Go-To Banking, Part 2

8 Oct

The expanding list of transportation options makes our multi-modal system stronger. All of these services should be lauded for its efforts. There is one catch, however. Each transportation service requires a debit or credit card as a payment option. For the 16.7 percent of Minnesotans who are unbanked or underbanked, debit and credit cards are out of reach.

The FDIC classifies unbanked as those people lacking any kind of deposit account at an insured depository institution such as a savings or checking account. Underbanked housholds have a bank account but also rely on Alternative Financial Services (AFS) like money orders, non-bank check cashing, payday loans, and prepaid debit cards. Each of these services exacts heavy fees, making these services more expensive than traditional banking.

While 16.7 percent of unbanked or underbanked households is too many people with too few options, it is the lowest percentage in the Upper Midwest (Wisconsin is at 18.7 percent). However, like so many of the great successes in Minnesota, there is a large disparity in who shares in that success. Whereas 14.8 percent of family households (as compared to non-family households) were without full banking services, 36.5 percent of households led by a single female were without full banking services. Of those making under $15,000 a year, 58.5 percent were fully banked. Only 39.5 percent of black households were fully banked, compared to 84.7 percent of white households. This is consistant with national disparities where 41.6 percent of black households are fully banked compared to 77 percent of white households. People across the county are working on different ways to give everyone access to banking options.

Chicago has come up with one solution to help those without banking services while serving its transportation mission. The Chicago Transit Authority (CTA) has switched to a new fare payment system called Ventra. Ventra operates similar to the Twin Cities’ Metro Transit Go-To card in that a person can buy long term passes and store funds. Its additional feature makes it different. The Ventra card also functions as a prepaid debit card, usable anywhere debit cards are accepted. This may seem like a large jump but in fact is just a continuation of previous services.

The fare cards preceding Ventra, Chicago Card and Go-To, also stored money for later use. The transit service restricted transactions to their proprietary transportation services but the principle of a financial exchange instrument is the same. Eliminating the payment restriction allows people to save money in their transit account just as they would in a traditional bank account. This change would allow those without banking access to the services traditionally accessed though bank accounts.

The transition in Chicago has been controversial, however. The CTA outsourced fare collection and the prepaid debit card system to the private company Ventra rather than keep it agency managed like the Chicago Card. The outsourcing has led to price increases similar to what was experienced when Chicago sold all city parking meters to investment firms. When Ventra took over fare collection for the CTA, single fare tickets increased from $2.25 to $3.00. The one-day pass jumped from $5.75 to $10, a 74% increase. The prepaid debit card is similarly riddled with high costs and hidden fees. Though it is free to activate, Walletnerd.com estimates using the card will cost $188 per year. This is more expensive than most other prepaid debit cards. This is a good reminder that outsourcing government isn’t better for citizens. It might look cheaper on paper, but only because costs are externalized, especially to those already struggling.

Minnesota can improve on Chicago by implementing the system though the Go-To card. Met Transit would expand the functionality of Go-To cards by letting them act as savings accounts. Public oversight from the Met Council would prevent the price gouging seen in Chicago, giving everyone the opportunity for affordable transactional instruments, creating more options for the unbanked and underbanked.

(Banking data from the FDIC 2011 National Survey of Unbanked and Underbanked Households)

 

This post first appeared at MN2020

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