How about this?
What if your paycheck were directly loaded into a debit card that you could then use to buy goods and services, buy savings vehicles, pay your mortgage and car payments, and so on and so forth?
What if a loan could be directly loaded into a debit card so that you could use the funds to buy whatever it is that you currently need, whether it be groceries…or a vacation…or a car?
This is exactly what more and more people are doing according to an article in the Wall Street Journal.
Going further, why couldn't this be done into your mobile device, which would then to either pay bills electronically or pay bills in person with the use of that mobile device?
Well, these things are happening and more and more people are using them.
The Journal article goes on:
"Prepaid debit cards, offered by both NetSpend (NASDAQ:NTSP) [NetSpend Holdings, Inc.] and Green Dot (NYSE:GDOT) [Green Dot, Corp.], are the fastest-growing type of payment vehicle, according to the Federal Reserve. Customers buy the plastic at grocery and convenience stores, then load money onto the cards in order to pay for a wide variety of services and purchases-just as they would with a regular credit or debit card."
Green Dot is the largest prepaid debit card provider. It was started in 1999.
An example of this is the Russell family of Kirkland, Washington. The family earns about $230,000. Charles Russell, the father, is 43 years old and works as a systems analyst for Microsoft Corp. The U.S. Census Bureau puts a family earning this much money among the top 5% of American households.
"I have no need, desire or want to go to a regular bank," says Mr. Russell
And, the numbers of people that are acting in this way are significant!
There are nearly 12 million households that are managing their finances without a bank. This is 8.2 percent of the nation's households based on Federal Deposit Insurance Corporation data. The current figure is above the 7.7 percent figure from the 2009 Census-based report.
The government defines another category of households as "underbanked." These households have a bank account but do a lot of their "banking" business outside of "regular" banking institutions. The FDIC includes prepaid cards, payday loans along with other similar types of offerings within this definition of alternative banking sources.
The number of households that have left banks or are "underbanked" totals over 28 percent of American households. This figure is about 2.7 percentage points above the level in the 2009 report.
Commercial banking is changing…and personally, I like the way things are moving!
We tend to talk about what is happening on the corporate end of things. I have argued on a regular basis that information technology has moved to the point where the bigger banks can slice and dice cash flows into almost any form desired, trade these cut-up cash flows instantaneously, and eventually evade or avoid every regulations that can be assessed on them. (My most recent comments on this are posted here.)
A major problem connected with this evolution is the failure of the regulators to understand…or even comprehend…what the banks are doing. This problem also might be extended to the managements of the banks, themselves.
In terms of consumer banking, this shortfall of understanding seems to extend to those in charge of the programs.
"Innovation has gotten so far ahead of our ability to really understand what is happening that it gives me more pause than excitement about the potential to serve clients that we're trying to serve," said Bruce Murphy, president of community development banking at Keybank (NYSE:KEY).
Keybank is one of the twenty-five largest commercial banks in the United States. The more progressive banks are moving into these areas. But, so are organizations like Wal-Mart Stores, Inc. (NYSE:WMT), which have an exclusive relationship with Green Dot.
The lines are blurring, and this is just what you might expect given the advances we are experiencing in information technology.
These advances will play a role in determining the winners and losers in the banking industry, but they will also help to determine winners in non-banking firms. Certainly, many of the larger banks will be in the competition, but the smaller banks will just not have the scale to compete at this level. The non-banks? Well, look at how many major companies are testing out different payment schemes these days. Look at how many companies, like GM and GE, were earning over 50 percent of their profits from their financial subsidiaries over the last fifteen years or so.
But, this new world complicates policy makers as well.
What is money? How do we control money? What about near-monies? What about credit?
Money at one time was just some physical object. Then money became "minted" coins. Then money included paper currency. Then money included demand deposits at commercial banks. Then money included time and savings deposits at commercial banks and thrift institutions. Then money included retail money market accounts. As we move into the shadow banking system, we get all sorts of questions about quasi-monies. (See my post "Money Market Mutual Funds and Shadow Banking")
Now, we have prepaid debit cards. And, how are you going to account for mobile devices that are loaded with funds to spend? And, so on, and so forth.
What should the Federal Reserve control and target? How does the Federal Reserve operate in such a world? Can the Federal Reserve restrain any amount of credit creation within a world that basically can expand credit without limit? Is the Federal Reserve needed in such a world?
The Federal Reserve is just learning how to operate within this new world. It seems as if the old rules no longer apply. And, the monetary authorities look a little clumsy in the process. For us, I believe that we are just going to have to live with a lot more uncertainty with respect to monetary policy in the future. The Fed has a lot to learn in this new environment…and so do we.
Mr. Russell stated, "I have no need or desire to go to a regular bank!"
I don't either…do you?