LA WATCHDOG--The Legislature is considering the establishment of BankCal that will provide no-fee debit cards to many unbanked and underbanked Californians.
Under the California Public Banking Option Act (AB 1177), BankCal clients will be able to pay bills electronically, including their rent, to have access to numerous ATMs, and to receive direct deposits from employers and government agencies. This will save BankCal customers considerable time and money because they will not have to rely on expensive services provided by nonbank check cashers, payday lenders, prepaid debit cards, and pawn shops.
BankCal is not a traditional bank that makes loans or extends credit. Rather, it is payment platform, similar to PayPal, Venmo, or Zelle. The underlying technology of these platforms is very robust and sophisticated and allows these apps to process a multitude of transactions every second of every day in a secure environment that prevents hackers from looting their customers’ accounts.
The State will need to develop a system that process all of the transactions in a secure environment. But this is where it gets really scary because the State of California has a terrible track record in developing sophisticated software because its information technology projects have a tendency to be way over budget and delayed, and then delayed some more. Witness the Department of Motor Vehicles, the Employment Development Department (the home of the $30 billion fraud), Fi$Cal (the State’s accounting system), and BrEZee (Department of Consumer Affairs). And no doubt there are many more projects that have cost taxpayers billions.
While there has been no mention of the costs to develop this platform, why would the State even begin to develop an expensive, robust payment platform when there is a high likelihood of major cost overruns and delays?
In addition to development costs, will BankCal be a drain on the State’s budget or will it be self-sustaining? According to an excellent article in the Los Angeles Times by Margot Roosevelt, “the bill’s authors estimate the program would cost the State up to $5 million a year for as long as six years or until 100,000 Californians have signed up. By that point, they say, it would be self-sustaining through merchant swipe fees from debit card purchases.”
But we have not seen any analysis to support this claim.
While the goals of BankCal to provide services to the unbanked and underbanked are noble, the costs and associated risks must be considered. Before enacting any legislation, Sacramento needs to develop a detailed feasibility study on how to achieve its goals and the related costs and risks. This may include developing and operating its own system or contracting with an independent third party (such as a bank or payment platform) that has the demonstrated capability to deliver timely service in a secure environment at a reasonable cost.
(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and is the Budget and DWP representative for the Greater Wilshire Neighborhood Council. He is a Neighborhood Council Budget Advocate. He can be reached at: email@example.com.)