I was initially going to title this blog "F*ck The Banks" because of all the havoc they've wrought in peoples' lives, and how, even after the bailouts and the recession, the foreclosures and congressional hearings, they still don't get the American middle class. Then I reflected on the fact that these are, for the most part, decent, hard working, intelligent Americans whose institutions helped build this country, but who happen to be stuck in an old mindset, with outdated "brick and mortar" infrastructures, piles of bureaucracy, and systems that were built over decades to charge hidden fees to their customers. It will take them many years to change, but I believe that they will change, if for no other reason than to survive. In the meantime, technology is enabling companies like mine to circumvent the banks altogether and to pick up the middle class they left behind.
Nearly a decade ago I realized that most banks didn't want to touch the 60 million Americans, disproportionately minority, student and immigrant, but of every color, race and age -- who had little or no access to the traditional banking system.
In my travels around the country I learned about the hardship caused by mothers having to stand in line for their paychecks, and then have to wait even more to cash those paychecks, and then further lines to pay their bills, often with their children at their sides.
Meanwhile those who were banked were charged fees for checks that didn't clear, for transactions they didn't know their cards couldn't cover, fees for balances below the minimums, inactivity fees and dozens of other hidden charges.
After hearing that the banks didn't want the business of these hard-working Americans on any terms that were fair to them, I realized that the customers for my fashion and entertainment businesses were being locked out of the American Dream. So I set out to pioneer an industry, called the "General Purpose Reloadable" (GPR) Debit Card business that would give people who believe in me and what I stand for access to everything and more than the regular banks were offering, but at a much lower cost.
In the process I realized I could offer these same services, with the help of technology, to the entire middle class.
These are not gift cards, they are business cards you use to collect your paycheck, pay your bills, transfer money, build credit and get access to products usually offered to the rich. You use this card instead of a bank. Eventually you won't even need a card, just a mobile, to use these services.
Everybody told me I was mad to create a business around this customer. They said you could never make money in this industry because the potential customers have bad credit, they were risky and unreliable, they were better off in the hands of check cashers and payday lenders. I developed the Rushcard for them, and what I'm discovering now is that technology has evolved to make this a middle class card that benefits all working Americans.
Today, "GPR" debit cards are a $150 billion business and the fastest growing financial service. I'm proud to have stood there at the beginning, spitting truth to power, like I did with Def Jam, Def Comedy Jam, Def Poetry, Def Jam Games, Phat Farm and Baby Phat. In the meantime, my debit card business has gone from being a card service to an empowerment program with vital tools like budgeting, credit building, mobile apps, fund transfers, insurance products and drug discount programs.
Servicing our customers, developing vital programs for them, doesn't come cheap for anyone in the space, even if we don't have the overheads of banks. Everywhere across the financial chain service providers have to get paid per transaction, and should get paid because they provide vital services: transaction processors, Visa and Mastercard, networks that provide signature and pin services, issuing banks (yes we use banks to protect your money under FDIC laws), call centers, insurers, and technology providers and research teams to create new products.
The wealthy pay for these services by leaving thousands of dollars in their bank accounts, which the banks then go out and lend at a profit. That's how the banks make money. For the 60 million Americans who don't have that kind of cash, the cost of a checking account typically costs DOUBLE what a service like Rush Card costs. Our internal data tells us that our customers on average save more than $300 a year using Rush Card over banks, and a third of our customers save more than $600 a year!
But don't take my word for it. The nation's leading bank, JP Morgan Chase compared the annual bank charges on the typical Rushcard customer against the costs of a prepaid reloadable debit card from services like Rush Card. For the nation's ten leading consumer banks they calculated the range of fees from $450 a year to $550. The report compares those fees with those of a prepaid card which range from $150 to $235. THAT'S $30 TO $50 A MONTH TO WORKING AMERICANS WHO NEED THE MONEY!
And that's just for year one. After that, prepaid costs are even less because the activation fees are one time,while bank fees continue.
Moreover our fees are transparent -- you see them on our website, rushcard.com -- whereas the bank fees come from nasty surprises: overdraft and non-sufficient funds (NSF) fees, inactivity fees, stop payment fees, and minimum balance fees.
Independent research shows that banks in 2009 made $34 BILLION in NSF/Overdraft fees -- 80% of their total -- from the LEAST WEALTHY 20 million households, which are disproportionately black, Latino, immigrant, students and working middle class. Rushcard, and the best of the other companies in the market, absolutely want you in control of your own money, to be very clear what it costs to use it electronically, and reward you FOR staying with us longer.
Our website and Facebook pages are filled with testimonials from our customers who cut their banking costs dramatically by switching to Rushcard. And that doesn't even scratch the surface of the benefits of the card, because on top of transparent low fees, we provide an array of services designed for the needs of our customer. Just one example, again from our own customers: 79% of those we surveyed AGREE that "The RushCard Money Management pages [our budgeting tool] have helped me stick to my budget" and the same percent agreed that these vital tools helped them save money.
Still, as an entrepreneur and activist, I wake up every morning asking myself, and my team and my partners: how we can use technology to make our costs even lower, more flexible, and increase the value of our services to our customers.
I also said believe the banks will come around to lowering their hidden fees. Some of this is because new financial regulations will force them to. By that time, however, Rushcard will be way ahead in new services, technologies and even more flexible pricing options.
Regulating the fee structure for banks is like a kid's party balloon: when you squeeze one part, another part expands just as fast. And well-intentioned regulation can have unintended consequences on the very people the regulators are trying to protect.
For example, there's a move in congress to limit card fees to one monthly fee, the so called "Menendez Bill", sponsored by Democratic Senator Bob Menendez. As I listen to my customers, they actually prefer the programs that charge per transaction and minimize monthly fees, because it gives the customer control over how much they pay, something especially important if money is tight. I know this because when provided the option, customers on the monthly plan change to the transaction based plans! Solet's by all means regulate the excesses, but don't limit consumer choice, these are empowerment services, they have to enable the consumer to make the best choices for themselves. Please Senator Menendez, keep the fees flexible for my customers, they need that in this economy.
The JP Morgan report I mentioned earlier makes the case that I have been making for years: that as technology progresses and leaves old-style banking networks behind, GPR debit cards will become the main card for 160 million US adults because of the simplicity, transparency, flexibility, privacy, mobility and all the add-on services technology can provide.
For once I agree with a major bank! It's a great report, and there's a lot of independent research that support it. And we're just at the beginning of the revolution! It's time middle class America taps into the post-bank economy -- it's time to move your money!
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[1] Mercator Advisory Group Prepaid Channels Report, Feb. 2007
[2] For an overview of who does what in financial payments, see a December 10, 2010 report from Raymond James, brokers, titled Transaction Services, by Wayne Johnson and Gaurav Vohra
[3] Unrush Money Management Pages Survey, March 26, 2009, slide 7.
[4] Comparing Cost of Prepaid vs. Traditional Checking, pp 16-19, table 4, Green Dot North American Equity Research Report, JP Morgan, 7 September 2010, by Tien-Tsin Huang, CFA.
[5] Bretton Woods, 2009 Fee Analysis of Bank and Credit Union Non-Sufficient Funds and Over-draft Protection Programs, published February, 2010, page 9.
[6] Unrush Money Management Pages Survey, March 26, 2009, slides 5 & 6.
[7] JP Morgan, Green Dot report, referenced in footnote 4 above, p. 4