MONEY payday loans

Payday Loans Are Even Worse Than You Thought

ball and chain connected to businessman's legs
Getty Images

Nearly half of all payday loan customers defaulted within two years of their first loan, new research shows.

We already know a lot about the terrible impact payday loans have on borrowers.

For instance, the median payday borrower is in debt for 199 days out of the year, even though most loans are due after just two weeks. We also know the reason customers are in debt so long is because they can’t afford to pay off the loans in time, and are forced to take out new loans over and over again, with four out of five payday loans being rolled over or renewed within 14 days.

We even know that this cycle of debt means the typical payday user is on the hook for $458 in fees over the life of their loan—130% of the median loan size—and that more than half of payday loans are made to people who end up paying more in fees than they originally borrowed.

Now, a recent study from the Center for Responsible Lending, a non-profit focused on promoting fair lending practices, discovered nearly half of all payday loan customers defaulted within two years of their first loan. The study also found almost 50% of defaulters did so within their first two payday loans.

In order to collect this data, researchers tracked 1,065 people who took out their first payday loan in the last three months of 2011 for two years. Four out of ten of those borrowers defaulted in the first year, while 46% defaulted within two. One-third of those who were unable to pay their debt also experienced a subsequent default.

Payday defaults are particularly hard on borrowers because they tend to result in additional fees. Payday lenders generally ensure they are “first in line” to be paid by obtaining a post-dated check from customers or securing electronic access to the borrower’s bank account and initiating a transaction themselves when a loan is due. If the borrower does not have sufficient funds in their account when this transactions occurs, the CRL notes, they will have to pay a “non-sufficient funds” fee to the bank and to the lender.

Depending on the bank, the borrower may instead be charged an overdraft fee of about $35. The study refers to this as an “invisible” default because while the lender is technically paid on time, the account holder still has insufficient funds and faces additional costs. Using a year-long sample of transaction records, researchers found one in three borrowers made a payday loan payment on the same day they incurred an overdraft fee, suggesting an invisible default.

The study’s authors emphasize that defaults do not necessarily free borrowers from their debt. On the contrary, researchers found, two-thirds of defaulters eventually paid their loan balance back in full. About 40% of defaulters had a loan “charged off,” meaning it was 60 days overdue and generally written off as a loss for the lender. Researchers note those borrowers “can still face aggressive third-party debt collection tactics.”

The study concludes by strongly advocating a number of protections for payday users, including a 36% interest rate cap and a requirement that lenders look at borrowers’ income and expenses to determine they can repay their loan balance without re-borrowing. Last week, the federal Consumer Financial Protection Bureau outlined multiple proposals for regulating payday loans, including an “ability to repay” standard.

MORE:
Should I save or pay off debt?
I am unable to pay my debts. What can I do?

MONEY Taxes

3 Things the Government Could Do to Make Tax Filing Less Painful

Uncle Sam with life preserver
Peter Gridley—Getty Images

While filling out a 1040 form is never going to be fun, tax time is actually much harder than it has to be. Here are three common-sense ways the feds could make doing your taxes less burdensome.

It’s no secret tax season isn’t one of the more enjoyable parts of the year (even for accountants). To a certain extent, that’s understandable. Filing a return means scrounging through receipts, rounding up documents, and depending on your financial situation, forking over more money to Uncle Sam.

But while filling out a 1040 form is never going to be fun, tax time is actually much harder than it has to be. That’s mostly thanks to the federal government, which has been reluctant to apply multiple common-sense policies that would make everybody’s April a lot nicer. Here are three ways the feds could make taxes less burdensome:

1. Let the IRS Do People’s Taxes for Them

Imagine a world where, instead of filing your own taxes, the government estimates your taxes and refund based on information it already has from employers, banks, and other institutions, and then gives you a review copy to look over. If everything is accurate, the individual taxpayer can simply accept that result and—poof!—taxes are done.

This system, called “return-free filing,” is no fantasy. It’s actually the status quo in European countries like Iceland, Sweden, Spain, and is even available to residents of California.

Why haven’t you heard of it? One reason is that Intuit (the maker of TurboTax) and other firms that provide tax preparation services have lobbied against return-free filing. An investigation by ProPublica found that Intuit alone spent $11.5 million on federal lobbying over a five-year period.

