Companies launching reloadable prepaid debit cards now have a general framework to follow to help make their products more consumer-friendly.
The Center for Financial Services Innovation on June 6 unveiled the Compass Guide to Prepaid, a 22-page guide to developing a high-quality prepaid card program.
The Chicago-based center developed the guide over several months with input from 18 prepaid card companies (download document).
Visa Inc., MasterCard Worldwide, American Express Co., Wal-Mart Stores Inc., Western Union, Green Dot Corp. and Plastyc were among those helping to shape the guide, which managers of new prepaid card programs may use to ensure the products stick to industry standards.
The guide offers general information on developing and applying best practices for prepaid card products, including card functionality, marketing and communications, customer service, pricing, and distribution.
What the guide does not provide are specifics on actual prices or services prepaid cards must offer.
For example, in addressing card fees, the guide suggests that "individual fees are affordable and designed to align profitability for the provider with success for the consumer."
Other examples of guidelines include holding the number of items on a prepaid card pricing schedule "to a minimum," making sure fees are set "in easy-to-remember amounts" and that pricing is designed "so that the consumer can easily choose which best fit their preferences and usage."
But the guide is not meant to be a strict template, Romy Parzick, manager of innovation and research at the nonprofit firm, tells PaymentsSource.
The organization believes providers should remain free to create specific value propositions for different types of customers.
"Customers who use these products are not a monolithic group; ... there is a spectrum of needs and desires," Parzick says. "Some will want a low-price, low-frills account. Others will want a more full-featured account. We believe if providers follow this guide, adhere to the compass principles, and customers have simple and transparent disclosures, customers will be equipped to make good choices amongst good products."
The regulatory ground is shifting around prepaid cards, and new rules that may shape prepaid card industry prices and services are forthcoming, Parzick notes.
The Consumer Financial Protection Bureau on May 22 said it plans to issue a rule to expand Regulation E consumer protections for prepaid cards (see story).
Numerous consumer-advocacy groups in recent months have exerted pressure on the bureau to look into prepaid cards and provide regulatory guidance to protect consumers against predatory pricing and other abuses (see story).
But many questions remain about how far the bureau can go in dictating practices for an industry that offers diverse products to a broad range of customer types (see story).
"We view this as a kind of 'Version 1.0' for prepaid cards," Parzick says. "This is a growing market with a lot of innovative technologies and features, and we expect that within the next two to three years we would need to revisit this, to update it for the new marketplace."
Analysts generally applaud the guide.
It will be a good tool for program managers and card issuers to benchmark best practices when selling, marketing and issuing prepaid cards, Madeline Aufseeser, a senior analyst with Aite Group, tells PaymentsSource.
But one problem with the guide is that it seems to gloss over some of the challenges, particularly on the regulatory front, when it comes to offering prepaid cards, Ben Jackson, a senior analyst with Mercator Advisory Group, tells PaymentsSource.
"More exploration into the feasibility of offering [card] features and how they might be structured for compliance would have been helpful," he says.
That the guide includes profitability as one of its guiding principles is a plus, "because if the program can't be sustained, it won't benefit cardholders for very long," he adds.
The guide is the first of a series of tools the organization plans to release that incorporate its "Compass Principles," a set of core guidelines for financial services products. Subsequent Compass guides will focus on other types of financial products, Parzick says.
The center plans to continue gathering input from the prepaid card industry for its latest guide, Parzick says.
"We want to open it up to all companies developing prepaid cards so that it can really reflect the best thinking in the industry," she says.
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