5 Hurdles an “Occupy”-Branded Banking Product Must Clear

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The news that an Occupy Wall Street-affiliated group wants to launch a prepaid debit card has generated some media chatter lately, mostly centered around whether or not an antiestablishment, anti-bank group can (or should) try to offer financial services. The more fundamental question to ask is: Can it succeed? There’s a lot of appeal to the idea of populist, alternative banking, but the barriers to entry — not to mention success — are high. 

The Occupy Money Cooperative says it plans to offer a prepaid debit card with low, clearly disclosed fees. “Our objective is to be either the lowest or among the lowest,” says Carne Ross, an Occupy Money board member and the group’s spokesperson. He says, “We’ll be very explicit,” when it comes to spelling how much the card costs to use and how people can avoid fees.

But Ross won’t provide specific details about how many fees the card will have and how much it will ultimately cost to use (other published reports have said that the card will cost 99 cents to buy or 99 cents per month to use). He also doesn’t provide a time frame, saying it depends on the speed at which fund-raising takes place.

(MORE: Should You Get a Prepaid Debit Card?)

Banking analyst Bert Ely says Occupy Money faces several challenges, ones which have tripped up other populist, power-to-the-people-type financial services offerings.

PerkStreet Financial is one cautionary tale. It launched five years ago and made a name for itself offering up to 2% cash back (later scaled back to 1%) on debit card purchases, but this largesse proved to be unsustainable. PerkStreet announced last week it will shut down next month and that customer accounts will be taken over by its partner banks.

“We tried to change banking, the most broken industry in the country, in the midst of a financial crisis. It was incredibly hard and we were ultimately unsuccessful,” CEO Dan O’Malley wrote in response to angry customer comments on a BostInno.com blog post. (TIME reached out to O’Malley, who confirmed the comments were made by him.)

Starting a business is never easy, but there are a handful of reasons why banking is especially daunting.

Start-up costs are high. Ross says Occupy Money is currently trying to raise what he characterizes as “several hundred thousand dollars” in start-up funding.

Occupy activists in San Francisco ran into problems raising enough money to get a proposed venture called the “People’s Reserve Credit Union” off the ground. “You really need to have a pool of money put together for anyone else with any money to take you seriously,” Brian McKeown told the Credit Union Times last month, characterizing the group’s progress as “stalled” due to lack of funds. “The challenge right now is really coming up with initial money.”

There are a ton of regulations. Prepaid cards are a fairly unregulated sector of the financial market (something consumer advocates have complained about), which makes the bar to entry a little lower for Occupy Money.  An article in The Nation says the cooperative eventually wants to be able to take deposits and make loans, but this would entail buying a bank or a credit union, since starting one from scratch would mean the group would have to get a federal or state charter.

When prepaid provider Green Dot decided to get into more conventional banking, it went out and bought a small bank for $15.7 million rather than try to build one from scratch.

You still need banks. Occupy Money will still need to depend on banks and a slew of middlemen for processing and clearing transactions, Ely points out. “They’ve got to find a way to access the payment system,” he says, saying this could be a “fatal challenge,” since the group will need to pay for this access. Bigger financial service companies have the clout to negotiate cheaper access (or they have lower costs because they own part of the digital “highway” the transactions travel along). Ross says he’s hopeful that the card’s costs will drop as its customer base grows, but the cooperative won’t have that kind of clout when it starts out.

(MORE: The Rise of the Alterna-Banks: 4 Options Beyond Traditional Banking)

Without fees, making money is hard. Yeah, the biggest banks are turning pre-recession profits, but a lot of that is due to the kind of customer fees Occupy Money eschews, or from divisions other than consumer banking.

Prepaid cards are generally exempt from the laws capping debit card interchange fees, which would be a possible good revenue stream. But since Occupy isn’t a bank, it’s going to have to share its cut of those fees with its partner institutions.

And having access to customer funds isn’t really lucrative these days, Ely says. “The float value of a prepaid card isn’t worth much today because of low-interest rate environment.”

Customers might not bite. Good intentions aren’t always enough, as PerkStreet’s O’Malley could tell you. Consumers might tell poll-takers they want certain features in a card or an account, but it’s hard to get people to change financial service providers, even when they don’t like the service they’re getting. Even the outrage over debit fees, Occupy Wall Street and “Bank Transfer Day” didn’t do much to move the needle, studies found.

“We don’t underestimate the difficulties. I don’t rule out the possibility of failure,” Ross says, but he’s still bullish on Occupy Money’s chances. “We’ve talked to a lot of people who think the business model of what we’re doing is pretty plausible,” he says. He also says the group has the support and participation of some current and former heavy hitters on Wall Street (some of which he won’t name because they’re still working in the industry Occupy is trying to subvert).

“With those brains on the job, we’ve got a better chance than others might,” he says.

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