Not all that money necessarily went to fighting this specific issue, but Intuit has listed its opposition to “IRS government tax preparation” on the company’s lobbying disclosure form. Intuit has also acknowledged that return-free filing poses a risk to its business on its annual 10k filing with the Securities and Exchange Commission.

Lobbying aside, return-free filing’s opponents do have some valid criticisms. Asking more of the IRS can always be a dicey proposition, especially when its funding is repeatedly slashed (more on that in a second). The system could also be more burdensome for employers, who would need to give the government employee information sooner than they already do. There’s also the fact that the government can’t estimate particularly complicated returns; anyone looking to itemize, for example, is out of luck.

That said, return-free filing would still make life significantly easier for a huge number of taxpayers. According to Roberton Williams of the Tax Policy Center, over 23 million returns in 2012 were filed using the simplest tax form, 1040EZ, and the IRS should be able to pre-calculate those returns with “nearly perfect accuracy.” Other forms are more complicated, but some estimates suggest close to half of all taxpayers could benefit from a return-free policy.

According to Dennis J. Ventry Jr., a professor at U.C. Davis School of Law specializing in tax policy, those Americans who have been able to test out return-free filing seem to like it. A lot.

He recalls that when California first allowed return-free filing through a pilot project known as “Ready Return,” users of the program became instant fans. “It was amazing,” says Ventry, who remembers the program’s website being flooded with positive comments. “People were like, ‘Oh my god, this is the best program the government ever offered.'”

2. Stop Return Fraud by Having Employers File Tax Information Earlier

If you’ve never had your tax refund stolen, count yourself lucky. Every year, criminals steal billions of dollars from the government—and citizens—by filing fraudulent tax documents using stolen identity information and absconding with the refund.

According to the Treasury Inspector General, 1.6 million taxpayers were hit by tax identity theft in the first half of 2013, resulting in the theft of $5.8 billion dollars in refund money. Return fraud was so prevalent last year that Turbotax temporarily stopped processing state tax returns while it implemented additional anti-theft measures.

But as pervasive as return fraud is, it’s not hard to figure out why the system is vulnerable. As of now, citizens file their taxes in April, and the IRS is required to send out refunds quickly, generally within three weeks. Yet employers don’t have to send their employees’ tax information to the government until months after it’s given to workers, and it doesn’t actually reach the IRS until July.

That means the government can’t cross-reference the information your employer provided with the tax return filed in your name until long after your refund has been sent out. By the time fraud is discovered, it’s too late.

As Vox‘s Timothy B. Lee points out, Nina Olson, the National Taxpayer Advocate, has spent years advocating for a simple solution to this problem: make employers file tax information earlier, and then match that information with individual returns before releasing any money. “Upfront matching would reduce the incidence of tax fraud, identity theft, and inadvertent errors while also providing significant taxpayer service,” wrote Olson in testimony presented to the Senate Committee on Finance.

Unfortunately, for this plan to work, Congress needs to pass a law that would bump up employer reporting deadlines, and so far, that hasn’t happened. Until it does, refund fraud will be easier than it should be.

Read next: How To Get Your Money Back If Your Tax Refund Is Stolen

3. Give the IRS More Money

It might sound weird to complain that the tax man isn’t getting enough money, but the truth is the IRS is deeply underfunded, and the people who pay the price are, ironically, honest citizens.

During the last five years, the IRS has had its budget slashed by $1.25 billion dollars, representing a 10% decrease in resources.

Over the same time period, the number of total tax returns increased by about 11%. As the graph below shows, that’s led to a serious decline in service.

Source: National Taxpayer Advocate

Before tax season began, Olson predicted the IRS would only be able to answer half of an estimated 100 million taxpayers who call the IRS seeking assistance. Those who do get through might have to wait as long as 30 minutes for help, and will only be able to ask questions on a limited number of issues. “If these projections prove accurate,” Olson noted, “taxpayers in 2015 will receive the worst levels of service since the IRS implemented its current performance measures in 2001.” (Here’s how to get help when the IRS won’t answer your call.)

The upshot of this is that honest taxpayers seeking help on their returns will go through hell trying to get answers, while anyone trying to cheat on their taxes will have an easier time. In a January email to employees, IRS Commissioner John Koskinen wrote that a reduced budget would cost the government $2 billion in revenue, in large part due to the agency’s diminished enforcement capacity.

