Visa Inc. and Chexar Networks Inc. are testing a mobile application that allows prepaid card users from multiple issuers to remotely deposit checks to their Visa prepaid accounts.
The technology allows consumers to deposit check funds by capturing a check's image through a phone's camera, and it has been a largely absent feature from prepaid card accounts even as it has spread among banks.
If it becomes standard for prepaid cards, remote check deposit could reduce prepaid account turnover as well as force brick and mortar check-cashing companies to adjust, says G. Michael Flores, CEO of financial institution consulting firm Bretton Woods Inc.
"It provides stickiness," says Flores. "The problem with prepaid cards from inception has been the churn of the product. People will buy it, use it for a period of time, throw it away and get another card."
If prepaid card marketers can add more services, their account "becomes the primary facility for that customer to use and avoids some of the churn issues," Flores says.
Chexar founder and CEO Drew Edwards says the prepaid card providers UniRush, AccountNow Inc., Plastyc Inc. and FSV Payment Systems Inc. will test the system by yearend. Edwards says he anticipates a March 2013 full launch of the remote deposit capability for new and existing prepaid cardholders with those companies.
Prepaid card users typically have different needs than bank account users when handling checks. Whereas bank customers are accustomed to waiting several days for funds to arrive in their accounts, the underbanked users of prepaid cards are accustomed to check-cashing stores that provide instant access to funds.
Thus, remote deposit systems designed for prepaid card users typically emphasize speed, sometimes with added security measures such as geo-location and random phone calls for verification.
At Plastyc, CEO Patrice Peyret predicts the check-deposit feature can attract consumers who have been on the fence, awaiting the feature. It may also increase revenue for his company, which makes money each time its card is used.
"When you increase the deposits in the account and increase the transactions that people do, people like us make more money," Peyret says.
Since banks have long advertised their ability to handle check deposits from a phone's camera, consumers are well aware of the feature. Adding it to prepaid cards closes the gap between prepaid card marketers and major banks.
"We believe strongly that this is a major, major deal," Peyret says, "particularly for us at Plastyc, where our goal is to provide a substitute for a checking account and keep people for a long time and be the hub of people's financial lives. This will bring prepaid closer to being a checking account substitute."
Chexar's Edwards says there will be a fee only for users that want to have the funds from a check available immediately. The fee is to cover the risk associated with immediate funding. The companies are still testing specific pricing, he says.
Whether the fees would be lower than those charged by check-cashing stores, Edwards says the ability to deposit a check from home is more convenient. The remote-deposit service will handle any type of check, and the immediate funds will be irreversible, meaning the user gets them even if there is a problem with the check, he says.
Underbanked consumers may have income from a variety of sources, Edwards says. They may have multiple jobs, as well as checks from insurance claims and child support, he says.
"They have a way of managing their finances that's built around walk-up bill pay and check-cashing services and if you can't change that and make it where they never have to go there again, then you're not making life easier for them," Edwards says. "What we're trying to give them is truly an at-your-breakfast-table solution where they can do everything they need to do with all of their checks. I think it will accelerate the demise of checks."