Brad Hanson: Vision with a Mission
By Marilyn Bochicchio, CEO
Brad Hanson, president of MetaBank and its payments division Meta Payment Systems, has a vision. It’s bringing financial inclusion and dignity to those who don’t have access to traditional banking systems.
And, he doesn’t care if you’re skeptical about a $1.9 billion asset bank from Storm Lake, Iowa, driving this initiative or if you think his motives are pure. He knows what he wants and says he’ll work toward that goal until it’s time to hand the baton off to someone else.
Well-known for the professional passion he brings to the payments industry, Hanson is equally well known for his theory-fueled analogies and a no-nonsense approach to getting things done. A 2009 Paybefore Industry Achievement Award winner and an original and current member of the Network Branded Prepaid Card Association board of directors, Hanson shared with Paybefore his vision for Meta and the industry.
Paybefore: What can you tell us about Meta’s commitment to prepaid these days?
Brad Hanson: We were one of the early prepaid pioneers, and our work has enabled a lot of business partners to execute their visions and bring solutions to the marketplace. And, we’re continuing to support the industry and grow with our partners.
We’ve been through a consent order that’s helped us understand what regulators are looking for in terms of bank participation in prepaid: an effective BSA and compliance program, along with significant oversight and control of any third parties involved. We’ve addressed the concerns raised in the order and implemented programs to effectively accommodate those concerns, including developing an effective framework to support our partners’ businesses and deliver valued products to consumers.
The MetaBank board has committed tens of millions of dollars to this effort, which is the kind of investment that’s necessary if you’re a bank planning to participate in this industry. And, we recognize the scale and volume that’s required for a bank to get a fair return on that size investment.
BH: From fall 2010 until Aug. 7, 2014, we weren’t able to add new program managers outside of our existing relationships or introduce new products and services without written non-objection from our regulator. It was like doing business with one arm tied behind our back. It was a difficult and frustrating time, but it gave us the opportunity to look at our platform and processes and make necessary changes that give us a really good foundation going forward. It was painful, but we’re better for it because now, I believe, we have one of the strongest, most robust platforms—if not the strongest and most robust—in the industry to build from going forward.
I’m also really proud of my team, our business partners and our board. Their cooperation, hard work and continual support made it possible for us to persevere through some very challenging times. I’m sure there were some who thought we wouldn’t make it. The fact that we’re still here speaks to the character of the great people I get to work with.
PAYBEFORE: MetaBank’s mission is financial inclusion for everyone. How do you approach that?
BH: Our approach is to focus on the consumers that many other banks overlook. It’s hard for most banks to get excited about consumer accounts that carry an average balance of only $100 or so, especially when those accounts bring so much potential regulatory and reputational risk with them.
Prepaid is a great starting point but not the final solution nor the only solution. For me, prepaid is more about the distribution channel than the product itself. And, prepaid is a great solution because it’s often more flexible and convenient than a traditional bank account. But, even though there’s a broad range of applications for prepaid, it’s a linear product that is single threaded through the consumer’s financial landscape: money on, money off.
Financial inclusion requires a range of products to address the breadth of consumers’ financial needs to help them gain financial dignity. Underserved consumers need a depository type of account—prepaid or otherwise. They need a fully functioning account that includes the features a bank account typically does, like bill pay and mobile deposit. They also need savings—and incentives that motivate them to save—and they need credit.
PAYBEFORE: Credit? Isn’t credit pretty much a dirty word when talking about financial services for the underserved?
BH: Credit isn’t a dirty word. Access to credit facilitates the growth of a community and increases the standard of living for everyone. There are legitimate uses of credit, and there are those better left unused. People need credit to buy homes and start businesses. And, sometimes, they even need credit when they’re in a pinch.
Banks can play an important role in offering responsible credit to the underserved. We can’t be dissuaded or acquiesce to critics who say differently. When consumers have a legitimate need for credit and can afford to pay it back, we should be there to provide it for them, regardless of what demographic or financial status they belong to.
