop the flow of financing to terrorist organizations.
According to KPMG's survey, 93 percent of North American respondents said they had a formal system in place, meaning 7 percent of banks were not in compliance with the Act's testing requirements.
Noncompliance can be costly.
Last year, Fort Lauderdale-based BankAtlantic agreed to forfeit $10 million to the U.S. government to avoid criminal charges that it permitted millions of dollars in suspected drug money to be laundered through its accounts.
And in 2005, Riggs Bank, now owned by Pittsburgh-based PNC Financial Services Group Inc., agreed to pay a $16 million fine and pleaded guilty to a felony charge of failing to report suspicious transactions involving foreigners including former Chilean dictator Augusto Pinochet and members of his family.
Despite the possible ramifications, just 63 percent of the survey's North American respondents said anti-money laundering issues were a high priority for senior management.
Independent research agency RS Consulting surveyed 224 of the world's 1,000 largest banks, in 55 countries, through telephone interviews over a six-week period.
Ninety-five percent of North American banking executives surveyed said the number of suspicious activity reports had increased, and 63 percent of those same executives said the number had increased "substantially."
"The better your systems are, the better your monitoring is, the more you'll see _ that's going to drive up the number to some extent," Pesce said.
By MADLEN READ
The Associated Press
NEW YORK -- Complying with anti-money laundering laws has been much more expensive than banks anticipated, and some still aren't meeting all requirements, a new survey says.
Banks around the world saw compliance costs jump an average of 58 percent over the past three years _ more than in the previous three years, and higher than the 43 percent increase banks predicted in 2004, said a survey commissioned by Swiss cooperative KPMG International.
Among the six regions surveyed, North American banks saw the highest percentage cost increase, with costs rising 71 percent over the last three years. The Middle East and Africa region was close behind with a rise of 70 percent. Banks' compliance costs rose 58 percent in Europe; 37 percent in Asia; 59 percent in Central and South America; and 60 percent in Russia.
Most of the money went toward buying technological systems and hiring experienced personnel to monitor transactions, said the KPMG report, which did not measure the dollar value of the costs.
"A lot of institutions were not automated to the degree regulators were expecting them to be," said Teresa Pesce, U.S. partner at KPMG's forensic practice.
North America respondents said they predict a cost increase of 28 percent in the next three years. Globally, costs are expected to increase 34 percent in the next three-year period.
Many governments require that banks take steps to prevent money laundering. Money laundering involves making certain financial transactions to hide the source, nature or destination of illegal funds. The United States has the Bank Secrecy Act, which was passed in 1970 and amended by the USA Patriot Act of Oct. 26, 2001. It has since been used increasingly to stop the flow of financing to terrorist organizations.
According to KPMG's survey, 93 percent of North American respondents said they had a formal system in place, meaning 7 percent of banks were not in compliance with the Act's testing requirements.
Noncompliance can be costly.
Last year, Fort Lauderdale-based BankAtlantic agreed to forfeit $10 million to the U.S. government to avoid criminal charges that it permitted millions of dollars in suspected drug money to be laundered through its accounts.
And in 2005, Riggs Bank, now owned by Pittsburgh-based PNC Financial Services Group Inc., agreed to pay a $16 million fine and pleaded guilty to a felony charge of failing to report suspicious transactions involving foreigners including former Chilean dictator Augusto Pinochet and members of his family.
Despite the possible ramifications, just 63 percent of the survey's North American respondents said anti-money laundering issues were a high priority for senior management.
Independent research agency RS Consulting surveyed 224 of the world's 1,000 largest banks, in 55 countries, through telephone interviews over a six-week period.
Ninety-five percent of North American banking executives surveyed said the number of suspicious activity reports had increased, and 63 percent of those same executives said the number had increased "substantially."
"The better your systems are, the better your monitoring is, the more you'll see _ that's going to drive up the number to some extent," Pesce said.
Tuesday, July 3, 2007
America's Great Divide
Hat Tip: Bank Technology News
About 73 million people in the U.S. are unbanked or underbanked, a marketplace that is as diverse as it is unknown-often new to the U.S., frequently entrepreneurial and all lacking credit histories. Banks will find a bevy of new risk tools to help reach out to this market of emerging creditors
By Michael Sisk
The subprime mortgage troubles have grabbed a lot of headlines this year as delinquencies and foreclosures mount and lenders scramble to tighten underwriting standards and head off onerous new rules from a populist-minded Washington. But this story has masked another lending phenomenon gathering momentum: lending to unbanked or lightly banked consumers, whom some are calling "emerging credit."
