Credit unions are trying to join the prepaid card phenomenon by providing members lower fees than banks charge.
Mercator Advisory Group estimates that the amount of money loaded in 2012 onto prepaid cards will rise 44% from 2011, to $82 billion, after a 33% rise in 2011 from 2010. The group predicts an increase to $117 billion in 2013.
"Prepaid cards act as a credit union's foot in the door to some of the most important up-and-coming markets, including members of Generation Y and the underserved," wrote Miriam De Dios in a recent white paper.
De Dios is CEO of Coopera, an Iowa-based economic development firm focused on the emerging Hispanic market owned by Affiliates Management Company, the holding company of the Iowa Credit Union League. Coopera's reloadable prepaid Visa debit product, the Coopera Card, is promoted by card processor The Members Group, also a subsidiary of Affiliates Management Company.
Last week, The Members Group announced that it restructured the fee model for its ATIRAreload prepaid card program. It dropped the maximum monthly fee $2 to $2.95. Cardholders can waive the fee if they load at least $1,000 a month; there is also no monthly fee for cardholders with a zero balance. Nearly 50 financial institutions use TMG prepaid card programs.
Credit unions can afford lower fees because they have a different business model than conventional prepaid card marketers do, says Tim Sloane, Mercator's director of its prepaid advisory service.
"If you look at profitability, [with] a Green Dot or a NetSpend, it's almost 100% about the transactions," Sloane says. "For credit unions it's about the average profit over the lifetime of the customer."
Des Moines Metro Credit Union added Coopera's card in the first quarter of 2012, says the credit union's business development manager, Traci Stiles. She says she set a goal of 50 accounts for the year and has adjusted that to 100, as there were 75 cardholders by August.
Stiles says she was concerned at first with the $5.95 monthly maintenance fee, but says it's balanced by the no-fee loading and the ability to use the card to avoid overdraft fees, which cost members $28.
"I feel like as a credit union us saying to our members, 'We don't want you to overdraw your account. If you feel you need to use this card as a budgeting tool, here's an option,' " Stiles says. "Even though we would have the potential to make income off them, I think it's the credit union way to offer them an alternative so they're not being charged overdraft fees if they need help with budgeting."
There is one free U.S. ATM withdrawal per month with the card, the rest are $1; international ATM withdrawals are $2. Live customer service costs $1.50.
Coopera designed its card for use by Hispanics. It allows users to add a second account holder in their home country for transfers. It also provides bilingual customer service.
Applicants must provide a current government-issued ID, which can be issued by a foreign government. Because the prepaid account does not pay interest, members do not need to provide a taxpayer ID number. The card does not require a credit history.
Though the Hispanic membership of Stiles' credit union has risen from 1% to 9% in the past decade, she says Hispanics compose about half of her Coopera Card holders. Groups interested in prepaid reloadable debit cards include those who don't qualify for checking accounts, would like to segregate online spending from offline, and who need the budgeting help prepaid cards can provide, she says.