More banks are adding prepaid card programs, but lingering regulatory uncertainty is holding many back.
Banks that offer prepaid cards are doing so to reach out to underbanked consumers, but also as a strategy to serve creditworthy consumers that are leaning on prepaid cards as a way to control and manage day-to-day spending, analysts say.
So far mostly midsize and larger banks are adding new prepaid card programs in response to the market's growth — the percentage of U.S. consumers with prepaid cards rose to 13% in 2011, from 11% in 2010, and that growth is continuing this year as more low-income and underbanked consumers flock to prepaid cards, according to Javelin Strategy & Research.
JPMorgan Chase & Co. is the latest big bank to take the plunge, unveiling its Liquid prepaid card this summer. U.S. Bank, American Express Co. and Capital One Financial Corp. have offered reloadable prepaid cards for some time.
Wells Fargo & Co. and Bank of America Corp. notably do not have reloadable prepaid debit card programs.
Small issuers are considering prepaid card programs too. Some may see prepaid cards as a way of to address their customers' increasingly complex needs for managing cash flow, Prasad Iyer, a MasterCard vice president, said in an interview.
"Smaller issuers may find that adding a prepaid card is useful to give consumers another tool to manage spending at certain times, and it is important to remember that consumers' needs vary seasonally and as their circumstances change," Iyer says.
But certain issuers are avoiding prepaid cards, "primarily because of the regulatory and legislative confusion," Tim Sloane, a director with Mercator Advisory Group, said in an e-mail.
The level of uncertainty in the prepaid industry could cause them to sit on the fence indefinitely, he says.
As consumer advocacy groups this year began pressuring the Consumer Financial Protection Bureau to scrutinize the prepaid card industry, the bureau in May said it plans to extend certain regulatory protections to prepaid cards.
Other banks see no strategic benefit in offering prepaid cards.
"Not all banks should be in prepaid, at least not as the issuer and program manager," Sloane says.
The smaller the bank is, the more inclined it is to restrict product sales to its own bank branch outlets, which would hamper the success of a prepaid card program, Sloane says. An exception to that rule of thumb would be if a bank had significant corporate relationships, which could help drive marketing and distribution, he adds.
Fiserv Inc., which markets prepaid card programs to banks, says it is seeing stronger demand this year from mid-sized banks.
"We're seeing a lot of interest this year from banks that want to target younger adults, people who simply seem less interested in checking accounts as a financial services offering," Phil Valvardi, Fiserv's general manager for prepaid, said in an interview.
Fiserv last year acquired Maverick Network Solutions to beef up its prepaid card offerings and beginning this summer plans to integrate new features including mobile and remote check deposits to its existing prepaid card products, Valvardi says.
Fiserv is also expanding its reload network beyond Green Dot Corp. to include "many other reload network offerings," Valvardi says. This should help it meet any growing demand for prepaid cards across all types of financial institutions.
"Prepaid may not be the right fit for all banks, but we believe it is going to be a very strong, healthy market in the next few years as it evolves and for a certain segment of consumers, it will be a permanent product in the mix," Valvardi says.