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mt_myke

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I've been trying to come up with the right way to post about this and finally decided to just go for it...apologies in advance if it's a bit sloppy and unfocused.

So my idea (more of an insight at this point) is that we're at a unique point in time where everyone - and I mean EVERYONE - has internet access on mobile devices, while at the same time the consumer finance system is getting LESS accessible. The experience that started me on all this...last December I was at a small Christmas gathering, where my friend was mucking around with her smartphone (given to her by her boss) for at least 2 hours, trying to get a specific song. She was wasting all kinds of time trying one cruddy music app after the next. I found the song as an MP3 download on Amazon in less than a minute, and it was only $2, which she had in her pocket. When I asked her why she didn't just get it from there, she said "I don't have a credit card...that's not going to work for me."

WHOA! Sledgehammer to the face time! So what's going on here?? We have a person who is gainfully employed, who has access to the internet on a modern mobile device, who has CASH IN HAND - but is EXCLUDED from the conventional payment system because she has a poor credit score and uses a credit union instead of a checking account.

After this experience I could not stop thinking about it. Two weeks later I read TMFL and all the pieces started falling into place. I came up with one way to solve this problem (I won't go into details here, might go to the Inside depending on replies here...) Searching online I found some similar things but none were aggressively being marketed as a real business, and the ones I tried did a horrible job. Opportunity!

As I said I won't go into the details of what I'm going to try first. It doesn't satisfy entry as a stand-alone business, as it could easily and quickly be done by others, and I also can't think of a way to monetize it effectively...just ads and of course that's a poor primary income generator. I do think it's a good way to pull in people and get them to keep coming to my site, and build a user base/community.

So there are two main aspects to this. The first is making payments on the internet, to purchase goods and services or just to pay bills. While there are many "wallets" coming out it seems none of them will solve this problem. They all ultimately require you to have a traditional credit card or checking account as source of funds. After discussing the problem more with my friend I discovered she had tried to get a PayPal account, only to find that it couldn't be funded from her credit union account.

Why not use a MC/Visa gift or prepaid card? The fees are extraordinary and you have to go to the store to refill them. $5 monthly service charge (so $60/year just to have the stupid thing), $5 for an ATM withdrawal (on top of the bank's fees, so you could easily pay $8 on a $20 withdrawal)...the list goes on. About the only thing you can do for free is have your paycheck go directly to the card. They are also confusing...some can't be used to make any online purchases, some can, some are one-time cards ready to go when you buy them, others must first be activated (and possibly approved), some can be refilled, some can't. Making a superior prepaid card is definitely on my list, but that's going to require funding, which in turn will require me to make something else first to prove to investors that I'm the pony they should bet on.

The second is short-term loans for small amounts of money. Microlending is something that's gotten a lot of attention in other countries but not much in the US. Peer-to-peer lending is a rapidly growing industry but nearly invisible to those not in it...I just discovered it myself on accident a few weeks ago. Meanwhile the traditional companies seem to be much more interested in making their proprietary "credit score" the mother of all rent-seeking activities rather than lending money to anyone who's not already overserved.

I'm going to cut it off here before it gets even more long and rambling. Please share your thoughts, opinions, and experiences. I'm especially interested to hear from anyone who's been involved with any of these activities (either traditional banking/credit cards or the new microfinance businesses) or has a background in banking or finance. I would not have a problem with running a site for several years with zero income, if it can then be sold (or somehow partner with) large lending companies interested in the user base and alternate history of credit-establishing activity built up over those years.

