Don't Blame Prepaid for the RushCard Glitches

The last two weeks have been trying times for many customers of RushCard. Starting in the middle of the night on Oct. 11, engineers and operators spread across multiple companies began a synchronized dance to transition RushCard accounts to a new technology vendor. In the course of their waltz, something — likely multiple things — went terribly, terribly wrong.

For customers, the nightmare was just beginning. Customers could not access their money for days, and in some cases weeks. The company acknowledged a myriad of problems, including inaccurate balances, duplicated transactions, rejected direct deposits, locked and deactivated cards — not to mention completely overwhelmed and ineffective call centers.

Yet while the debacle should lead to significant consumer improvements and has prompted questions about various prepaid cards, it should not undercut the progress prepaid has made in helping consumers manage their finances.

The RushCard glitches remind us just how critical financial products are in people's lives. At the core of our overall financial health is a well-functioning day-to-day financial system. That system supports our ability to be resilient and take advantage of opportunities in our lives. When the day-to-day system breaks down, everything suffers — and the long- and short-term consequences can be significant.

Our research indicates that 57% of this country is struggling financially, and it's not just individuals with low incomes. Many are living close to the edge, with little money saved and even less access to credit. The timing of our income and expenses is critical to making things work in our daily lives, which is why what happened with RushCard was so disruptive and painful.

One customer was reduced to looking for spare change in her couch cushions to scrape together enough money to buy gas so she could get to work. Another said she had to cancel her son's birthday party. Yet another couldn't feed her pets for three days. For these customers and others, all of their money was tied up with their prepaid card. There were no other alternatives.

The episode has reopened the debate over prepaid cards and whether they are a valuable financial tool for consumers. The questions have come from new corners and old alike. Are these good products or bad products, and how can we tell? Can consumers trust prepaid cards to perform?

In this age of technology, system failures are increasingly common in a range of industries. United Airlines suffered a computer outage this summer that grounded hundreds of passengers. Earlier this month, Google Drive stopped working for several hours, and users couldn't access their data. But when these glitches occur, we don't debate the merits of airline travel or cloud-based storage. We hold the companies accountable and let customers vote with their feet.

Prepaid debit cards have become a mainstream product used by millions of consumers of all ages, geographies, demographics and circumstances. As the category has matured, prepaid debit cards have improved dramatically. Low-fee and no-fee options have emerged. Accounts have been created with extensive feature sets that rival and even exceed the best checking accounts.

Instead of questioning the value of prepaid, we should be asking a different set of questions. How could this have happened? Which company or companies are responsible? What recourse should consumers have? What safeguards need to be in place to ensure consumers are never locked out of their accounts again? How might we reduce the complexity of the prepaid supply chain while simultaneously empowering the next wave of innovation?

These questions are critical because, increasingly, the infrastructure of prepaid is powering some of the most exciting new fintech platforms and products in the market, innovations that we never could have imagined coming from a checkbook. These innovations tackle spending, saving, borrowing, planning and more. They have the promise to dramatically change the way consumers understand and improve their financial health.

Regulators will likely take a harder look at the prepaid supply chain and press even more strongly on issuing banks for evidence of engaged oversight of third-party providers. Everyone involved will be looking hard at their contracts, and at the operating quality of their partners.

Prepaid debit cards and the underlying infrastructure on which they run are critical in building the products and experiences that will ultimately help solve the pressing day-to-day financial challenges faced by RushCard customers and others. Let's not waste time debating the merits of prepaid. Let's spend our energy ensuring the underlying systems and business practices are sound.

John Thompson (@johnwthompson) is senior vice president at the Center for Financial Services Innovation. Jennifer Tescher (@jentescher) is president and CEO of CFSI.