The first version of the Compass Principles  is available for download from the Center for Financial Services Innovations’ website.

The principles apply generally to the design of consumer financial products intended to help people in their daily lives.

The first category of financial products to benefit from a detailed implementation of the Compass Principles will be prepaid card accounts.

Here are some of the specific items that my company, Plastyc,  will deploy during the next few quarters to implement the Principles:

• Make accounts easier to access with free full-featured Mobile Apps for Android phones ,  iPhones and Kindle Fire tablets, for consumers who may not have a fixed phone line and PC at home;
• Make accounts easier to open with automatic handling of soft-fails via add-on questions during enrollment, for consumers who may not have easy access to a photocopy and fax machine to send us copies of utility bills to prove their identity;
• Display product fees clearly with typical usage patterns inside a standardized “Fee Box“, to be transparent and reassure customers that we will not hit them with unexpected fees;
• Expand real-time communication with cardholders through mobile push notifications, to allow customers to always stay on top of their finances;
• Reduce time and cost of customer support through contextual interactive help, to avoid lengthy searches through solutions among  Frequently Asked Questions;
• Reduce time and cost of customer support through a collection of how-to-videos, to make learning about our services more fun and immediate;

I think that applying good product design principles pro-actively beats any kind of regulation. So kudos to the authors of the Compass Principles whitepaper.

The full report can be found here.

It contains a substantial section about how the under-banked population uses mobile phones to access financial services.

Just because people are un-banked or under-banked, does not mean that they are “unphoned”.

Mobile phone use is high among younger generations, minorities, and those with low levels of income—groups that are prone to be unbanked or underbanked.Mobile banking and mobile payments have the potential to expand financial access to the unbanked and underbanked by reducing transaction costs and increasing the accessibility of financial
products and services.

Although the report contains some contradictory numbers, it mentions that 91 percent of the underbanked have a mobile phone and 57 percent have a smartphone—rates far above those for the overall population.

As mentioned in an earlier post, we found that over 85% of the UPside Visa prepaid card users have a smartphone.
So we have just deployed a mobile banking application for both Android phones and iPhones.

Senator Charles Schumer of New York was at the initiative of a credit card disclosure law enacted in 1988, when he was a congressman, where all fees are grouped in a “Schumer box“. This has improved transparency quite a lot.
The Center for Financial Services Innovations is now preparing a similar “box” for prepaid cards. The final format of the box has not been published yet, as this is still work in progress.

Below is a sneak preview showing how we are “thinking inside the CFSI’s box” and preparing to follow their recommendations. This fee box is for our mainstream UPside card product.
Expect a few tweaks here and there as the model gets refined and finalized.

Prototype of the Fee Box for the UPside Visa Prepaid Card:

• 56.7% Android
• 24.2% iPhone

This penetration ratio is astounding. The technical team at Plastyc is getting itchy to release the applications we have prepared for both platforms.

Below is a sneak preview of the iPhone application:

Once released, anyone among the 80%+ with a smartphone will be able to manage the entirety of their account without touching a PC again.

This has been a year when financial woes have dominated the macro-economic news at the level of entire countries and even continents. Of course, individual consumers have suffered greatly, with the number of people in financial distress hitting records unseen in several decades.
In this dire context, protecting people’s money should be everyone’s priority in the financial services industry. Regrettably, many large banks and financial institutions have been featured on the front pages of newspapers because they have continued to protect their own money at the detriment of their customers. No wonder 2011 has seen a flurry of regulations intended to stem financial misdeeds: the implementation of the Dodd-Frank Act, the Durbin amendment, the birth of the Consumer Financial Protection Bureau.

At Plastyc, we were unaffected by this regulatory turmoil. Instead, the main additions to our service in 2011 were:

1. Allowing customers to reach a “Premium” level, similar to the frequent flyer status of certain airlines, where maintenance and support fees are waived, and where more cash back points are earned;
2. Issuing a free discount card for prescription drugs valid at tens of thousands of pharmacies to all our account holders;
3. Introducing a Rainy Day Reserve allowing people to save money automatically for emergencies or future purchases without having to open a separate savings account.