One final point. While talking to various people (especially the younger programmers who represent the people expected to create the next hot startup) I was stunned at the dislike, even outright hatred, of the group of people that represent my user/customer base. I was told that I'm an idiot, that I'm targeting useless lazy bums who'll never pay for anything, that anyone who can't or won't get a credit card is basically despicable human garbage. This is in complete contrast to the people I know and have talked to. I live in the sticks in Montana and have a day job at a call center. Most of the people there don't make much money and most of them don't have credit cards, because they don't qualify and/or because they distrust them. However they are honest hard-working people who have been continuously employed for years. They aren't degenerate "party people" blowing all their money on a good time, they're raising families and paying the bills. They just don't have good credit scores, because you have to use credit to raise your score, and if you don't have a good score you can't get credit...a vicious loop that excludes anyone not already in it, and rewards people for levering up as high as they can. It doesn't promote prudent behavior at all, as long as you can make the next payment your score keeps going up, even as the actual RISK keeps increasing. Meanwhile people who live within their means and don't make use of the system get a low score, and incrediously, this simple-minded single-number system means they are untrustworthy (seriously - I've had people tell me this!), immoral, bad drivers (another mind-blowing revelation from an insurance agent aquaintance - he said the only thing that really matters to insurers is your credit score, not driving history or DUIs or anything else). On a moral, human level I'm appalled at this situation. As a businessman, I smell an IMMENSE opportunity as a huge segment of society (60M people at least based on back-of-napkin math) is being excluded based on a completely flawed and broken methodology that's nevertheless being adopted ever more widely.

Ok definitely rambling now, let me know what you think!!
 

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Paleo

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I've been ranting against the credit score system for a long time and essentially dropped out of it years ago for the reason you describe-it's designed to make people into debt serfs. To get a "good" credit score you have to go into debt-in fact, one of the major factors that raise your score is whether you have a "mix" of debt, meaning mortgage plus car loan(s) plus student loans plus a couple of credit cards. They want compliant treadmillers who will reliably pay them interest every month.

It used to be rather shameful to be in personal debt other than a mortgage, now you're considered suspicious if you don't borrow money. This has to do with the financialization of the American economy that has occurred over the last 30 years and its effect on the culture which is too big a topic to get into here, suffice to say the Federal Reserve and the big banks have played a huge role in creating this culture of debt because it serves their interests.

I haven't borrowed any money from a bank in over a decade. I don't know what my credit score is and don't give a damn. I don't have a credit card. I use a combination of cash, a debit card,checks, money transfers from my bank account, Paypal, and a prepaid card to make purchases. I pay cash for used cars. If a can't pay cash for something I don't buy it until I can or I find a cheaper substitute. It's amazing how much less you spend when you do that. I get along fine- there's a work around for just about everything and it's not inconvenient at all.

For someone who wants to buy real estate, they may have to play the game, but most other people do not.

You should read up on digital currencies- they were developed in large part to cut out the banks control of the money supply and payment systems. bitcointalk.org. I'm an investor in digital currencies and believe they have a huge future
 

parkerscott

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Here is the first thing that came to my mind when I read this. All of the red tape you would have to go through to make an alternate source of the credit card or gift card.
 

3things

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I really like the idea of mobile carrier billing, it's ideally suited to digital products such as music, ebooks etc and is already quite widely used for in-app/in-game virtual currency purchases. Basically you can buy something within a couple of clicks, using only your cell number and the charge shows up on your bill or is debited from your pre-pay balance. It's a bit like premium sms billing, but rev split is a bit better [still really shitty compared to cc processing, but an improvement over prem. SMS], you can bill larger amounts [up to $30 in the US] and you don't need stuff like shortcodes etc etc.

The potential everywhere, particularly in developing markets, imho is huge [the purchase path is so simple]. Brazil, India, Africa, Eastern Europe, Asia, US, wherever - everyone has a cellphone, but not always a credit or debit card. Right now it's in its infancy with only a few billing gateways [a bit like Paypal was in the beginning, when it allowed you to accept a cc payment easily] but I can see it getting bigger/easier to implement in years to come.
 

Carny

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Do all the people you talked to that don't have credit cards also not have a bank account? I figure it would be hard to find a bank that didn't have a debit card with every checking account.

My point is you don't have to have a credit card for online purchases.
 

Nosferatu

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i understand the idea.

But what you're talking about is creating a completely new way of taking funds from a physical state, to a state that's liquid and transferable.

like @parkerscott pointed out, you have an ungodly amount of red tape before you.

What benefit is it to me, if i already have a checking account ? - why would i care? i pay stuff just fine.

Are there any benefits to signing up for this thing for the already billion people that have the standard checking or credit card?

Basically, you would be targeting people that are essentially, off the "financial grid"

I mean, i get it, but i don't personally see this happening. At least not here in the US. (IMHO)


Also, you should really speak to a banker about credit and credit scores -- at least here in NY, it's not impossible to get a line of credit if you know how.