Make no mistake, there is a significant difference between subprime and unbanked. The former have established and blemished credit histories that can be viewed through the three major credit repositories, while unbanked can't be easily tracked because they have never had a credit card, car loan, mortgage or other financial product that would leave a credit trail. However, these two groups do have two major commonalities: risk profiles that fall outside the norm and must be carefully studied before extending credit; each group also represents a deep pool of potential customers.
Reaching the unbanked is one of those perennial dilemmas for banks, but several new technology tools recently have been unveiled that show great promise in helping to bridge this gap. And it is a gap worth bridging. The Center for Financial Services Innovation estimates 73 million people in the U.S. are either unbanked or underbanked. When one considers that that figure is 56 percent of the total banked population of 130 million, it becomes pretty clear how much business is up for grabs.
Click here to read the rest.
About 73 million people in the U.S. are unbanked or underbanked, a marketplace that is as diverse as it is unknown-often new to the U.S., frequently entrepreneurial and all lacking credit histories. Banks will find a bevy of new risk tools to help reach out to this market of emerging creditors
By Michael Sisk
The subprime mortgage troubles have grabbed a lot of headlines this year as delinquencies and foreclosures mount and lenders scramble to tighten underwriting standards and head off onerous new rules from a populist-minded Washington. But this story has masked another lending phenomenon gathering momentum: lending to unbanked or lightly banked consumers, whom some are calling "emerging credit."
Make no mistake, there is a significant difference between subprime and unbanked. The former have established and blemished credit histories that can be viewed through the three major credit repositories, while unbanked can't be easily tracked because they have never had a credit card, car loan, mortgage or other financial product that would leave a credit trail. However, these two groups do have two major commonalities: risk profiles that fall outside the norm and must be carefully studied before extending credit; each group also represents a deep pool of potential customers.
Reaching the unbanked is one of those perennial dilemmas for banks, but several new technology tools recently have been unveiled that show great promise in helping to bridge this gap. And it is a gap worth bridging. The Center for Financial Services Innovation estimates 73 million people in the U.S. are either unbanked or underbanked. When one considers that that figure is 56 percent of the total banked population of 130 million, it becomes pretty clear how much business is up for grabs.
Click here to read the rest.
Monday, July 2, 2007
Payroll card is for people without bank accounts
Hat Tip: Gannett News Service
For 71 percent of America's workers, payday means an automatic direct deposit into a bank account.
But for as many as 28 million people in the United States who don't have a bank account, payday means cash or a paper check.
Those paper checks aren't convenient for so-called "unbanked" people, who end up paying exorbitant fees to cash a check or pay bills. And it's not great for employers, either, who pay $1 to $2 per paper paycheck and up to $9 to replace one if it's lost. An increasing number of employers are now finding a solution in a new type of plastic: the payroll card, a pre-paid card that employees can use just like a regular ATM/debit card, and employers can reload with the same ease as direct deposit into the bank.
"Better, faster, safer, more secure," is how William Dunn of the American Payroll Association describes the payroll card option. The association estimates 4 million paychecks are lost or stolen annually.
"The paycard helps employers increase the number of electronic payments they make to employees," Dunn says. "You don't have to deal with check fraud; if they lose a paycard, it's easier to replace; and it's really good for the employee as well."
Similar to ATM cards, people using the payroll cards to withdraw money are subject to fees at ATM machines not in their network. The money is debited directly from their card accounts.
Employees benefit because they no longer have to pay $5 or $6 fees to cash their paychecks, says Tom Crowder, Discover's general manager of prepaid products. Employers benefit because they save money by depositing money directly into the card account instead of cutting a check every week. (It can cost as little as 20 cents to issue a payment through a card, studies from VISA have shown.)
Discover also benefits by having more branded cards in the hands of more consumers, says David Robertson, publisher of the Nilson Report, a newsletter on the payment cards industry.
"If you're a card company, you're looking to get as many pieces of plastic out there with your name on it" as possible, Robertson said. "There is an opportunity to put a payment card into the hands of America's poorer population. They are cash-oriented spenders and this is a way to maybe make them card-oriented."
