Implementation of the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 may significantly reduce banks' revenues from interchange fees on debit card transactions. Consequently, reloadable prepaid cards are poised for dramatic growth as an alternative to basic checking accounts, said management advisory firm Bretton Woods Inc. in an updated research paper.
According to Analysis of Reloadable Prepaid Cards in an Environment of Rising Consumer Banking Fees, the Durbin Amendment to Dodd-Frank is causing a sea change in banking. Banks are being forced to raise fees on checking accounts to offset the potential revenue shortfalls from lower interchange fees they can charge merchants on debit card payments.
In contrast, lowered card activation and other fees on reloadable prepaid cards, combined with added features like text message alerts and credit building tools, are causing consumer adoption of the cards to increase, the study said. The net effect is that reloadable prepaid cards are becoming more competitive with checking accounts and will continue to grow in popularity in the coming years, the report concluded.
The report cited statistics that compared what consumers can expect to pay annually for different financial products, based on similar usage patterns. Basic checking accounts cost between $218 and $314, while fees on general-purpose reloadable (GPR) prepaid cards range from $76 to $380 annually.
The report noted that GPR card costs would decrease after the first year by subtracting the initial card activation fee; additionally, card users that maintain the same cards will also help reduce annual costs.
Apparently banks are taking notice of these trends. Michael Flores, Bretton Woods' Chief Executive Officer and author of the study, told Selling Prepaid that several of its bank clients are eyeing prepaid cards as a way to "offload" their unprofitable checking account customers.
"They have an awful lot of single-service customers," Flores said. "They are low-balance, somewhat high activity. It's very unprofitable to maintain these accounts. So one of the ideas we're talking about is providing a reloadable prepaid card and still fulfilling their needs."
One scenario is for banks to notify such customers that, because they are raising fees on checking accounts, they are now offering the prepaid cards as an alternative. "They say, 'Well, you don't qualify for this product, but here's another product that will serve you just as well,' Flores said. "'It's FDIC insured, you have all the protection to dispute transactions, and treat it just like a regular debit card.'"
One area that begs for improvement among prepaid card issuers is in fee disclosures, according to the report. Bretton Woods agreed with a Consumers Union study that found fee disclosures by prepaid card issuers run the gamut from "intuitive to confusing."
As a model for offering consumers clear and concise disclosures, Bretton Woods highlighted GPR card issuer nFinanSe Inc., which displays on its website homepage the basic costs of its cards, with a detailed fee schedule only one click away. But nFinanSe is apparently the exception to the rule.
Flores said it takes two to three clicks to navigate to fee disclosures at many prepaid card companies' websites. "And so both of them [prepaid companies and banks] need to do better in terms of readily identifying their pricing," he said.
Another way companies can become more consumer friendly is by adding a calculator feature to websites so consumers can calculate and compare fee costs per card, Flores added.
The report can be obtained by contacting the Network Branded Prepaid Card Association at nbpca@nbpca.org. 
The report can be obtained by contacting the Network Branded Prepaid Card Association at nbpca@nbpca.org.
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