My best guess is it varies from state to state. Anyway, the information isn't really hard to find.

I'd also be careful of who you base your assumptions on, some of the things you're saying don't make any sense to me. Like the credit thing for instance, and what your opinion of how OTHER people view people without credit, really is.

Anyway, the red tape, the politics involved, etc -- I'd love to see you prove me wrong though.

Good Luck.
 

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Interesting idea. In research for one of my ventures, I have learned that many of the poor, lower class, or side walkers do their banking at places like Ace Cash Express and payday loan places. They cash their checks there, they send their bill money from there etc. So many more people than one might think don't even have a legitimate bank account.

I think you are definitely on to something (need wise), but you need to be more clear on exactly what it is you plan to bring to the market. Keep us posted! Thread watched.
 

liquidglass

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I like that you're thinking and working on a solution to come up with an alternative for people so please don't think I'm raining on your parade.

It could be that I don't fully understand what you're attempting to do here but in my mind the solutions have been created and are easily accessible.
- Prepaid cards are huge right now because some people don't trust banks or have a great credit score
not all have high fees Greendot offers one with a $5 fee a month and walmart even has their own.
- Credit can be improved without going in debt if you have money for a secured credit card. So whatever you pay into the account initially is your credit limit. By paying off purchases in a timely fashion after getting the card your credit score will improve. (no credit score needed to start)

But like I said I may not fully understand your possible solution but I don't see a market or a possible NEW solution unless you're going to market the same product already on the market harder than it's currently being marketed.
 

tafy

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Sounds like bitcoin kinda already fixed this problem, now we just need more people to accept it
 

Kak

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What about things like this? https://www.bluebird.com

I always thought this shit was a solution without a problem, but apperantly people use this kind of stuff instead of banks...
 

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wadza

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Even if someone has bad credit, can't they still get a debit card (ie; debit visa or mastercard) linked to their normal account? Don't know about the US, but it's pretty much standard in Aus that you can have a visa or mastercard debit card that works exactly like a credit card (ie; you can pay online, use overseas, same fraud prevention/protection) except you're just spending the money in your account which means there's no interest, and it does not matter whether you have bad credit or not...

Does this exist in the US?
 

Jake

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So there are two main aspects to this. The first is making payments on the internet, to purchase goods and services or just to pay bills. While there are many "wallets" coming out it seems none of them will solve this problem.
Here's one

www.blockchain.info/wallet

Then if you'd like to spend at major retailers you can purchase mobile gift cards with www.gyft.com

The current system is being made redundant by a value transfer protocol. Plugging into it will alleviate most of the pains you're finding in finance. It's not the be-all-end-all solution to payments just yet but neither was the internet the solution to communication while it was in it's infancy.

I'd study bitcoin and the blockchain technology in-depth before moving forward on whatever it is that you're trying to do.
 

splok

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I really like the idea of mobile carrier billing

This sort of thing is really big in other countries. In the US, most of us think it's crazy not to have a credit/debit card, but those things aren't as common in many other places. OP should go and research non-card payment methods in other countries. It may be possible to emulate some of their methods here.

Also, there's a lot of negativity in this thread. It does seem crazy that any reasonable percentage of Americans don't have access to a credit/debit card, but that doesn't necessarily keep it from being true. We have to remember that everyone else hasn't led the same lives that we have. OP needs to do the legwork and find out what that percentage actually is of course, but just because it seems unreasonable, doesn't mean that it is. It's also worth considering that paying via mobile might be way less trouble than actually digging out a cc and typing a number in.

And ya, making a cc replacement is one hell of a mountain to climb, but the concept sounds like something VC's would be very interested in if someone could show a bit of traction.
 

mt_myke

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WOW!! Didn't expect to get this much of a response! I'll try to address everyone's points and also clear up some confusion.

First off, many posters are incredulous that there are even people without credit cards, let alone checking accounts. I can tell you from personal experience this is true. I live in Montana and most of the people at my day job do NOT have credit cards. Many of them don't have checking accounts either, instead preferring credit unions. I haven't figured out why credit unions are popular, but they are (I live in a town of around 8000 and two credit unions are headquartered there). Credit unions generally don't issue any kind of ATM card, and if they do they're not connected into the Visa/MC clearing network like checking ATM cards are. As for credit cards, there are all kinds of detailed statistics available online. I haven't done my due diligence to confirm this, but one source (that isn't hyping anything and seems legitimate) claims that 25% - one out of every four - adults in the US does not have any credit cards. The Bureau of Labor Statistics says there are 240M working-age adults in the US, so that's where I got my potential 60M market.