Next time you wonder why taxes are so annoying, remember: it doesn’t have to be this way.

MONEY Inequality

New Research Shows Education Won’t Fix Inequality

differently scaled books
Max Oppenheim—Getty Images

A new study shows giving more Americans a college education will help lower-income groups, but won't do much to close the income gap.

There is a growing acknowledgement that inequality is one of the most pressing national issues. President Obama certainly feels that way. In his State of the Union Speech this past January, Obama focused his speech around the issue, framing the debate as a question about the future of America.

“Will we accept an economy where only a few of us do spectacularly well?” the President asked. “Or will we commit ourselves to an economy that generates rising incomes and chances for everyone who makes the effort?”

Obama made no secret of his own position, or that education was his preferred method of closing the gap between rich and poor. His address centered around a number of policies that would increase college access for lower-income Americans, including a $60 billion proposal to make community college free for all.

But is education really the solution to inequality that it’s often presented as? A new paper from the Hamilton Project, co-authored by former Treasury Secretary and former Harvard University president Lawrence Summers, argues that the answer is no. Instead, the researchers assert, policymakers tend to conflate two separate issues: helping lower-income Americans become more financially secure and decreasing inequality overall.

Increased educational attainment across lower-income brackets would indeed result in higher income and more economic security for vulnerable groups, the paper finds. But so much income is concentrated among America’s richest citizens that a modest increase in earnings at the bottom end of the income distribution will barely make a dent in overall inequality.

To reach this conclusion, Summers and his co-authors—Hamilton Project director Melissa Kearney and visiting fellow Brad Hershbein—created a simulation in which one out of every ten American men between the ages of 25 and 64 without a bachelor’s degree suddenly graduated from college. (The simulation was restricted to men because less-skilled males have seen particularly steep drops in employment, earnings, and college attainment.)

“To be clear, this would be a tremendous accomplishment,” the researchers note. Creating this many new graduates would be “only slightly less than the observed increase in the college share over the entire 34-year period of 1979 to 2013.”

The authors then randomly assigned each of the newly credentialed Americans an income based on the earnings of actual graduates, and adjusted for the reduced premium a college degree would offer if more workers obtained one. The results show income in the bottom 25th percentile would increase from $6,100 to $8,720, and median income would increase from $34,000 to $37,060, while those with higher incomes were hardly affected.

Despite this significant surge in the earnings—the above increase would be “enough to nearly erase the decline in median earnings between 1979 and 2013, and cut the decline at the 25th percentile by one-third,” according to the paper—inequality barely budged. Under the simulation’s conditions, the Gini coefficient, a metric for measuring income inequality, declined from 0.57 to 0.55. For comparison, the Gini coefficient for the U.S. in 1979 was 0.43.

“Overall earnings inequality would hardly change—and would not come close to 1979 levels—if the share of working-age men with a college degree were to increase by even a sizable margin,” add the authors.

Why does more education attainment have such a small effect? The researchers find that decreasing the portion of the population without a college degree primarily helps those in the bottom 25% of earnings, raising their wages relative to higher income groups. Meanwhile, this scenario would do little to decrease inequality in the top half of the earnings spectrum, where most of the nation’s income disparity is contained.

The authors are clear to note that better access to higher education, whether it reduces inequality or not, is still an important goal. “Our nation should aim to increase the educational attainment and, more generally, the skills of less-educated and lower-income individuals because in the long-run, this is almost surely the most effective and direct way to increase their economic security, reduce poverty, and expand upward mobility,” the paper concludes.

However, the group notes, fixing inequality and growing the salaries of the less-educated are not the same issue, and won’t be solved by the same policies. “These are distinct, albeit interrelated challenges,” the researchers explain, “and the public discourse would be much improved if it stopped conflating them.”

MONEY Saving

U.S. Savings Rate Hits Two-Year High

150330_INV_HighSavings
GK Hart/Vikki Hart—Getty Images

Americans are saving 5.8% of income, according to a new report.

Americans are saving a larger portion of their income than they have in two years, according to a new report from the Department of Commerce. The numbers show savings amounted to $768.6 billion in February, or 5.8% of total disposable income. The last time Americans had a higher savings rate was in December 2012, when individuals saved 10.5% of their disposable earnings.