Here you have it: three different ways to save money. To be candid, our motivation and self-interest are to keep our customers longer. All three money-saving features foster a longer-term customer relationship, in a year when, for the first time, public campaigns were orchestrated to invite consumers to ditch their banks.

• read the fine print
• select a card with low or no monthly fee
• get direct deposit on the card to avoid trips to the check casher

Pretty Popular Prepaid Payment Cards: MyFoxHOUSTON.com

Consumers will gradually ditch their laptop or desktop computers in favor of smart phones and tablets to handle their everyday online activities. It turns out that the early adopters of smart phones are not only the young and the geeks. They are also people who find them more convenient and cheaper than PCs. Many of them have also disconnected their land-line phone for the same reason.

I surprised many of my industry peers in the past few weeks when I told them that 75% of the people who access their UPside Visa prepaid card account from their cell phone, do so from a smart phone. It is counter-intuitive that consumers with limited access to large banks would be equipped with the latest and greatest mobile phone technology.

Here is the proof. This is our mobile server logs, detailing what type of mobile browser has been used to access accounts from cell phone during the past 3 weeks:

• 49.6% Android browsers
• 24.1% Safari (i.e. iPhone) browsers

Most wireless network operators now offer an Android phone with their low-cost no-contract prepaid cellphone plans. Kudos to Metro PCS, Virgin Mobile, Cricket Wireless, Boost Wireless, Simple Mobile, T-Mobile, AT&T, Verizon and others for providing your customers with very good phones on prepaid plans.

The new iPhone prices announced by Apple on October 4 will also help increase their penetration among consumers who are usually considered to be late adopters.

This is a big change from only 18 months ago, when only 30% of our customers had a smartphone. Guess what? We are frantically working on a mobile banking smartphone application that will surpass anything available to the under-banked.

On a less grand but just as important scale is the Web’s role changing people’s everyday daily lives.  From researching medication to buying college textbooks, we do most tasks differently on the Internet.

As creators of Web services, we need to think carefully about how our services affect consumers’ overall wellbeing. A business model that provides a decent value proposition for customers and makes money for shareholders is fine. But it’s not enough. A service, even when used a lot, should cause no harm. Even more, a service should help make people’s lives better.

The need to do right is essential in my sector, online financial services, particularly when serving young or financially vulnerable customers. Offline, there’s a raft of businesses created to profit from people on the financial edge – lotteries, payday lenders and shady mortgage providers. When people use these services to an extreme, it hurts them.

Online startups, can do better.  But, how do you make money online and do right, especially with people who are broke? Here are some of the principles we keep in mind:

1. Charge only for value. Only charge for services that people value enough to explicitly choose to pay for. People value a movie enough to pay $2.99 to rent one. They do not value late fees and would not choose to pay them.
2. Align pricing with customers’ economics. Say a typical customer’s disposable income is $3,000 annually or $250 a month after normal expenses. What portion of that is fair and reasonable to pay for the value our service provided? Is the service pricing aligned with customer reality?
3. Drive behaviors in a positive way. Provide a meaningful incentive for a positive behavior rather than a fine for negative behavior.  Offer points, rewards, drawings and prizes. For example, in my industry, electronic payments, debit cards can make it easy to overspend. They also can make it easy to save by automating the process and providing rewards.
4. Transparency isn’t enough. Transparency is the nom du jour. But customers are busy. Most don’t read our fine print, blogs or even emails. If information is important, it’s up to us to get their attention and engage them, preferably right on the splash screen. Use widgets to take subscribers through objective pricing comparisons. Use videos to help explain any service changes that might otherwise confuse people. Techniques like these save on support costs and help increase customer satisfaction.
5. Add extras. Sometimes you can partner to add extra value for customers – and give them added reason to stay with you — without adding cost to your company.  For instance, at iBankup.com, we offer subscribers a card that provides meaningful discounts on medications at all major pharmacies in the U.S. at no cost to customers or our company.
6. Control costs. To keep customer costs down and service levels high, we have to invest where it matters most – in employees and technology — and otherwise run tight ships. Luckily, as engineers, that comes naturally.
7. Build relationships. We need to treat all customers as we do anyone with whom we have personal, long-term relationships. We should feel proud of the way our dad, college roommate or niece would experience our services on a daily basis.