Second of all, I'm NOT trying to run in, guns blazing, and single-handedly replace the credit card system. Specifically my first plan is NOT to try issuing my own gift cards. As posters have pointed out that's a huge endeavor that will take substantial support, both financial and otherwise. I used the gift cards as an example of one payment method currently available that isn't working out very well, and why it's not working out.

The "action item" I have is a web site that addresses the payment/loan problem in one way that I think is clever and I haven't seen done. I'm not going to go into details here, having read the ghillie drama. I will probably post a progress thread on the Inside in a few weeks, when I have an initial prototype online for people to check out. However, I don't believe this is a service that can be directly monetized - if people have to pay (much) for it they won't use it, like many other internet based services. On the other hand it's a service that people would probably use many times, building up a history that can then be used as one alternate to a traditional credit rating. That may sound crazy but there's already alternate credit score services that generate a score based on what they can find out about you through social media and other web searches. My system would at least be based on actual transaction histories.

My plan right from the start would not be to make much (if any) money from this service directly, but instead from either selling the whole thing outright to someone who can monetize it (like an existing consumer financial services company) or by selling access/information to those companies. For example a lender specializing in high risk/subprime loans would find value in marketing to my users, especially if there's a history of payments they can use to gauge creditworthyness. Remember these are all people who have been excluded from the traditional consumer finance system, so their regular credit score isn't useful. As another example (again I'm not planning to do this right now but it's something I've contemplated) imagine if you could get pawn shops across the country to sign on to an integrated database, where they would submit transaction histories from their customers as well as have access to histories for clients new to their store. Get enough of these and through the magic of actuarial science you're able to come up with a reliable estimate of how likely someone is to pay back a small loan, based on the behavior of the entire sample set. Again the traditional credit score doesn't help you here, since these people aren't using credit.

@Paleo I'm in the same boat. In my youth I abused credit cards, finding myself with 4 cards and $18k of debt a year out of college. After I finally got out of that mess years later (and with much drama and getting scammed by the credit card companies) I went to all cash. Bought my last car with a wad of $100 bills. I do have a checking account with a Visa/MC linked ATM card, which I use to make online payments, although I'm going to switch to gift/prepaid cards because doing this is dangerous...unlike a credit card, if someone fraudulently wipes out your balance you're stuck until the bank concludes their investigation, which can take months. Finding such a card that doesn't have egregious fees will be my first challenge.

@parkerscott That's why I'm NOT going to start with doing my own gift/prepaid cards. This is something I would consider with the right partner, but it's not the kind of thing you can bootstrap yourself. I wasn't very clear about this in my original post and I confused a lot of people with it...the gift/prepaid card was just an example of what's not working out as an alternative for people without regular credit cards.

@nikiobicata Microlending is one thing I've looked at. However it's almost unknown in the US...people here don't believe that Americans need it, it's seen as something necessary only in "developing" countries. Notably right now there are only 18 requests for loans in the US on Kiva. Peer to peer lending is also an area of interest...anyone have experience with either of these?

@3things carrier-based billing could be a major solution. Of course it only works if the phone user is also the phone owner. Definitely something I need to look into. Carrier-based billing, like microlending, is something that's big in "developing" countries but strangely absent in the US.

@Carny Many of them have credit union accounts, which don't offer Visa/MC linked ATM cards (if they even offer any kind of ATM card at all). As I've mentioned above using a debit card for online purchases means your whole account can be wiped out and you have to wait for the bank's investigation to conclude before you get any money back, unlike a credit card where you lose at most $50 on your line of credit.

@Kak That is what I am trying to do now. As you said there is definitely a target market, and the facilities being used by that market (payday loans, pawn shops) could be improved upon, especially as these are pre-internet businesses. Compare to @Nosferatu's comment above yours, who has trouble believing there are many (if any) people who don't have credit cards and checking accounts. This is one reason why I'm very interested in doing this - most people don't seem to believe the target market even exists, whereas I believe it not only exists but is quite large - but now I need to come up with hard numbers from reliable sources to back that belief.

