DIGITAL BANKING TRACKERTM OCTOBER 2016 Do Prepaid Card Regulations Go Too Far? More than half of Americans have used a mobile banking service at least once in the last month Android Pay adds 44 banks in the U.S. and U.K. Mobile bank Tide debuts after raising more than £2 million in a seed round Acknowledgment Acknowledgment Sponsorship for the PYMNTS Digital Banking Tracker™ was provided by Urban FT. Urban FT has no editorial influence over the Tracker’s content. In addition, the methodology for Tracker supplier rankings was developed exclusively by the PYMNTS.com research and analytics team. The methodology, scoring and rankings are done exclusively by this team and without input or influence from the sponsoring organization. © 2016 PYMNTS.com all rights reserved 2 TM Digital Banking Tracker powered by Table of Contents 04 What’s Inside 05 Cover Story 09 Scoring Methodology 11 Top Power Rankings 15 Watch List – New Additions 16 News 20 Scorecard – B2C 50 Scorecard – B2B 74 About © 2016 PYMNTS.com all rights reserved 3 What’s Inside What’s Inside Banking is going mobile. According to a new study from the American Bankers Association, more than half of Americans have used a mobile device to check or manage their bank account at least once in the past month, and more than one-third check their bank account via mobile devices more than three times per month. As smartphones become a more crucial part of consumers’ financial lives, companies around the digital banking space are, in turn, rolling out improvements or upgrades to the security and financial features of their mobile apps. Here’s a snapshot of some notable news items from the last month: TD Bank Group recently launched a new mobile app designed to keep customers up-to-date with real-time offers and tips from the bank. The app, dubbed TD for Me, includes a “digital concierge” that will curate content and services based on a customer’s location and interest. Meanwhile, First National Bank of Pennsylvania, the largest subsidiary of F.N.B. Corporation, recently introduced a new upgrade to the FNB Direct mobile banking app. The update includes a new feature called CardGuard, which provides real-time control over how debit cards are used, along with enhanced protection against fraud and other features. Similarly, ING Netherlands announced that its customers would now be able to use the bank’s mobile app to send money via social media. Customers will now be able to create a payment request using the bank’s mobile app, which will generate a link that can be sent via WhatsApp, Facebook, Twitter, SMS or email. The increase in mobile banking usage is also causing companies to rethink their security needs. According to a press release from Lloyds, its customers, along with Halifax and the Bank of Scotland, will now be able to log in to their mobile banking accounts via fingerprint or thumbprint scans as part of the bank’s newbiometric login program, called Touch ID. As banks update their mobile apps, consumers without bank accounts recently acquired an updated set of protections from the Consumer Financial Protection Board (CFPB). For this month’s Tracker cover story, PYMNTS caught up with Brad Fauss, president and CEO of the Network Branded Prepaid Card Association about new regulations covering most prepaid debit cards (and more) from the CFPB. The Digital Banking Tracker October updates In this issue of the Tracker, we’ve profiled 98 players from the fintech and consumer banking spaces, including 10 additions to the Tracker: Atom Bank, Bankjoy, Eri Bancaire, Ffrees, imaginBank, ProActive, Oracle, Think Money Group, VirtusaPolaris and XCOM AG. © 2016 PYMNTS.com all rights reserved 4 Cover Story From a consumer perspective, it’s definitely “a step in the right direction, but it could also mean fewer products and innovation.” Do Prepaid Card Regulations Go Too Far? Prepaid cards are more popular in the United States than ever before. According to a 2015 report from the Pew Charitable Trusts, about 12 million people use prepaid cards at least once a month, approximately $65 billion was spent with these cards in 2012, more than double what was spent using the cards in 2009. With nearly 10 million households still without a traditional checking account, prepaid cards have become a fixture of the American economy. The cards—particularly general purpose reloadable (GPR), payroll and government benefits cards—are often used by unbanked or underserved consumers, many of whom are either not eligible for or do not want a traditional bank checking account. Although prepaid cards have long been subject to a host of state and federal regulations, and most issuers have voluntarily applied extensive consumer protections similar to those afforded to debit cards under Regulation E, until now there has not been a comprehensive federal rule applicable specifically to prepaid cards. In an effort to codify consumer protections for prepaid cards, the Consumer Financial Protection Bureau (CFPB) recently amended Regulation E. The nearly 1,700 pages of rule updates and explanatory information include requirements for financial institutions to disclose cardholder fees prior to acquisition, provide free transaction histories to cardholders for up to 24 months, provide error resolution rights and limitation of liability for cardholders, offer provisional credit for disputed transactions, post cardholder agreements to the bureau’s website, and offer credit card protections to those who use cards that allow overdrafts. © 2016 PYMNTS.com all rights reserved 5 Cover Story To find out more about the new rule, the bulk of which takes effect October 1, 2017, and what it means for the digital banks and financial institutions that issue prepaid cards, PYMNTS recently spoke with Brad Fauss, president and CEO of the Network Branded Prepaid Card Association (NBPCA). When PYMNTS caught up with Fauss, the CFPB regulations were freshly issued and he and his team were still working their way through the lengthy regulations. Fauss’ initial impression was that, while he believes reloadable prepaid cards used as primary transaction accounts by consumers should receive protections similar to those provided to checking accounts, the CFPB’s new rule may have gone too far due to the overly broad definition of prepaid account and the costly compliance requirements that could stifle the industry and hurt the consumers the regulations are designed to protect. “From a consumer perspective, it’s definitely a step in the right direction, but it could also mean fewer products and innovation,” Fauss said. “Consumers expect both checking accounts and reloadable prepaid cards to be treated the same. If these cards were treated just like checking accounts in the final rule, we’d be very happy, but in many cases, the rules for prepaid accounts are significantly more onerous than regular checking accounts.” Is prepaid too broadly defined? One of the biggest problems with the new rule is the broad definition of a prepaid account, Fauss said. He noted that the rule covers many of the more than 15 different types of prepaid card products in the market, including non-reloadable prepaid cards and other card products that consumers don’t rely on as their primary transaction account. “We thought the definition of prepaid account was too broad in the proposed rule, and we were disappointed that it was not scaled back,” ...in many cases, the Fauss said. “While we were encouraged by the additional carve-outs for prepaid cards issued for dependent care assistance, transit and parking rules for prepaid reimbursement, and disaster relief, we thought that the same rationale accounts are underlying these exceptions should have been extended to exclude all “ non-reloadable prepaid card products.” significantly more onerous than regular According to Fauss, because these varied types of cards are all included under one set of requirements, the rule often doesn’t fit well for every checking accounts.” product type. “I think [the new CFPB rule] may reduce the amount of offerings available in the market,” Fauss said. “There are some products that might not be able to withstand the increased costs of compliance and expected increase in fraud losses when provisional credit is required for products where there isn’t an ongoing relationship with the consumer.” © 2016 PYMNTS.com all rights reserved 6 Cover Story However, Fauss believes that it will be business as usual for providers of GPR, payroll cards and government benefits cards, which have been complying with existing Regulation E for years (in some cases voluntarily), once they are able to work out the kinks for the implementation of the numerous new requirements in the final rule. Overkill on the overdraft protections? One of the most anticipated pieces of the CFPB’s prepaid card ...if providers stop offering rule was the new overdraft protection it extends to consumers. overdraft features on Fauss noted that one of the product features that could prepaid cards or only make be materially affected is overdraft protection. The new “ rule subjects prepaid cards with overdraft features to the it available to a small requirements of Regulation Z, which are more onerous than the overdraft requirements applicable to checking accounts subset of their customers, under Regulation E. Fauss indicated that NBPCA member it could cause significant organizations are still analyzing the final rule to determine whether they will be able to still offer an overdraft feature issues for consumers...” on their prepaid card products or they will be forced to try to develop new products and services to serve this significant consumer need. According to Fauss, if providers stop offering overdraft features on prepaid cards or only make it available to a small subset of their customers, it could cause significant issues for consumers who rely on these features to fund necessities such as groceries or gas while they wait for their next paycheck.