These are just some of the factors to consider when creating Web services for the  90 percent of Americans, whose average income was $31,244 in 2008.  A few weeks ago, the Center for Financial Services Innovation published its version, called the Compass Principles and I’m sure there are others.

How about you? How do you think about building a business that goes beyond “do no evil” to “do right”?

“Patents suck”, said Google chairman Eric Schmidt at the Dreamforce conference on September 1. In fact, Google purchased Motorola mobility in large part for its trove of mobile phone related patents, as a “weapon of mass defense”, because patents have become a tool to obtain financial compensation from competitors largely unrelated to the original intent of providing inventors a period of exclusivity on their inventions.

In July, the radio show This American Life, had a great piece called “When Patents Attack!” about “patent trolls” in the Eastern District of Texas who have no other purpose in life than extracting protection money from companies with real businesses and products. Instead of threatening to set the business on fire, mafia-style, they sue regardless of the merits of the patents they have purchased (of course they have not invented anything themselves), and offer to settle out of court for large amounts of money. Patents have become the equivalent of cans of fuels and boxes of matches.

The financial industry has not been spared by patent trolls. Visa, Wells Fargo, MasterCard, Bank of America, Citibank, and many others have been sued for alleged infringement of patents related to digital currency systems that were never implemented by the owner of the patents and would make any software engineer roll on the floor laughing at their triviality.

In an intriguing twist, the America Invents Act is requesting that the Director of the US Patents and Trademarks Office put a transitional post-grant process in place for reviewing  the validity of covered business-method patents. The definition of “covered business-method patents” is explicitly narrowed down to:

A patent that claims a method or corresponding apparatus for performing data processing operations utilized in the practice, administration, or management of a financial product or service, except that the term shall not include patents for technological inventions.

Being no lawyer myself, I interpret the  goal of this post-grant review process as being a way to facilitate the debunking of dubious patents, or the defense against patent trolls. It is rather interesting that lawmakers have chosen financial products and services as the target for this transitional process. I guess that they placed a high priority on limiting the use of patents as a weapon against innovators trying to oil the wheel of a stalled economy.

I have been arguing that fees are usually fairly explicit and can be found on websites or on paper agreements sent by mail to account holders. Evidently, the current action by the State of Florida against a number of prepaid card providers shows that there is still some improvement to be made in the quality of disclosures. Nevertheless, the most important factor in the impact of fees tends to be forgotten: how will people actually use the product?

That’s why we have introduced recently an interactive fee calculator on the iBankUP website. The calculator allows people to specify how they intend to use our payment  service.

We ask 7 questions to our visitors:

1- how much $$ will you direct-deposit to the card every month?

2- how many cash deposits will you make per year (using a Green Dot MoneyPak)?

3- How many cash withdrawals will you make from ATMs every month?,

4- How many bills will you pay (i.e. by writing checks) per month?

5- How many PIN-based purchase transactions are you likely to do every month?

6- Are you accident-prone? How many times per year will you attempt to spend more than you have?

7- How often do you think you will need to call customer support and speak with an agent?

Once a visitor to the site has answered the seven questions, a simple press on the “Calculate” button will produce the total sum of fees that the user would incur during an entire year. Of course, we also show how much fees some of our competitors would have charged based on the same behavior.

You can try the calculator by clicking here.

We also explain the math behind the calculator in an accompanying document.

We sure hope that others in the industry will  do the same and publish their own calculators for all to see.