@liquidglass $5/mo is $60/yr, probably doesn't sound like much but you can get a new smartphone for $60 these days (admittedly carrier subsidized, so if you use it in wifi-only mode you're essentially cheating the carrier, but the point stands). I helped a woman I know get Greendot cards to send money to her son who was in prison. She spent hundreds just on those $5 fill fees. Also greendot has a confusing product offering...another friend once grabbed the first greendot card he saw, not paying attention, and it turned out to be a different greendot product that could only be used to fill up a paypal account. "Why don't people just use prepaid cards?" was my first question when starting to research this, and some of the answers are that the fees add up ($5/mo just to have the stupid card, $5 for each atm withdrawal, $5 to add money if it's not from a paycheck...and on and on...) and the product offerings are confusing. As for secured cards, it doesn't make much sense to lock up $500 in a secured card so you can buy a $2 song online (and again some, though not all, of these cards have outrageous fees, I've seen some that take over $200 from you just in initial fees, leaving less than $50 available on a $250 secured card). The kind of people who have $500 available to lock up in a secured card aren't the kind of people who would need the services I'm developing.

@tafy @Jake Bitcoin and other digital currencies are another whole thing entirely, and I haven't yet figured out a sane way to make them work for what I'm doing. When you bring currency exchange into the mix you're taking on exposure to rate risk (along with other types of risk), and digital currencies are notoriously volatile. No one's going to be happy to find their Montana Myke Virtual Bank account lost 40% of its value in dollars in a few days because some currency exchange they never heard of blew up, or worse, all their funds are frozen because of emergency laws passed in response to that event. I'm trying to stick with one monstrously difficult problem at a time :)

@Kak Thanks for the bluebird link, I need to look at this more closely but it seems to be in-line with my thinking. Can't remember where I read it but if you can't find any competitors it's a very bad sign.

@wadza Yes but 1) at least in the US your ENTIRE checking account could be wiped out by a fraudster...you don't have the protections you do with a credit card, and some people say it's INSANE to ever link your checking account to online transactions this way, and 2) again in the US a type of consumer finance institution called a credit union is popular, and credit unions are pretty much "cash and carry"...you put cash in (in person, at the credit union) or take it out, and that's about it. If they have ATM cards at all they are strictly ATM cards and usually only work at that credit union's ATMs.

@splok From my research so far that number is 25%...one out of every four adult Americans has no credit cards at all. I agree that the reason some of the new services that have sprung up in "developing" countries are nearly nonexistent in the US is because of the mistaken belief that a rich "first world" country like the US has no need for such things - but that belief is wrong, hence the opportunity. It also used to be "common sense" that no one would pay for bottled water ("just turn on the faucet!") or $4 coffee ("I can make coffee at home for a MONTH for $4!"), but billions of dollars are being made on both nowadays.

This reply got really long, sorry! And THANKS for all the input, MUCH more than I ever expected. Just this one post has shown me that this is indeed worth investigating, due to the many replies generated (even, maybe especially, the ones who say "who would need it???")
 

mt_myke

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I've posted a progress thread:

https://www.thefastlaneforum.com/co...ange-how-you-think-about-money-forever.51861/

What I'm doing is somewhat different from the "typical" Fastlane approach, in particular, I've got an idea for a thing to build but no real monetization strategy yet. I need to learn a lot more about my customers before the dollars start flooding in. Actually I just realized I left off the most pertinent example of a "pivot" in that post - MJ said he didn't make much money on his limo web site until he switched to a leads-based model...a perfect example of a pivot.
 
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CheekyMiscer

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My first thought when reading was, who wants to buy a single song off amazon for $2? Especially when average joe who knows almost nothing about computers can just rip it off youtube.


Second thought was do you even bitcoin?

Not trying to poopoo it but you already seem to have a ton of methods, almost too many to choose from currently
 

Magik

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Interesting idea. In research for one of my ventures, I have learned that many of the poor, lower class, or side walkers do their banking at places like Ace Cash Express and payday loan places. They cash their checks there, they send their bill money from there etc. So many more people than one might think don't even have a legitimate bank account.