Just like prepaid or any other bank product, however, extending credit has to be profitable for the bank and the bank has to be able to manage risk effectively. If you don’t make a profit, you won’t have investors to provide capital for the bank, and you might submit yourself to other kinds of regulatory scrutiny because you’re probably participating in some unsafe and unsound banking practices.
On the other hand, a bank doesn’t have to be abusive in its credit policies. We are trying to learn from past experiences and hope that going forward we’ll be able to build credit products that add value and serve consumers in a safe and sound manner.
PAYBEFORE: Like how?
PB? Like using credit as part of a holistic financial solution that helps people learn how to manage money and maintain a financial plan. We need to create budgeting tools that not only help people start a plan but also provide tangible ways for them to stay on track and execute their plan more easily; not just give them a book or a brochure, or a mobile account that tells them how much money they have. I want us to do more than just promote financial inclusion; I want us to become a trusted adviser to these consumers and to help our business partners do the same.
PAYBEFORE: Can a relatively small bank really make a difference, given the enormity of this problem and the potential cost of the solutions?
BH: We’ve been given a gift of knowledge and experience in how banking and payments systems work, and we’re lucky to work at a place where we can facilitate offering products and services that can help people. Even if people outside the industry are biased against us, I believe we have a responsibility to use our gifts to help people. We’re committed, tenacious and persistent, and we really believe we’re going to make a difference in the world.
Regarding Meta’s size, we can always hire more people, increase capital, sell more stock or grow in other strategic ways as more business comes to us, and we can expand along with the breadth of the business—and we have the interest and desire to do so. It doesn’t matter how big you are, everyone starts somewhere.
And, we won’t be working alone. You’ll see us pushing the envelope and driving competition, products and services to help us execute our mission. We’ll be taking initiatives on our own and through our business partners.
PAYBEFORE: You set great store by Meta’s partnerships.
BH: Partners are an important part of our business model, and we’re fortunate to work with the best business partners around. The funny thing is, establishing and maintaining good partnerships is one of the hardest things in this business. You need to look at every partnership as a journey. You can’t just get to the endpoint and be done. The steps in the relationship are a means to the end; everything is a step to something else.
PAYBEFORE: Explain, please.
BH: OK, for example, we distribute cards through some check cashers. And, today, people will say, “What! You’re working with check cashers?” My response is we’re working with check cashers so we have the chance to collaborate and provide better solutions to consumers who utilize this channel. It’s hard to reach people who use check cashers, to educate them and provide options, if we ourselves don’t have access to that channel. And, some of the check cashers know this too. Some people think the only answer is to legislate out questionable products and practices, but I think it’s more effective to compete them out. Unfortunately, we can’t always get it perfect on the first try; it’s an iterative process that takes time.
Another example is the relationships we have with our program managers. Our ability to stick together when the going gets tough and adapt to the changing regulatory environment is critical to our ability to succeed. It takes a lot of trust for us to point out deficiencies and weaknesses and for them to commit valuable time and resources to address them. We want to continually strengthen our relationships by contributing to their success and fighting hard to maintain our ability to support them. We truly need each other to reach our goals.
PAYBEFORE: We all know the entrepreneurial maxim, “Fail fast, fail often.” But, can a regulated industry, like banking and payments, really participate in product development that way—embracing failure and moving on?
BH: How the regulators look at an iterative process of product development in payments is an interesting question. But, look, if we’re going to get anywhere, there has to be a true iterative process. If all we do is stop and pull things down, there’s no innovation. And, we’re not going to get anywhere if we take the least-amount-of-improvement approach to avoid ruffling feathers.
I always say that I want to work for a mission-driven company that makes money, not a company whose mission is to make money. That’s why I think we should develop products that offer the greatest benefit and best value to the consumer, while taking into account the safety and soundness of the bank and generating a fair—not necessarily maximum—return to shareholders. Besides, I believe that will get us more customers too. It makes for happier, more engaged and purpose-driven employees and ultimately creates the most valuable company for our shareholders.
