Card.com CEO Ben Katz sat down in our Finetics™ Studio with PaymentEye's Sarah Gill, live from the exhibition floor at Money 20/20, to analyze the future of the banking and prepaid card industries.
Sarah Gill, Reporter: I am joined now by Ben Katz, CEO and founder of CARD.com. So maybe if we start at the beginning. Why did you decide to found CARD.com?
Ben Katz: Yes, we felt that consumers don't generally trust branch banks. The brands tend to stand for something that isn't really positive, on average. And we find that we can service customers for better and cheaper from the smartphone. They can take pictures of checks now. They can find free ATMs using a map on their screen. And so why not--why are we paying for that brick-and-mortar establishment that looks increasingly like a Borders bookstore or a Blockbuster video rental store or some other kind of antiquated architecture?
Sarah Gill, Reporter: Prepaid cards have actually been around for quite a long time, but it feels like now it's particularly gaining momentum. Would you agree with that? And if so, why is it now?
Ben Katz: Yes, kind of like 1.0 Prepaid was like Green Dot and NetSpend. They would go through physical distribution, and that was a great way to get the word out about the product that made a whole lot of sense, the same way Redbox was a really good substitute for Blockbuster Video. You could go rent a DVD at the retailer without having to go make a special trip to the video store.
Similarly, the advent of the smartphone has everything to do with this. Now that a person who drives a taxi has a smartphone, you can have Uber, right? You needed the person who's the driver to have the thing. Similarly, the wealthiest in the economy, frankly, are well serviced by banks and also were the first people to get smartphones.
But now that literally everyone in a developed nation has a smartphone--80% to 90%--that smartphone is the reason you don't need a branch, for two primary reasons. You can find free ATM locations, and you can take pictures of paper checks, which means you don't need a branch to deposit them. You know, so log into the app and check your balance. You can even open up another account for your spouse or for a family member, for example.
Sarah Gill, Reporter: What do you think the components that are now in place that mean the branchless banking is starting to take off?
Ben Katz: Yes, listen, I mean, we see it in our numbers. On a typical day, we're able to open well over 1,000 prepaid debit card accounts, which are hundreds and hundreds of those customers are direct depositing on a daily basis. So every day, we are opening hundreds and hundreds of direct deposit accounts. Cumulatively this month, we'll have over $30 million deposited from people's paychecks. So that's like on a run rate basis of like almost $400 million this year from people's paychecks.
So the more and more you see people direct depositing their paychecks onto the accounts, the more it is obvious that it's a full replacement for the branch.
Sarah Gill, Reporter: And why are you kind of personally excited about this model? Where do you see it going and how far along in that, in the development of the space do you think we are?
Ben Katz: Listen, until you see the number of branch banks getting halved and then halved again--so there's currently 90,000 branches. Branches account for 70% of customer acquisition into bank accounts, still, on a year-over-year basis. So until you see Netflix beating--Netflix Instant beating Blockbuster Video or the movie theaters, you know, you don't declare Netflix a winner. In our industry, if we went from 90,000 branches in the United States to maybe 40,000 branches in the United States, that feels like what success would look like, and I think we're nowhere near that.
The banks have tons of staying power. They have tons of great businesses. For banks, their business isn't actually consumers. Banks service hedge funds, banks service large corporates, banks service billionaires. We, together with, you know, other partners of Bancorp, are here to service the 99% of us who don't need an investment banker to IPO our company this year. And we can do it better because our specialty is taking care of that customer better than anyone.
Sarah Gill, Reporter: I mean, I think the potential is clear. How do you kind of balance that against maybe people using prepaid for less positive reasons? How do you know what people are using it for?
Ben Katz: Yes, sure. So the great thing about the 2.0 of prepaid versus the 1.0 of prepaid is that all of our customer origination is through the online channel. And more importantly, it's through the smartphone channel. And what's great about smartphones is, unlike, like, a government ID, which is very easy to clone or to get access to other people's information‑‑just a bunch of numbers, really--cloning a smartphone and having a unique address mapped to that is very difficult. And so we find that using technology and using the digital channel and then KYC-ing 100% of onboarded customers is a really good model.
The retailers tend to, like a Green Dot or a NetSpend, they tend to issue 100 cards, and maybe only one or two or three of those eventually KYC, so they have 97 people, 99 people out of 100, who they literally don't know using their cards, whereas issuers and originators and program managers online tend to be more restrictive and tend to make sure that, of course, that their Patriot Act compliant, OFAC compliant, and doing right by the customers as well.
I do worry that we're making it harder and harder for people at the lower end of the economy, people who are more recent to the country, immigrants and even refugees, making it harder and harder for them to get fair banking services. But I acknowledge that there is an important goal in controlling the flow of funds from dangerous uses, so it's a balancing act that the regulators have to take on and that we support.
Sarah Gill, Reporter: How do you look at it in terms of its maturity as a market? Do you think there's space for new entrants to come in, or do you think it's getting very crowded?
Ben Katz: Well, what I'd say is this is all about the--there's 90,000 branches in the United States. The top five banks only control about 30,000 of those. So there's 60,000 community banks that, frankly, are going to have a hard time surviving, the same way regional booksellers have not really succeeded after Amazon can drive you an entire warehouse full of books in one to 24 hours, right?
And so unless you're--if you're a community bank that isn't the best lender in your community, that doesn't specialize in farm lending because you're in a farming community, but that's just kind of surviving on consumer deposits from teachers and nurses, you're toast, because I can service the customer for 80% less, better. And I respect what the community banks do. I think that they've done important work for communities over time. But in--the reality is, I can service customers--CARD.com can service customers better from the cloud than they can locally. And centralization is, and kind of offering a national service is almost required for scale.
We have--on a typical day, we acquire more customers than would be acquired in most cities on a typical day by all the branches. And so when you start to think about that, regional branches really have a hard time competing.
Sarah Gill, Reporter: And I guess, finally, what are your predictions for next year? What do you think, or what would you like to see happening?
Ben Katz: Yes, my goal for our company is to do at least $1 billion in deposits for the year. We're well on track to hit those numbers, but got to keep doing it every day.
For the industry as a whole, I'm excited about, really, anything that pulls consumers out of kind of traditional High Street banks and traditional central banks, or even in community banks into a modern product that's, frankly, better, faster, and cheaper. And, you know, it's about accelerating that trend. So still, so I don't have any specific prediction, you know, like Bitcoin will go to $400 or something like that, but I know that customers are increasingly gaining trust. Every time a child is born or someone graduates from high school, a customer for a bank that looks like my solution rather than a bank that look like Chase's solution is born. And to me, that looks like a positive future for digital and direct-to-consumer banking.
The opinions, findings, or perspectives expressed in this content are those of the participants and do not reflect the official policy or position of The Bancorp, Inc., its affiliates, or its or their employees.