Celebrity Card Endorsements Can Be A Tough Act

Prepaid debit cards that come with celebrity endorsements over the years have showed little staying power while whipping up storm clouds of controversy.

Reality-show stars Kim and Khloe Kardashian, basketball hall of famer Magic Johnson and hip-hop music mogul Russell Simmons, among others, each had or has a prepaid debit card in the market.

Only Simmons' product remains despite claims he is bilking African American consumers with a fee structure critics view as unfair (see story).

But despite some shaky endorsements, alliances between celebrities and prepaid debit card providers continue.

In November, Rapper Lil Wayne's music recording label Young Money Entertainment launched a cobranded card with Discover Financial Services (see story). And champion boxer Manny Pacquiao is behind a Visa-branded prepaid debit card featuring a remittance service that the product's marketer primarily will promote to Filipinos living in the U.S.

Using celebrities might be an effective way to catch the attention of potential prepaid cardholders and instill trust in financial services, notes Jennifer Tescher, president and chief executive of the Chicago-based Center for Financial Services Innovation.

Tescher warns, however, those celebrities should not go out of their way to violate that trust through high fees or confusing product design.

"I actually think these celebrities should have a higher bar in a way," Tescher tells PaymentsSource. "It's unfortunate to think they are attempting to transfer people's trust in them to trust prepaid and then sort of break the promise and then ruin prepaid's reputation."

Sound familiar?

By now, the industry is well-versed in the Kardashian Kard's disappearing from j-hooks nationwide.

The charge for the card was $59.95 for six months or $99.95 for a year, and the price included the card's $7.95 monthly fee and an initial load fee of $5. Though the card's monthly fee structure was somewhat similar to other offerings, the initial fee caused sticker shock among many watching the industry (see story).

UniRush LLC, founded by Simmons, changed its fee structure shortly after the Kardashian Kard was shelved (see story). Under its previous fee structure, the Visa-branded RushCard and Baby Phat cards came with a $19.95 purchase price that was restricted to a pay-as-you-go plan. That plan also included a $1 fee for each transaction capped at $10 per month and a $1.95 ATM withdrawal fee.

The company's Diamond card had a $3 purchase price and a flat $3.95 monthly fee, and cardholders could conduct free signature-based purchases and two free ATM withdrawals per month. Those options were not available with the other cards

Under the new fee structure, holders of UniRush's cards pay monthly fees ranging from $3.95 to $14.95, depending on which plan they choose for all three cards.

In November, UniRush introduced a $2 monthly rebate to users who maintain an averaged balance of at least $500 across all of a customer's accounts (see story).

Some observers questioned the rebate's value.

"I'm having a hard time thinking about where they could offer that to the masses in a majority of low-income cases," James Van Dyke, the president and founder of Javelin Strategy and Research, told PaymentsSource sister publication American Banker.

Meanwhile, critics continue to skewer Simmons for the RushCard and his support for the Occupy Wall Street movement (see story).

Young Money Entertainment believes it's doing its best to avoid controversy. The label wanted to be sure it was offering a credible product before launching the card.

"That was absolutely in the forefront of everyone's mind," Tim Clark, CEO of Accent InterMedia Inc., tells PaymentsSource. "This product had to have credible legs and value cardholders could actually use and feel good being a part of." Accent manages the card program.

Whether Lil Wayne and other Young Money artists such as Grammy Award-nominated singer Niki Minaj will convince consumers to buy prepaid products is open to interpretation. Obviously, Young Money believes its star power will help.

"The thing about the Young Money artists is that they are very relevant and leveraging that popularity with financial needs," Clark says.

Whether celebrity endorsements create market success is debatable, however.

Indeed, celebrity-endorsed cards are common, and few, if any, have reached widespread use with their intended consumers, says Ben Jackson, senior analyst at Mercator Advisory Group.

"[Success] is going to depend on the target market, the particular endorsement and the real level of involvement from the celebrities," Jackson notes.

There are also risks involved.

"The one place I think where they are at greater risk is bringing in kids or young adults who are unsophisticated about financial issues," Jackson says. "I think they should be careful about disclosures."

Jackson believes celebrities are better off aligning with closed-loop cards.

"If it was the Jimi Hendrix Guitar Center card, I think that would be more meaningful," he says.

The Kardashian Kard managed to bring unneeded bad press to the industry at time when everyone was scrutinizing it.

Tescher believes the industry as a whole should be wary of celebrity-endorsed prepaid cards because they have the potential to be the bad apple in the marketplace.

"There are a lot of different places in the supply chain where the bar can be raised higher," she says. "Issuers, processors and networks all have the responsibility to ask for high quality products."

Jackson and Tescher do not believe celebrity-endorsed cards will lead to regulatory changes, although Florida Attorney General Pam Bondi issued subpoenas in May to Green Dot Corp., NetSpend Holdings Inc., AccountNow Inc., First Data Corp. and UniRush (see story). The subpoenas sought information about "possible hidden fees" on prepaid cards.

Tescher's group this summer gathered different players in the prepaid market and consumer advocates to develop some guidelines for products. The organization will release its findings next year.

"Those guidelines, while they don't speak specifically to celebrity cards, go into greater detail what makes for a prepaid card," Tescher says. The guidelines could serve as a useful tool for companies as they are evaluating what business to get into, she adds.

"While not everyone is going to agree with everything in the guide, that process has helped to create a consensus on what generally is good practice, and I think that's been lacking in prepaid," Tescher says.

Celebrities might want to give the organization's guidelines a read before diving into the unknown. A misstep could not only hurt their image, but prepaid's as well.

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