By Patti Murphy
Prepaid debit cards ā€“ notably general-purpose reloadable (GPR) cards ā€“ are breathing new life into financial services, creating new market and revenue opportunities. It's not apt to be clear sailing going forward, however. Banks and nonbanks in the prepaid card industry face plenty of potential obstacles, like burdensome regulations, how to reach the financially undereducated and the work it will take to propagate consumer-friendly pricing models.
This was a key message from two industry events in June 2012: the Network Branded Prepaid Card Association's first-ever Annual Congress and the 7th Annual Unberbanked Financial Services Forum, presented by the Center for Financial Services Innovation.
At the opening session of the Underbanked Forum, Stewart Stockdale, President of Global Consumer Financial Services ā€“ Executive Vice President at The Western Union Co., took on the pricing issue. "Reloadable prepaid will not take off because of the heavy fee schedules," he said. Unlike many similar products, Western Union's MasterCard prepaid debit card carries minimal fees, with no monthly or transaction fees, he noted.
Stockdale isn't alone in voicing concerns about pricing. Judith Rinearson, Partner in the law firm Bryan Cave LLP, told attendees at the NBPCA Congress, "There's a sense that consumers don't know about the fees or how costly these products are."
Meanwhile, the CFSI used the NBPCA Congress to unveil its Compass Guide to Prepaid, a set of "aspirational guidelines" for the design and delivery of prepaid debit cards. Two weeks later, the CFSI leveraged the Underbanked Forum to rally companies behind the campaign. "This is not a sign-on campaign," said Jennifer Tescher, CFSI President and Chief Executive Officer. "We want companies to take a public stand."
Several companies did just that, appearing on a panel with Romy Parzick, Manager, Innovation and Research at the CFSI, to discuss why they chose to make the commitments to the Compass Guide to Prepaid.
"The most important aspect of our business is building trust," said Patrice Peyret, CEO at prepaid card company Plastyc Inc. That's why Plastyc has posted what it calls an easy-to-understand fee box and consumer-oriented how-to videos on its website. "This is actually improving business for us," Peyret added.
Other prepaid companies that have made commitments to the CFSI's guidelines include Meta Financial Group Inc.'s Meta Payment Systems, NetSpend Holdings Inc. and Minnesota community banking group Sunrise Community Banks.
David Silberman, Associate Director, Research, Markets and Regulation at the Consumer Financial Protection Bureau, presented at both conferences. At the Underbanked Forum, Silberman said the new consumer watchdog agency is committed to "evidence-based regulation." He said that, from the CFPB's vantage, "consumer education and empowerment are inextricably intertwined."
In May 2012, the CFPB issued an advanced notice of proposed rulemaking in which it set forth options for federal oversight of GPR cards and gave interested parties until late July to submit comments. The bureau said its primary areas of concern in formulating prepaid card rules are fees, terms and disclosures, and Federal Deposit Insurance Corp. coverage of deposits to prepaid cards.
The NBPCA, which held its first Annual Congress two weeks after the notice went out, carved time out of its agenda for a special educational session to review the proposal with a team of lawyers and encourage those in attendance to participate actively in the rule-making process.
Terry Maher, Partner in the law firm Baird Holm LLP and the NBPCA's General Counsel, and Rinearson, who chairs the NBPCA's government relations committee, urged attendees to provide thoughtful responses to the CFPB, especially with regard to potential compliance costs. "This is one of those issues the CFPB needs to be aware of," she said. "The CFPB has asked us [for industry input] and it's on us now to respond."
GPR cards have been gaining significant attention in recent years, especially as banks and other financial services companies look for new, inexpensive ways to grow their bottom lines. At the NBPCA conference, Gail Cunningham, Vice President of Membership and Public Relations, National Foundation for Credit Counseling, stated that an estimated 35 million Americans have used prepaid debit cards in the past 12 months.
NFCC data also revealed that prepaid cards are not just for the unbanked. "Only one in four folks said they used prepaid cards because they had no other option," Cunningham said. In fact, a 2011 survey by the National Urban League revealed that 80 percent of prepaid cardholders have access to demand deposit (checking) accounts.
The numbers can be deceptive, however. According to Todd Zywicki, Senior Scholar at George Mason University, prepaid cards aren't very "sticky." In a presentation at the NBPCA Congress, Zywicki shared data suggesting GPR cards are four times more likely to be discarded than checking account-linked debit cards, and twice as likely to be discarded as credit cards. This data suggests plenty of opportunities exist to make prepaid cards more sticky with consumers and reap the benefits in the process. 
Patti Murphy is Senior Editor of The Green Sheet and President of ProScribes Inc. She is also the founder of InsideMicrofinance.com. Email her at patti@greensheet.com.
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