Prepaid cards have struggled against the perception that they are disposable and predatory. A card designed around the teachings of personal finance guru Suze Orman is aiming to break those stigmas — and may displace long-term banking relationships in the process.
Whereas most prepaid cards are focused around spending, the Approved card, which Orman announced Monday, allows the user to move money into six other buckets for long-term savings. It also provides continuous access to TransUnion credit reports for a year and encourages "sticky" banking habits such as online bill payment.
"For some consumers, prepaid cards represent an alternative to a traditional bank account," said Mark Schwanhausser, a senior analyst for Javelin Strategy and Research, in an email.
The long-term savings accounts are meant to accommodate an emergency fund for eight months of expenses — something Orman constantly urges her television audience to do.
The card might appeal to the so-called Gen Yers, people between the ages of 18 and 35, who are less committed to having a dedicated bank relationship because they don't like the fees and big account limits associated with such accounts, experts say.
About 43% of prepaid card users are Gen Yers, according to November 2010 survey by Aite Group. And nearly 40% of prepaid users who describe themselves as underbanked said they had used a prepaid card in the previous seven days, according to an October survey from Javelin.
"Younger people are not interested in traditional checking accounts, they don't write checks, and their need to write them has diminished, particularly with fees on checking accounts," says Patricia Sahm, managing director of Auriemma Consulting, of New York.
The card, which is a MasterCard Inc. product issued by Bancorp Bank of Wilmington, Del., also provides users with a dashboard for reviewing spending trends and setting up notifications and alerts.
The Approved card's pricing may also set it apart from other celebrity-endorsed cards. The infamous Kardashian Kard shut down after it was criticized for charging up to a year's worth of fees up-front, even though its monthly pricing was in line with mainstream prepaid cards.
In contrast to the Kardashian Kard, the Approved card is affiliated with a personality who represents financial responsibility, not excess, experts say. (Neither Suze Orman nor her representatives made themselves available to comment.)
"This is much better priced than trendier cards, such as the Rush Card," says Brian Riley, a research director in the bank cards practice at Towergroup, referring to the card offered by media mogul Russell Simmons' UniRush LLC. Representatives from UniRush did not respond to an interview request.
Though the Approved card's fees are low, it still has nearly two dozen of them. It is free to load for those who set up direct deposit, but it has an initial $3 purchase fee and a $3 monthly fee. It also charges for calling a live agent more than once a month, for receiving a paper statement and for issuing payments to billers by check. It also charges $30 for payment inquiries.
ATM withdrawals are free for consumers using machines on Cardtronics Inc.'s Allpoint network. For other ATMs, consumers pay $2 plus any fees from the ATM's owner.
Still, the pricing is impressive because it compares to Wal-Mart Stores Inc.'s card, which has much wider distribution and scale, says Bart Narter, senior vice president of Celent's banking group.
"I am impressed by [Orman's] ability to have such low pricing given her lack of volume currently," Narter says.