The higher savings rate corresponds with a small drop in inflation-adjusted spending and suggests Americans continue to use the recent drop in gasoline prices as a chance to beef up their bank balances or pay down debt.

More savings and less spending could have a negative impact on the economy, which has already seen slower growth in recent months. But Americans are still socking away less money than they did during the recession and its aftermath, when the savings rate regularly hovered around 6% and above:

150330_INV_HighSavings2

Paul Ashworth, chief U.S. economist at Capital Economics in Toronto, told Reuters that while consumption is currently down, strong economic fundamentals suggest spending should pick up again as the year progresses.

“Households are still flush with the money saved from the big drop-off in gasoline prices and, with the labor market still on fire, incomes should continue to increase at a solid pace,” Ashworth said.

Read next: Why Many Middle-Class Households Are Outsaving the Wealthy

MONEY Debt

Federal Consumer Agency Proposes New Rules for Payday Loans

New rules could require payday lenders to verify that customers can afford to repay their debt before allowing them to take out a loan.

Payday loan borrowers may finally be in for some relief. On Thursday, the federal Consumer Financial Protection Bureau released the outlines of new proposals that would impose restrictions on various high-interest lending products, including payday loans, which the bureau defines as any credit product that requires consumers to repay the debt within 45 days.

The proposals also contain new rules for longer-term loans, such as installment loans and car title loans, where a lender either has access to a borrower’s bank account or paycheck, or holds an interest in their vehicle.

The CFPB’s actions come as high-interest lending products have been receiving increasing scrutiny for trapping low-income borrowers in a cycle of debt. Payday loans, which typically last around 14 days, or until the borrower is expected to get his or her next paycheck, technically charge relatively low fees over their original term. However, many payday borrowers cannot afford to pay back their debt in the required time frame and must “roll over” the previous loan into a new loan.

As a result, the median payday customer is in debt for 199 days a year, and more than half of payday loans are made to borrowers who end up paying more in interest than they originally borrowed. Longer-term auto-title loans and installment loans have been criticized for similarly locking consumers in debt.

In order to protect borrowers from falling into such “debt traps,” the CFPB’s proposals include two general strategies for regulating both short- and long-term high-interest loans. For payday loans, one “prevention” alternative would require lenders to use the borrower’s income, financial obligations, and borrowing history to ensure they had sufficient earnings to pay back the loan on time.

Any additional loans within two months of the first could only be given if the borrower’s finances had improved, and the total number of loans would be capped at three before a 60-day “cooling-off” period would be imposed. Payday shops would also have to verify consumers did not have any outstanding loans with any other lender.

A second “protection” alternative would not require payday lenders to ensure their customers could repay their loan without further borrowing, but instead imposes a series of restrictions on the lending process. For example, under this plan, all loans would be limited to 45 days and could not include more than one finance charge or a vehicle as collateral.

Additionally, lenders would have offer some way out of debt. One method could be a requirement to reduce the loan’s principal to zero over the course of three loans, so nothing more would be owed. Another option is a so-called “off-ramp” out of debt, which would either require loan shops to allow consumers to pay off debts over time without incurring further fees, or mandate that consumers not spend more than 90 days in debt on certain short-term loans in a 12-month period. The “protection” alternative would also include a 60-day cooling-off period after multiple loans and a ban on lending to any borrower with outstanding payday debt.

The bureau has proposed similar “prevention” and “protection” options for loans that exceed 45 days. The former would require similar vetting of a borrower’s finances before a loan is given. The latter would include a duration limit of six months and either limit the amount that could lent and cap interest rates at 28%, or mandate that loan payments take up a maximum of 5% of a borrower’s gross monthly income, in addition to other regulations.

Apart from new regulations on the loan products themselves, the CFPB also proposed new rules regarding collection. One regulation would require lenders to give borrowers advance notice before attempting to extract funds from their bank accounts. A second would attempt to limit borrowers’ bank fees by limiting the number of times a lender could attempt to collect money from an account unsuccessfully.

Before any of the any of these proposals can become a bind rule, the bureau says it will seek input from small lenders and other relevant stakeholders. Any proposals would then be opened to public comment before a final rule is released.

The Consumer Financial Association of America, a national organization representing short-term lenders, responded to the proposals by stressing the need to keep credit available to unbanked Americans, even while increasing consumer protections.

