Over the last six years Central National Bank and Trust Co. in Enid, Okla., has reported steady growth in fee income, in part because of its marketing of gift, payroll, and remittance cards in communities where it operates.
Now the $437 million-asset unit of Central Service Corp. is looking to accelerate that growth by taking its prepaid card business nationwide.
This month it has struck a deal to help other banks market payroll and remittance cards to unbanked and immigrant consumers; signed an agreement with Home Depot Inc. to issue a reloadable stored-value card that can be used to send money to other countries; and announced a deal to provide Visa-branded payroll cards for El Rescate, a Los Angeles social service agency that focuses on helping unbanked immigrants from El Salvador.
On top of that, Central National is issuing reloadable debit cards that students at Slippery Rock University in Pennsylvania will start using this fall. The cards, which double as student identification forms, can be repeatedly loaded with funds, including student loan disbursements.
The timing appears to right for the bank to expand its prepaid offerings. Immigrant and unbanked consumers are a vast, untapped market, and banks and retailers such as Home Depot view prepaid products as a way to reach them.
Also, the use of prepaid cards continues to grow among mainstream customers.
Brud Baker, the president and chief executive officer of the bank and the parent, said he is counting on the prepaid card expansion to boost fee income further at a time when margins from traditional banking continue to narrow.
He is especially bullish on the deal to issue and process remittance and payroll cards for other banks.
The prepaid card business "has the advantages of letting us spread nationally, and it has the social good of bringing the unbanked into the first step of the financial business and transitioning into normal banking customers," Mr. Baker said.
Central National's partner in that venture is Postilion, a division of S1 Corp. of Atlanta that sells software to community banks around the country.
Postilion will offer Central National's products and services to other banks that want to offer prepaid cards but do not want to create their own programs from scratch, according to Baron Unbehagen, the vice president of marketing and alliance for Postilion Americas.
"It is really an investment and entire new line of business in the bank," Mr. Unbehagen said.
The client banks, Central National, and Postilion stand to make money by sharing the interchange and other fees associated with the cards. Also, Central National is free to market its products and services independently.
Mr. Baker said that the ideal community bank customer would be one that has a large number of immigrants or unbanked people in its market and could duplicate Central National's approach of selling prepaid cards to their employers.
Banks will be motivated to sell the cards, because there is interchange revenue in it for them, he said.
Though he would not say how the revenue from the cards would be divided, he said Central National would cut its partners a fair deal.
"My theory of any kind of business is that if the people who you are dealing with don't make money, and it is not economical, they are not going to work very hard," Mr. Baker said.
Another selling point for the cards is that Central National already has worked through some of the regulatory hurdles. It has structured its accounts so that each card's money is insured by the Federal Deposit Insurance Corp., even though all the money is held in a pooled funds account.
"We have a letter from the FDIC" affirming that the funds are insured, Mr. Baker said.
Central National has issued roughly 200,000 prepaid cards over the last six years. Mr. Baker would not say what percentage of its fee income is generated by prepaid products, but its fee income has topped $4.1 million in each of the last two years, according to Federal Deposit Insurance Corp. data. (Its fee income averaged $3.4 million from 2000 to 2004.)
The bank does not break out how much of its business is in gift cards versus payroll and remittance cards, but Mr. Baker said that there is more long-term growth in payroll and remittance cards, because gift cards have a shorter life span. Payroll and remittance cards, on the other hand, are reloaded regularly, presenting issuers with repeated opportunities to turn users into customers, he said.
"Besides the revenue they create for these banks, the real endgame is they can pick up new customers," he said.