Card issuers can also gather data on cardholders over time, learning more about their spending patterns and habits, Robertson said. That allows card issuers to eventually use that information to develop and market new products in the future.
Employers loaded about $6.3 billion on about 1.5 million payroll cards in 2005, according to the Mercator Advisory Group, a Waltham, Mass.-based payments industry research firm. Those numbers are expected to increase to 3.2 million cards and $12.1 billion in payments by the end of 2007, and could reach 4.6 million cards with $17.4 billion in payroll deposits by the end of 2009.
It's not only the unbanked population that uses the cards, says Tim Sloane, who directs the Mercator Group's debit and prepaid advisory practice.
Employers also like to use payroll cards when an employee is part-time or works on an as-needed basis, if the employee moves around a lot, or if payments are irregular, such as with contractors or salesmen who earn variable commissions, Sloane said.
JPMorgan Chase & Co. issued its first VISA-branded payroll debit cards in the late 1980s, said Ted Grunberg, the New York bank's product manager for prepaid products.
But only in the last three years have the cards really taken off, Grunberg said. He attributes that to consumers' increasing comfort with plastic. Now more than 1,000 employers — from large corporations to mom-and-pop shops — use Chase's VISA-brand payroll cards, Grunberg said.
"People are getting used to this," he says. "Gift cards have just flown through the ceiling."
For 71 percent of America's workers, payday means an automatic direct deposit into a bank account.
But for as many as 28 million people in the United States who don't have a bank account, payday means cash or a paper check.
Those paper checks aren't convenient for so-called "unbanked" people, who end up paying exorbitant fees to cash a check or pay bills. And it's not great for employers, either, who pay $1 to $2 per paper paycheck and up to $9 to replace one if it's lost. An increasing number of employers are now finding a solution in a new type of plastic: the payroll card, a pre-paid card that employees can use just like a regular ATM/debit card, and employers can reload with the same ease as direct deposit into the bank.
"Better, faster, safer, more secure," is how William Dunn of the American Payroll Association describes the payroll card option. The association estimates 4 million paychecks are lost or stolen annually.
"The paycard helps employers increase the number of electronic payments they make to employees," Dunn says. "You don't have to deal with check fraud; if they lose a paycard, it's easier to replace; and it's really good for the employee as well."
Similar to ATM cards, people using the payroll cards to withdraw money are subject to fees at ATM machines not in their network. The money is debited directly from their card accounts.
Employees benefit because they no longer have to pay $5 or $6 fees to cash their paychecks, says Tom Crowder, Discover's general manager of prepaid products. Employers benefit because they save money by depositing money directly into the card account instead of cutting a check every week. (It can cost as little as 20 cents to issue a payment through a card, studies from VISA have shown.)
Discover also benefits by having more branded cards in the hands of more consumers, says David Robertson, publisher of the Nilson Report, a newsletter on the payment cards industry.
"If you're a card company, you're looking to get as many pieces of plastic out there with your name on it" as possible, Robertson said. "There is an opportunity to put a payment card into the hands of America's poorer population. They are cash-oriented spenders and this is a way to maybe make them card-oriented."
Card issuers can also gather data on cardholders over time, learning more about their spending patterns and habits, Robertson said. That allows card issuers to eventually use that information to develop and market new products in the future.
Employers loaded about $6.3 billion on about 1.5 million payroll cards in 2005, according to the Mercator Advisory Group, a Waltham, Mass.-based payments industry research firm. Those numbers are expected to increase to 3.2 million cards and $12.1 billion in payments by the end of 2007, and could reach 4.6 million cards with $17.4 billion in payroll deposits by the end of 2009.
It's not only the unbanked population that uses the cards, says Tim Sloane, who directs the Mercator Group's debit and prepaid advisory practice.
Employers also like to use payroll cards when an employee is part-time or works on an as-needed basis, if the employee moves around a lot, or if payments are irregular, such as with contractors or salesmen who earn variable commissions, Sloane said.
JPMorgan Chase & Co. issued its first VISA-branded payroll debit cards in the late 1980s, said Ted Grunberg, the New York bank's product manager for prepaid products.
But only in the last three years have the cards really taken off, Grunberg said. He attributes that to consumers' increasing comfort with plastic. Now more than 1,000 employers — from large corporations to mom-and-pop shops — use Chase's VISA-brand payroll cards, Grunberg said.
"People are getting used to this," he says. "Gift cards have just flown through the ceiling."
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