In my opinion, too many people have become hardened in their attitudes about the state of financial services for underserved consumers. Rather than working on solutions, I think too many people are focused on their position and have moved too far to the fringes. I hope they come to recognize our efforts to bridge the gap and find a place in the middle ground that seems to have been left barren. Wherever we are in that journey isn’t where we expect to end up.
I wish they would join us and help us find answers that actually work at scale instead of complaining about things that don’t. Consumers would benefit.
PAYBEFORE: At the heart of delivering beneficial financial products to the underserved is understanding what this market needs. How do you come to understand this market?
BH: Consumer groups and government agencies have done extensive work in this area, and we have our own experiences, as well, to gain understanding. This helps give some perspective, but we also need to recognize there’s no roadmap. It’s back to trial and error, the iterative process—like everything. We make our best guess based on common sense and the information available. But, if it doesn’t work like we intended or if consumers don’t take up what we offer, we have to go to the next round and try again until we get there. The key is staying disciplined and not getting so enamored of a business model or a certain financial return that you lose sight of your goals. It can happen easily if you’re not careful, especially when your competitors are doing it too. I think that’s why some people think the only solution is legislating you out.
PAYBEFORE: Wait, were you just channeling Elizabeth Warren?
BH: Interesting you say that. I don’t know about channeling but I have read both of her books. I think she has some really good ideas but there are also some things I disagree with. Her books helped me understand better where she’s coming from. For example, she spent time trying to talk some common sense and logic into the credit card industry, but she ran up against businesses trapped in models they couldn’t get out of without taking huge economic hits—like, not being able to eliminate certain fees, for example, or relying too heavily on certain practices that might not be so good for consumers. For some companies, it seemed like the morality of the issue had become based in the legality of the issue. Over time, I think she grew in her belief that to affect change, you have to force it—you have to regulate or legislate it out of the system.
This helped me realize the downside of holding on too hard or taking extreme positions. Sometimes, if you fear giving an inch because you’re afraid they’ll take a mile, you have to step back and consider whether that inch might be your greatest opportunity. And, if you’re too extreme, the reaction will be extreme, too. We have to eliminate the rhetoric on both sides and focus on bridging the gap that’s been created—economically, philosophically and politically.
PAYBEFORE: You’re not very happy with the current state of financial literacy education.
BH: I think the approach to financial literacy education is too fragmented. There are dozens or maybe even hundreds of groups trying to address this issue. And, each one seems to have its own approach or has written its own book on how to manage your finances or dig your way out of debt. But, you have to understand that controlling spending isn’t always that easy, especially when resources are tight. These people don’t want to read a book about how to build a budget. And, grassroots efforts are well-intentioned, but sitting down with someone weekly or monthly for a counselling session is costly and not scalable. Don’t get me wrong, I commend their efforts, but helping a few individuals or small groups can leave millions of others in the lurch.
We need more consistency and coordinated effort toward financial literacy education. We need more studies on cause and effect to find what really works and then apply those methods to systems and technology so they become scalable to reach the most consumers possible. And, we should start teaching it in our schools. Math, science and history are all important, but what can be more important than teaching kids how to manage their finances and make rational choices in today’s world so they have the best chance of becoming dignified participants in society?
If we can’t achieve nirvana, we should at least start working to leverage technology and provide tools that make it easier for more people to get there. That kind of alignment and consistency in financial literacy education would be helpful.
PAYBEFORE: We’ve been talking at a pretty high level about the evolution of payments. When are we going to see the products and services we’re discussing start rolling out of Meta?
BH: The roadmap is pretty soft because we’re being cautious about how we design, develop and deliver these products. We want consumer group and government agency input. And, our partners’ input, too. Their reactions will affect further design and timetables for implementation. But, I would hope you’ll start to see some interesting things emerge from Meta in 2015.
We’re very deliberate in our approach, because we don’t want to get ahead of our skis. But, we’re very persistent. I believe a lot of people really need the financial products we can deliver, and we have a responsibility to use our talent and knowledge to deliver products that increase financial dignity for those who don’t have it. That’s what I want to do with the rest of my career, and when I’m done, I hope I can hand the baton to others to carry our mission forward.
I believe we can do well by doing good.