“CFSA welcomes the CFPB’s consideration of the payday loan industry and we are prepared to entertain reforms to payday lending that are focused on customers’ welfare and supported by real data,” said association CEO Dennis Shaul in a statement. But, Shaul added, “consumers thrive when they have more choices, not fewer, and any new regulations must keep this in mind.”

The Center for Responsible Lending, a nonprofit organization dedicated to fighting predatory lending practices, released a statement in general support of the CFPB’s proposals.

“The proposal endorses the principle that payday lenders be expected to do what responsible mortgage and other lenders already do: check a borrower’s ability to repay the loan on the terms it is given,” said Mike Calhoun, the center’s president. “This is a significant step that is long overdue and a profound change from current practice.”

However, Calhoun said, the “protection” options were grossly inadequate, calling them “an invitation to evasion.”

“If adopted in the final rule, they will undermine the ability to repay standard and strong state laws, which give consumers the best hope for the development of a market that offers access to fair and affordable credit,” Calhoun added. “We urge the consumer bureau to adopt its strong ability to repay standard without making it optional.”

According to the center, 21 states, including the District of Columbia, have significant protections against payday lending abuses. An interest-rate cap, which lending activists say is the most effective means to regulate payday lending, has been adopted by 15 states.

Earlier this month, MoneyMutual, a lead generator for payday loan products, was fined $2.1 million by the state of New York for advertising loan products with illegally high interest rates. According to New York law, unlicensed payday lenders cannot charge an interest rate over 16% per year, and licensed lenders are subject to a cap of 25%. MoneyMutual has acknowledged it advertised loans with an annual percentage rate between 261% and 1,304%.

 

MONEY Food

One Image That Shows Just How Insane the Kraft Heinz Empire Will Be

That's a lot of food.

Now you can buy your ketchup and Cheez Whiz from the same company.

On Wednesday, Kraft Foods Group and H.J. Heinz Co. announced they would merge to form the world’s fifth largest food company. In addition to creating a massive global food conglomerate, this combination will put an absurd number of household brands under the same roof. Below, we’ve compiled an image of all the brands the new Kraft Heinz Company will own.

If it seems like we’re missing a few Kraft staples, like Oreos, Ritz, and Tang, that’s because those products were consolidated into a new company, Mondelēz International, when Kraft spun off its snack business from its North American grocery business in 2012. Because of that spinoff, exactly who owns what is a little confusing. For example, both Kraft and Mondelez include Philadelphia cream cheese on their brand pages, possibly because of a royalty agreement between the two corporations. In compiling our image, we used any brand listed by Kraft or Heinz on their respective websites.

Heinz and Kraft brands
Money

Click here for the full-size image.

MONEY retirement planning

This Is the Best State for Retirement

Historic buildings on Lincoln Highway, West 16th Street in downtown Cheyenne, Wyoming
Ian Dagnall—Alamy Historic buildings on Lincoln Highway, West 16th Street in downtown Cheyenne, Wyoming

No, it's not Florida.

If you could choose any place in America to retire, which locale would be best? Florida perhaps? Or somewhere with a lot of culture, like New York or San Francisco? Not according to one new report, which finds the best U.S. state for retirees is…Wyoming.

According to Bankrate’s annual “Best and Worst States to Retire” ranking, released on March 23, the “Equality State” state is the best place for seniors to settle down. The ranking is based on six different factors—cost of living, crime rate, community well-being, health care quality, tax rate, and weather—and weights the importance of each using a national survey on what Americans value in retirement.

Arkansas comes in last, with poor marks in everything but living expenses, while Wyoming gets the crown for its top-10 low crime and good weather, low tax burden, and a cost of living and well-being scores in the top 20.

Wyoming’s biggest weak spot? Health care, where the state comes in a humble 37. Minnesota, the state ranked as has having the best healthcare in the country, is listed number 11 overall.

That might make some readers balk, but Chris Kahn, who has spearheaded the report for years, has become accustomed to criticism.

“I get a lot of letters saying this should be most important, that should be most important, there isn’t consensus there,” says Kahn. “I guess the one thing I’ve learned from all this is I’m never going to make a ranking that’s going to please everyone.”