Yes, and the % of people without a bank account is growing, at least in the US. In my city, I have seen so many cash advance places opening up, it's insane. One of my current roommates has no bank account, and a former roommate didn't have one. Some people are against banks, but others are just irresponsible.

I had to ask around, because I didn't understand it. Often, what happens is the person overdrafts their checking account and doesn't pay the overdraft fees. When this happens, no bank will touch them.

My dad knows a used car dealer who owns a weekly pay car lot. He charges these people 18% interest and they come in and make a payment every week. Why do they agree to something that insane? Because they have no other options.

With all of the undocumented workers, plus the shrinking middle class, there is a lot of money to be made by catering to people at the bottom. Speaking of the US, with inflation at 3% (probably more like 4%-5%), fewer jobs, and growing consumer and government debt, the lower class will only get larger as the years wear on. There are people who agree with me and are taking steps to scaling businesses as we speak, and will be millionaires many times over as a result.

There are huge needs to be solved at the bottom, but in many cases, you'll have entry barriers due to licensing/regulations, capital, etc. Find a need, and move past the barriers as quick as you can.
 

mt_myke

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My first thought when reading was, who wants to buy a single song off amazon for $2? Especially when average joe who knows almost nothing about computers can just rip it off youtube.

In this specific example I watched my friend spend 2 hours downloading one crappy malware-ridden music app after another trying to find this song. I've bought specific songs from amazon numerous times, sometimes they aren't available on youtube. I have a youtube playlist assembled some years ago and have tracked down some of the many songs now showing up as "deleted" by googling their youtube ID to recover the original name, and they are no longer available on youtube at all. Once you get past pop songs that have charted it's often only a single uploader that has made a given song available, and when that's taken down (for whatever reason) it's gone off youtube for good. Even if it is available, youtube ripping isn't something readily available to non-technical people...still takes a geek to do it, even if it seems "really simple" it only takes one step that's harder than clicking a button to stymie normal users.

Second thought was do you even bitcoin?

Sorry, but bitcoin is basically nonexistent to normal people, other than some now-forgotten story on the news they saw last year when it was toying with the $1000 level. If they did learn about it then "Mt. Gox" is enough to scare them off ever using it.

Not trying to poopoo it but you already seem to have a ton of methods, almost too many to choose from currently

The song was just one example. For the general case of "I need to buy something online" you've listed exactly one, bitcoin, and although bitcoin is gaining momentum most places don't take it for payment.
 

mt_myke

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I had to ask around, because I didn't understand it. Often, what happens is the person overdrafts their checking account and doesn't pay the overdraft fees. When this happens, no bank will touch them.

Thanks for this. I think you've nailed not only the reason why many people don't have bank accounts, but why credit unions are so popular. I need to verify this but I strongly suspect the credit unions will let you open an account as long as you have cash in hand, whereas the banks (as you said) won't let you open an account if you still have money owed at another bank.

With all of the undocumented workers, plus the shrinking middle class, there is a lot of money to be made by catering to people at the bottom. Speaking of the US, with inflation at 3% (probably more like 4%-5%), fewer jobs, and growing consumer and government debt, the lower class will only get larger as the years wear on. There are people who agree with me and are taking steps to scaling businesses as we speak, and will be millionaires many times over as a result.

I'm not happy this is happening, but from a business perspective, you have to play the game you're given, and a massive increase in the lower class (as people drop from the middle to the bottom) is pretty much a sure-thing scenario at this point.
 

Bono

Contributor
Mar 15, 2015
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In the Netherlands we have "iDeal" as payment option. You choose the bank you use and log in with your username and password.
It's really easy no credit card needed, only a bank account and you don't have to pay any transaction costs
https://nl.wikipedia.org/wiki/IDEAL
 

Jesse Dallenbach

Contributor
Read Millionaire Fastlane
I've Read UNSCRIPTED
Speedway Pass
Jul 3, 2015
60
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Northern California, U.S.A.
"but is EXCLUDED from the conventional payment system because she has a poor credit score and uses a credit union instead of a checking account."

I am confused here I have a checking account and a Visa debit card through a credit union and I buy sh*t online with my card all the time...why can't she?

- Jesse
 
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