by Sam Waltz
Leveraging their affinity card marketing expertise from credit cards to reloadable prepaid debit cards is a strategy two senior-level Delaware entrepreneurs are using to create a new national, perhaps global, banking company in the State’s suddenly hot FinTech sector.
“Charlie Cawley and MBNA did not invent credit cards,” said Jim Shanahan, CEO and founder of Prepaidian. “Rather, Charlie and MBNA invented marketing of credit cards through affinity groups, like nonprofits and membership organizations, to a new customer universe.”
“In the same way, Bob Brechter and I did not invent prepaid debit cards. They’ve been around for years,” Shanahan added.
“Rather, what Bob and I did is invent marketing of prepaid debit cards through affinity groups, and we’re enjoying ‘first-mover advantage’ in taking them into market segments other card issuers never have tapped into.”
And the two alums of strategic senior management at MBNA — the second level below Cawley — and before that at American Express admit that they’re “running the MBNA playbook on affinity group marketing in the new niche.”
“Charlie and the rest of the MBNA team ‘knocked the ball out of the park’ with the affinity group marketing of credit cards,” Brechter added. “Affinity group marketing of credit cards made multi-millionaires of hundreds of employees and investors.
“Our goals for Prepaidian are ambitious, although admittedly not quite as ambitious as what Charlie was able to achieve with MBNA.”
Prepaidian, which can be found at Prepaidian.com, is up and running, with a product, back office technology, and customers. Incorporated in 2013, and launched in 2014-15, it established “proof of concept” in 2015-16, and it’s in robust early-stage revenue flow less than three years after its creation.
“Right now, we’re seeking investor capital in the $2 million to $5 million range over the next six months to get this business scaled and dramatically expanded, leveraging our ‘first-mover advantage,’ ” said Shahahan. “Virtually all of that will go into branding, marketing and business development.”
“With that kind of investment, and the successful launch and expansion it will fuel, this company will be ready for acquisition by one of the big national or global financial services companies in three to five years at something in the $100 million range, perhaps more, according to what industry leaders tell us,” said Shanahan.
“We’re not operating with the 25-year horizon that Charlie Cawley used,” founding MBNA under Maryland Bank in 1982, taking it public with an IPO in 1991, and selling it for $35 billion in 2005 to Bank of America, settling the transaction in 2006, said Shanahan.
The market for Prepaidian seems already to be responding.
National organizations like USA Volleyball and the Second Amendment Foundation have been among the major players to add Prepaidian’s VISA-branded prepaid debit cards to their member benefits. Prepaidian launched its branded prepaid debit card programs with the Boys and Girls Clubs of Delaware and Goodwill Industries of Delaware and Delaware County.
Company founders and its agents already are in with discussion leaders and representatives of other national and major regional or local organizations, among them, minor league baseball.
“I’ve met these two guys, Shanahan and Brechter, and I’m familiar with their model,” said Charles S. Crawford of Clear Processing LLC in Leesburg, Va., a former senior payments executive at The Bancorp Bank, a major debit card bank headquartered in Wilmington. “It seems to me that these guys have the ‘secret sauce,’ and they’re doing what they need to do, and doing it well.”
“Maybe what was missing was the knowledge of two of the sous chefs who helped create the secret sauce that led to the credit card affinity issuing juggernaut to appreciate how big, and essential affinity marketing may be to the mainstreaming of prepaid card distribution in the future.”
Shanahan and Brechter, both 63, met in the 1970s at Columbia Business School where each was completing his MBA, and both worked for American Express. Later, Brechter worked for Merrill Lynch, for which he developed the industry’s first VISA Gold Card.
After relocating to Wilmington with MBNA in 1988, Shanahan helped bring Brechter, a New York native, to MBNA in 1989. Shanahan is a serial entrepreneur who subsequently built and sold another debit card company.
“Research shows that this is a huge U.S. market segment emerging and growing,” said Shanahan. “With $1.2 trillion in total market spending, debit cards own only 10 percent of that, about $122 billion, and that segment has a 20 percent growth rate. As we see a shift in preferences in the population, ranging from the millennials to the boomers, and beyond, from using credit to using debit cards, this segment will only grow.”
“Transferring funds to ‘load’ a card is as easy as an online electronic payment from a bank account or credit card, and, in addition, many other ways exist to ‘load’ a card, from Western Union to even 75,000 retailers, like Walgreen’s, 7-Eleven . . . and WalMart,” Shanahan said.
Industry research says most people load $250 to $500 at a time, and few keep balances greater than $1,000 or $1,500.
“People used to look at reloadable prepaid debit cards as a product for the ‘unbanked,’ people without checking accounts, but that’s changing virtually overnight,” Brechter said. “Yes, it’s true that a prepaid debit card effectively is like a checking account complete with the statements and ATM money access but without the checks. The prepaid debit card is also cheaper to use for most people than low-balance checking accounts.”
“In addition, important to millions of Americans, it puts the convenience of a VISA-branded card into the hands of people who would be unable to successfully navigate the credit-granting process,” Shanahan added.
Balances are FDIC-insured, he said, and transfers are permitted to other accounts, businesses, even individuals. Account application — which does not require checking a credit score — and approval is online. Brechter said the entire process is “mobile-centric,” in that most customers do account application, management, funding and review their statements via a smart phone.
“With 83 million millennials, plus 16 million in college and 14 million teens, the market for Prepaidian will just continue to grow,” said Shanahan, because these are people who feel passionately about the groups to which they belong, whether it’s an alumni group, a cycling or climbing group, an environmental or political cause, or something else.
“And those 113 million are on top of the 140 million ‘banked adults’ 34-64, many of them affluent Boomers, who already are familiar with debit cards and often are members of many groups that will market the Prepaidian debit card to them.”
Given the technology and banking industry components provided today by industry suppliers, Shanahan said that he does not expect Prepaidian ever will become the employer monolith that MBNA, First USA, JP Morgan Chase and others became. Rather, given its outsourcing
of a variety of functions, and depending on whether it handles customer service
in-house or as an outsourced function, it may ultimately employ hundreds of people, perhaps a thousand or so, he said.
Nevertheless, Buccini/Pollin Group developer and principal Chris Buccini in an industry overview Dec. 13 pointed to the growth of the FinTech sector in Wilmington as “one of the bright spots in our economic development. Within a radius of a few blocks downtown, you can count about 14 FinTech companies, and these are not companies run by kids in their 20s, but rather by experienced executives who are 45 to 60 years old, and older.”
It’s currently operated virtually, but Shanahan said he and Brechter hope to add a conventional but modest headquarters office when their first funding round is completed.