Related: MONEY’s Best Places to Retire

If critics don’t like the list, they have only their fellow Americans to blame. Respondents to Bankrate’s survey ranked health care third on the list of retirement location priorities, behind crime and cost of living. In another surprise, more people (40%) said they would rather live near mountains, rivers, and other outdoor recreation than said they wanted access to a beach (25%), and only a quarter of respondents said being close to family was the most important factor in deciding where to retire.

“I consider this ranking a conversation starter,” says Kahn. “Don’t just go where you think you ought to go or where you had a good vacation. You should really be thinking about things like the cost of living, the health care system, the taxes—all that data is out there.”

Here’s the full list:

State Overall rank Cost of living Crime rate Community well-being Health care quality Tax rate Weather
Wyoming 1 19 5 20 37 1 8
Colorado 2 30 25 6 14 19 3
Utah 3 7 22 19 7 23 6
Idaho 4 3 2 27 21 27 7
Virginia 5 22 4 15 13 21 10
Iowa 6 11 12 4 5 22 39
Montana 7 27 19 8 24 13 9
South Dakota 8 26 11 31 15 3 29
Arizona 9 32 41 2 22 17 5
Nebraska 10 9 20 16 11 26 21
Minnesota 11 33 15 5 1 45 48
Maine 12 38 3 28 4 37 27
North Dakota 13 29 10 23 16 15 43
Kansas 14 10 32 13 25 25 17
Vermont 15 41 1 3 10 42 35
New Hampshire 16 39 7 17 6 7 49
Wisconsin 17 25 13 21 3 46 46
Massachusetts 18 43 21 22 2 40 11
Delaware 19 37 42 7 8 36 18
Michigan 20 18 29 14 17 30 45
Pennsylvania 21 34 16 36 23 41 22
Washington 22 36 36 9 19 24 40
Texas 23 14 38 37 41 4 23
North Carolina 24 28 33 30 30 34 19
South Carolina 25 24 48 26 35 (tie) 9 16
Illinois 26 21 24 32 32 38 36
Nevada 27 35 44 45 43 8 4
Florida 28 31 39 18 35 (tie) 20 28
Indiana 29 5 30 34 40 29 34
Tennessee 30 2 47 40 38 (tie) 6 24
California 31 46 31 10 34 47 2
Maryland 32 40 34 11 27 44 13
Georgia 33 15 35 33 42 16 20
Ohio 34 17 27 41 31 33 37
Alabama 35 12 43 35 33 10 41
Mississippi 36 1 23 44 47 11 42
New Mexico 37 13 50 38 48 14 1
Rhode Island 38 42 18 46 9 43 12
Connecticut 39 48 6 24 12 48 14
Oklahoma 40 4 40 29 49 12 26
Oregon 41 44 28 12 29 35 31
Missouri 42 16 37 39 38 (tie) 18 38
Kentucky 43 6 9 49 45 (tie) 28 33
Hawaii 44 50 26 1 20 31 32
New Jersey 45 45 8 43 18 49 15
Louisiana 46 20 49 48 45 (tie) 5 44
West Virginia 47 23 14 50 50 32 47
Alaska 48 49 46 25 28 2 50
New York 49 47 17 42 26 50 25
Arkansas 50 8 45 47 44 39 30

Read next: The Complete Guide to Retiring Abroad

MONEY Odd Spending

How Much Do Street Musicians Make? More Than You Think

Brass band, Jackson Square, French Quarter
Kylie McLaughlin—Getty Images/Lonely Planet Image Brass band, Jackson Square, French Quarter

A San Francisco duo earns over $21 an hour busking on the street. But it's not quite as good a business as that number makes it seem.

Ever wonder how much people playing music on the street pull in? Speculate no longer.

Over at Priceonomics, Mark Sandusky, one half of the music duo The Dirty Little Blondes, has made his financials public. During 12.5 hours of performing, the pair made a total of $532, which works out to $21.22 per hour each.

Assuming a 40-hour work week, that’s an annual salary of $44,137. But before you quit your day job, know that even the pros can’t hit the streets and pull in that much cash every day. (And as the Sandusky notes, you’re not going to make any money if your music isn’t good.)

Sandusky has learned to pick his spots, performing on the streets of San Francisco, where the band is based, almost exclusively on Friday through Sunday and generally in the evening. The above revenue came over the course of an entire month, meaning any aspiring 9-to-5ers hoping for similar results are probably out of luck.

