Regions Financial in Birmingham, Ala., has launched a new secured credit card aimed at consumers eager to repair damaged credit or build credit histories.
Similar to other secured cards, Regions’ new Explore Visa card requires users to deposit at least $250, but no more than $5,000, into a special linked savings account that essentially functions as a security deposit and a credit limit on the card.
Regions already offers a number of products and services geared toward underbanked consumers, including check cashing, small-dollar loans and prepaid cards, and many of those customers had been asking the bank to develop a credit card product as well, said Rajive Chadha, the head of retail products and payments at the $125 billion-asset Regions.
“Unfortunately, the way lending credit works, it takes a while for people to get to a situation where they have good credit if it’s already damaged or if they didn’t have credit already,” Chadha said. “This product we really see as a bridge to bring them into traditional products at some point in time. Strategically, that’s our intent.”
Rob Levy, managing director of the Center for Financial Services Innovation, said that nearly every major financial institution now offers a similar product — and some with several twists on the traditional secured card, like cash-back rewards.
“We think this moment is a particularly good one for secured cards coming into the market as more and more consumers are realizing they need to improve their credit and more and more banks are realizing this is a good way to get more customers in the door,” he said.
Regions already offers a line of banking products, called its Now Banking Solutions, specifically tailored to unbanked and underbanked consumers. That product suite includes a prepaid Visa debit card and a savings account with no minimum required balance, as well as check cashing, money orders, money transfers and bill payments offered in partnership with Western Union. The bank also offers secured loans and lines of credit to this customer base.
Once upon a time, it even offered a deposit advance product, but Regions, and several other banks in that business, discontinued that product amid regulatory scrutiny.
The new secured card carries an annual percentage rate of 23.74% and an annual fee of $29. Annual fees in the secured card marketplace can run between zero and $39, or sometimes more, and the APR typically ranges between 9% and 25%, according to a report from the Center for Financial Services Innovation.
Levy said secured cards provide obvious benefits to consumers, but noted that they aren’t necessarily big moneymakers for banks at the outset because customer acquisition costs can be high and returns on a card with such low credit limits are fairly modest. Banks’ hope, of course, is that the secured card customers will become more financially stable and eventually use more of their products and services.
“If you improve someone’s credit and improve their financial health, that customer loyalty just grows,” Levy said.