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THE BIG BANGA THEORY: Americans Ditch Credit Cards Stick It to Wall Street

By   Follow Me on Twitter     Message Chaz Valenza     Permalink
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An FTC investigation resulted in a Citigroup settlement for $215 million for predatory lending practices during Mr. Banga's tenure at CitiFinancial.   Then Banga was put in charge of Citigroup's North American retail banking including mortgages, student loans and car loans.   He denies having anything to do with Citigroup's problems with sub-prime financial derivatives, which precipitated the corporation's demise in 2008/9, saved only by the government bailout.

Until Banga's arrival, MasterCard was, according to industry analysts, a staid company and a reliable cash cow owned by a consortium of American banks.    Banga's style is $90 tasting menus, $70 - $300 bottles of wine and an executive directive giving approval to all department requests not acted upon by MasterCard headquarters within two weeks.   Well, that sort of oversight should give all of upper management plausible deniability.  

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How familiar does this sound?   What could possibly go wrong?  

Mr. Banga has said, "Cash is expensive. Cash is inefficient."   This is a pitch to governments, like our own, more than anyone else.   To people the cost of cash has already been expensed.   The fees and charges of electronic payments are additional.  

Statistically, cash is safer than any plastic, including debit cards, when identity theft is included.   You're more likely to get caught waiting behind someone paying with a check or having a plastic payment problem than some one paying with cash.   Plastic is convenient in that you don't have to carry cash but at a high price and that price is nearly impossible for users to determine.   One estimate calculated that credit card merchant fees cost an average family $600 a year in costs passed along in the price of the goods and services purchased.

When asked her assessment of the recent credit card reform, Gerri Detweiler said, "While it helped to stop abusive practices going forward, for some it didn't go far enough. It did nothing to help those with interest rates approaching 30%.

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Under the new Banga leadership MasterCard's stock has more than doubled in value.  

Only 15% of purchases made worldwide are done with plastic or some other form of electronic payment system that Mr. Banga hopes to make ubiquitous.   His reasoning is simple: about 3.5% revenue on each transaction, plus fees, plus usury interest rates.   But the ads make it look so glamorous, easy and, oh, those rewards!

Big Banga Trio: Banga, Bernanke & Geithner by Chaz Valenza

Why have so many Americans abandoned plastic?   We don't really know.   We also don't know how many people are using cash more often and plastic less, which is just as good a way to deny money to a financial system badly in need of real reform.

If people are starting to look more critically at their financial services purchases, the well heeled still too-big-to-fail corporations have the WMD option.   Don't choose to use our services?   We'll just make that illegal.

Hence the next financial battleground: national ID numbers to make it easier to have a mandatory cashless society.   From Current News India:

"Mumbai - October 18, 2010:  A day after the Indian government started a campaign to give identification numbers to all its 1.2 billion citizens, Ajay Banga, the newly minted chief executive of MasterCard, arrived in town, eager to lend a hand.

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"The program will identify people based on fingerprints and retina scans, and could make it easier for the government to route food stamps and other payments to people below the poverty line.

"Mr. Banga says he believes he has a simple way to process the payments: via the MasterCard network."

Are you afraid now?

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Chaz Valenza is writer and small business owner in New Jersey. He earned his MBA from New York University's Stern School of Business. His current feature film project is "Single Point Failure" an insider's account of how the Reagan Administration (more...)

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