“It’s also not as if I can walk out on the street and make $21.22 an hour whenever I want,” the guitarist writes. “The big numbers all came between the hours of 5pm and 10pm on days before weekends or holidays. Even out of those 10 prime hours, we could only comfortably play 6 of them (3 a day) before our voices, fingers, and general energy level started to break down.”

How important is good timing? On their least lucrative Friday night, the Blondes made $98 in two hours. On their worst Monday afternoon, the group made just $3 in the same time period.

Sandusky recommends picking areas where your type of music is going to get the best reception, and cycling through multiple spots to make sure you don’t overstay your welcome. He’s not the only performer to discover the importance of location. Joshua Bell, the renowned violin soloist and conductor, tried busking in a busy Washington Metro station and was rewarded with only $32.

The Blondes‘ preferred venue? Next to a crosswalk, which grants at least 20 seconds of a captive audience.

Check out Sandusky’s entire post here.

MONEY payments

Facebook Will Lose Money on Mobile Payments—And Like It

Facebook on mobile phone
Anatolii Babii—Alamy

The payments business isn't very lucrative by itself, but Facebook has bigger plans.

This week Facebook became the umpteenth tech giant to enter the payments game, adding a feature to its messenger app that lets users send money the same way they would a send text. The move follows Snapchat, Apple, Samsung, and Google, all of whom announced new payment offerings over the past few months.

Digital transactions aren’t exactly a new idea, of course—Venmo launched in 2012, Google has let users send cash “attachments” since 2013, and Paypal was doing payments as far back as the 1990s.

But the flurry of new offerings suggests something’s afoot. What’s behind the sudden obsession with transferring cash?

If you’re thinking “Obviously, these companies all want to skim a little cash from every transaction in the universe and get even richer by doing so” you’re wrong—or at least mostly wrong.

The thing about running a payments service is that, even though a lot of money flows through your hands, it’s not easy to keep much for yourself. That’s because card-issuing banks, credit card companies, and other transfer services rely on minuscule transaction fees and turn a profit by doing so on a massive scale. “Making money on moving money requires volumes that are truly astounding,” says James Wester, a research director at IDC specializing in payments. “You have to move hundreds of billions of dollars and have millions and millions of transactions.”

So much so that many of the recent entrants in this business aren’t even trying to make money on transactions. Venmo, Square, and Snapchat don’t charge users a fee for sending funds and cover all the behind-the-scenes transaction fees themselves, which means they literally lose money on every transfer. (“They’re not generating revenue,” confirms Jordan McKee, a senior analyst at 451 Research.) Samsung, too, will forgo any fees on its own payment platform.

Due to its unique market power, Apple appears to be the exception to this rule, having convinced banks to share a cut of each Apple Pay transaction. But the fees will add up to a rounding error for the tech giant.

So if payments are a bad business, why does everyone want in?

The answer is that mobile payments are essentially a value-add that can make other products more desirable. Apple Pay was never meant to generate money but to help sell more iPhones.

The same logic applies to Facebook, and the company has been relatively open about how its payment service is primarily intended to make Messanger more popular. “We’re not building a payments business here,” Facebook’s payment product manager told TechCrunch. The goal is simply to make Messenger “more useful, expressive and delightful.”

Ditto for Snapchat, Samsung, et al, which “couldn’t care less about generating money off interchange,” says McKee. But by getting in the center of each transaction, he argues, their respective eco-systems become much “stickier” and thus better able to generate revenue other ways. “Once the consumer is comfortable using a particular payment network, you have other things you can then do,” explains Wester.

Those things could include getting data on how users spent their money, or even selling goods directly. Facebook already makes nearly $1 billion through e-commerce, and while most of that money comes from microtransactions in games like Candy Crush, the Times notes the company has been dabbling in a system that also lets merchants sell products on the Facebook platform.

That leaves just one more question: Why now? That is, why have all these companies pulled the trigger at the same moment? It may be that businesses have detected some kind of e-payments tipping point.

“I’ve been surprised it’s taken this long,” says Wester. “Now consumers are seeing the mobile device as part of their fiancial lives. We’ve reached the point where paying with your phone is completely normal, or normal to enough people.”

Your browser is out of date. Please update your browser at http://update.microsoft.com