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November 13, 2012
The Rule of 3, or Desperately Seeking Payment Products
Generally speaking, I have always believed in the "Rule of 3." When you're looking for something new—with your home, for example, or with your clothing style—try out three, and the obvious will likely emerge as a winner. When I had my design business and helped people pick products out for their homes, I never presented them with more than three options for any one product. If I did, sure enough they would get frustrated and become unlikely to make a confident decision.
When I changed career paths here at the Fed and entered the world of retail payments, I decided to look into some new payment products and services for my children. I am the mother of teenagers who are always asking for money, so my first goal was to provide them with a safe, easy, and secure way to have and spend money.
I began to research some products, and narrowed my choices down to three options to explore: gift cards, prepaid debit cards, and bank-issued debit cards. Immediately, I eliminated gift cards, which once depleted are usually not reloadable. I wanted this to be a lifestyle change, something that could be extended; therefore, I focused my research on option number 2, reloadable cards. I started at a local grocery store, where I stood looking in awe at the tower of choices I had before me. Most cards here cost $4.95 before you load money on them. A store clerk told me that a big-box retailer had the same products for $3, so off I went.
The first purchase was for my son. At the checkout, I asked the clerk to load $40 on the card. The clerk informed me that I could not use my credit card to fund a prepaid card—I needed cash, or a preprinted payroll or government check, or direct deposit from my paycheck, or a standard transfer from my bank that could take up to 13 days—and then I would be charged a fee.
This did not seem very user-friendly, especially since I do not carry an ATM card, nor do I frequent this big-box retailer often. But I was determined to try this new payment method, so I returned the next day and paid $3 to buy a $40 card. (I now know that this $3 fee is waived if you get your card online and that there is a reload fee of $3 and a monthly maintenance fee of $3.) This still seemed like a better option than a bank debit card. I registered the card online for my son (required for activation) and entered personal information like name, address, and social security number. I was not thrilled with that level of privacy loss—however, as the small print explained, "Federal law requires us to obtain, verify, and record information that identifies you when you open up this account." In addition, this is the only way I could get a refund if the card were lost or stolen, and that was one of my three preliminary requirements.
So I started looking for the actual custom card in the mail with my son's name on it. I waited two weeks—and no card. I reviewed the fine print included inside the package to discover that you must be over the age of 16 to buy and use this kind of card. This information was printed nowhere on the outside of the packaging. My son is 15, not even 16 yet. So, there will not be a custom card coming in the mail, and this temporary card I have will become useless once the balance falls to zero. Have I mentioned that there is a $3 monthly maintenance fee that applies after the tenth day you have the card? So far, I have paid $6 to lend him $40 on a card that is not reloadable.
This led me to option number 3, my bank, where I learned about student accounts that don't charge for bank-issued debit cards. And, for convenience, I can transfer funds from my checking account into the student account, which funds the debit card. Honestly, this was not my first choice, but it emerged as the safest, cheapest, and most convenient. I decided to use this opportunity to teach my kids about online banking, overdraft fees (because I am not linking the student account to my account), the importance of passwords, and balancing their (virtual) checkbooks.
This account has proven to be a wonderful tool, and my kids now look forward to logging in and checking their balances and confirming that their "payday" has been deposited upon completion of their agreed-upon chores. I can't wait to discover more opportunities of my new job here in the Forum!
By Michelle Castell, senior payments risk analyst in the Retail Payments Risk Forum at the Atlanta Fed
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Listed below are links to blogs that reference The Rule of 3, or Desperately Seeking Payment Products:
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- AdmiNISTering Passwords: New Conventional Wisdom
- Mobile Banking and Payments—What's Changed?
- Risk Mitigation Isn't Just for Banks
- The Simple Consider Three but Four is the Key
- As with Nuclear Disarmament, So with ACH: Trust, but Verify
- The Personal Cost of Fraud
- When Fraud Hits Home: Questioning Today’s Authentication Methods
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- account takeovers
- ATM fraud
- bank supervision
- banks and banking
- card networks
- check fraud
- consumer fraud
- consumer protection
- cross-border wires
- data security
- debit cards
- emerging payments
- financial services
- identity theft
- law enforcement
- mobile banking
- mobile money transfer
- mobile network operator (MNO)
- mobile payments
- money laundering
- money services business (MSB)
- online banking fraud
- payments risk
- payments study
- payments systems
- phone fraud
- remotely created checks
- risk management
- Section 1073
- social networks
- third-party service provider
- trusted service manager
- Unfair and Deceptive Acts and Practices (UDAP)
- wire transfer fraud
- workplace fraud