Viewpoint: Our Role in Helping People Manage Their Money Successfully (August 2013)

By Amir Wain, i2c Inc.

Every year right about now, a new crop of college freshmen descends on campuses across the globe. It’s an exciting time filled with many firsts, like frat parties, all-nighters and living outside of Mom and Dad’s watchful eyes. In addition to these fun first-time experiences, students also may be balancing a check book for the first time. Yikes—not so much fun! While any one of these “firsts” may land a student in hot water, the statistics clearly show that financial mismanagement poses a significant threat to many college students.

Consider these statistics:

• 38 percent of high school seniors say that they are unsure or unprepared for how to manage their own banking and personal finances (Capital One, 2011)

• 20 percent of first-year college students have bought something they knew they couldn’t afford (Everfi & Higher One, 2013)
• 60.1 percent of first-year college students say it’s OK to incur an overdraft fee if you know you can pay it back (Everfi & Higher One, 2013)
• 55 percent of first-year college students don’t understand their credit score may have an impact on their ability to get a job (Inceptia, 2013)
• 60 percent of first-year college students didn’t create a budget for the current school year (Inceptia, 2013)
• College students graduating in 2013 had an average of $3,000 racked up in credit card debt (Fidelity Investments, 2013)

College students are but one segment in need of financial management help. Indeed, it’s not just young people who struggle in this area. There are customers of all ages, races and incomes who need to watch their finances closely—each of them with a unique situation that can make staying on track difficult. The fact is, financial mismanagement isn’t just a problem for the inexperienced or financially illiterate. It’s an issue that impacts the goals and aspirations of a large swath of society.

This is a huge problem, especially considering the long-lasting negative effects debt and financial mismanagement can have on people’s lives. In my view, the financial services industry has, in large part, failed to come up with innovations to help its customers manage these financial challenges.

Some may argue that industry players are obligated to create value for shareholders instead of trying to solve what is essentially a social issue. These goals, however, don’t necessarily have to run counter to one another. One of my core beliefs is that we should focus on consumer needs when creating financial tools. As CEO of i2c, I’ve always focused our product development efforts in the belief that when consumers are presented with products that help solve their problems or add value to their lives, they will become more loyal, profitable customers. We have seen the results in the portfolios of our client base. Consumers will engage more, transact more and form a longer-lasting connection with our clients’ products if they are getting this value.

Where We Are Today

If you consider the most popular financial tools used today, you’ll see why I feel the financial services industry has failed consumers. First, we have credit cards, which effectively train people to spend money that isn’t theirs, making it very easy for them to overextend. Next are debit cards, which allow people to access only the funds in their bank accounts. But debit cards, at least in their current form, lack controls that can determine where and on what the money is spent. Also, most debit cards offer overdraft features, which are certainly not helpful to people in need of financial discipline.

There also are many budgeting tools and apps out there that aim to help people make better financial decisions but offer close to nothing in terms of tangible tools that assist people in changing their behavior. I love the theory behind them—and some of them do a great job of generating fancy charts and statistics—but the problem is that they take a retroactive approach. They tell me I went off track after I’ve already spent my money. In a way, they smirk at me suggesting, “I told you so.” What we really need is a way to prevent the financial mismanagement in the first place.

I believe we can do better.

I believe we are obligated as an industry to do better.

And I believe technology and innovation in payments can help bring about the change.

Tapping into Prepaid’s Capabilities

Prepaid has served as an enabler for many payment innovations and has moved commerce forward significantly. Its ability to bring about additional innovation depends directly on the prepaid processors and their ability to handle unique requirements and offer flexibility. Some established processors have struggled in this area and the result has had a stifling effect on innovation. I believe it’s time for the industry to once again innovate by embracing next-generation processing technology and creating new tools that help people improve their financial behavior. I say “behavior” because I see this as the problem with most financial tools: They don’t stop people from making bad financial moves.

One of the questions I asked my team last year was, “How can we help consumers when they are about to make a financial mistake?” Answering this question resulted in the creation of a new “actionable budgeting” module. It not only helps consumers create a budget by using different spending purses, it also helps them stick to it. The module prevents impulsive spending and actually enforces the budget by declining transactions that violate the financial plan.

The thing I love the most about our actionable budgeting solution is that customers can invite a “buddy,” or mentor, to help manage their accounts. The buddy can be notified when transactions outside of the financial plan are made, and they can even be asked to provide approval before the transactions are completed. Having a support structure like this is very valuable in helping people stick to their plans.

This budgeting tool is but one solution to the problem outlined above. Imagine what we can come up with if we, as an industry, give this problem the attention it deserves. The prepaid industry has brought about innovation before, and we can do it again.

Amir Wain is CEO of i2c Inc., a Silicon Valley-based payments processor. The i2c platform provides a complete infrastructure for next-generation payments and commerce through a single platform that can be deployed quickly anywhere in the world. He can be reached at [email protected].

In Viewpoints, prepaid and emerging payment professionals share their perspectives on the industry. Paybefore endeavors to present many points of view to offer readers new insights and information. The opinions expressed in Viewpoints are not necessarily those of Paybefore.