Who Needs Cash? Trial Tests Prepaid-Card Issuance at the ATM

Larger banks may feel threatened by the string of new, aggressively priced prepaid cards, but a group of credit unions is attempting to instead embrace this trend by modifying their ATMs to sell fee-free stored-value cards.

Credit Union West, MariSol Federal Credit Union and Pinal County Federal Credit Union are testing a system for offering their members cards loaded with $25. The cards are purchased at ATMs and do not carry any fees during the test period, which will run at least through the second quarter.

The credit unions are working with a Mesa, Ariz., technology vendor, Better ATM Services Inc., which announced the tests Tuesday. Better ATM Services funded the upgrades to the credit unions' ATMs. It provides the cards and collects the interchange when they are used.

"If I were a banker, I'd be concerned," says Todd Nuttall, chief executive of Better ATM Services. "[A customer] comes to me for loans and for checks, but if [that customer] needs a prepaid card, they go down the street to Wal-Mart."

The Visa-branded prepaid cards more closely resemble transit cards than credit cards — they are printed on thin plastic, which is more easily dispensed by a machine. The cards come on a perforated sheet, which is about the size of a dollar bill and includes a coupon and customer service information.

Better ATM Services has been developing this project for five years, says Nuttall. The vendor launched at the 2006 Card Forum & Expo, a SourceMedia Inc. conference. (SourceMedia publishes American Banker.)

Within the next several months members will be able to request cards for denominations other than $25, says Robert MacGregor, president and chief executive off Credit Union West. The credit union is testing this system "to better serve our members," he says.

The current absence of fees on the cards is "a selling point," says Ben Jackson, a senior analyst in the prepaid advisory service at Mercator Advisory Group Inc. "That is a competitive advantage to get their customers to keep that money in-house."

Fees are a sensitive subject for prepaid cards, particularly since the uproar over the pricing of the celebrity-endorsed Kardashian Kard forced it to shut down almost as soon as it was launched in late 2010. The Kard, which charged $7.95 a month, required buyers to pay six to 12 months worth of fees up-front.

More recent products, such as the Approved card endorsed by finance guru Suze Orman, play up their lower fees. Orman's card, which launched Monday, has a $3 monthly fee, as does the aforementioned Wal-Mart card. A prepaid card American Express Co. introduced last year has almost no fees.

Those cards offer more functionality, such as the ability to reload funds. But the pricing of the credit unions' cards may not be enough to overcome a bigger hurdle: people go to ATMs because they don't want to use a card for their next purchase.

"When they go to the ATM, they are getting cash for something," says Jackson. "[These credit unions] are going to have to catch someone when they are in the mood to buy, and that's going to be a marketing task for them."

Though the technology currently serves just the credit unions' members, it can also be used to serve the unbanked by letting ATM users deposit cash to load cards.

"Cash-to-card [is] not a part of our pilot today, but it is part of our technology," Nuttall says. Better ATM Services may also add the ability to reload the cards. "So you can see where this can grow into a number of different products and services in the coming months and years," he says.

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