Discover Financial Services has agreed to offer prepaid cards that can be reloaded through Green Dot Corp.'s network.
The Morgan Stanley unit's deal follows announcements last month that Visa U.S.A. and MasterCard Inc. had developed reload networks for cards bearing their brands.
Green Dot markets its own prepaid cards and operates the nation's largest reload network. It began offering reload capabilities on Visa- and MasterCard-branded cards in 2001 and opened its network to other prepaid card marketers in 2003.
However, the Visa and MasterCard reload systems will probably threaten Green Dot's dominance in the market.
Offering reloadable cards is an important move in Discover's marketing to the unbanked and underbanked, the main target market for these products.
Tom Crowder, Discover's director of network strategic development, said in an interview that offering reload services would serve as a "natural evolution" for his company's efforts to capture what historically have been cash transactions. Many observers say reloadable cards are a good tool for drawing people into the banking system.
The reload capability can help build brand loyalty. Customers can reuse the same card rather than throwing it away. This increases the likelihood that they will use cash until recharging the card instead of buying another prepaid card, possibly one issued by a competitor.
"It certainly establishes continuity," Mr. Crowder said. "The card continues to allow consumers to establish a payment history, and it may help to migrate them to other payment vehicles."
Steven Streit, Green Dot's president and chief executive, said Discover's first reloadable prepaid cards went on sale at all CVS Inc. drug stores Wednesday. Consumers can use the Green Dot Discover Network prepaid cards at any merchant that accepts Discover cards and may reload them at more than 50,000 locations where Green Dot's reload capability is available.
Mr. Streit said that Green Dot's reload network is much larger than the new ones from Visa and MasterCard, and unlike those new entrants, his system can work with more than one brand of card.
However, he conceded that the new reload systems would pose a threat to Green Dot if "new issuers join MasterCard and Visa, and do not join Green Dot."
Green Dot, of Monrovia, Calif., and Discover, of Riverwoods, Ill., ran a pilot test of the reload program for a month at about 30 CVS stores before launching this week, Mr. Streit said.
Mr. Crowder said Discover ran a "few" pilot reload programs in 2006. "We anticipate we'll do more programs with Green Dot," he said.
Green Dot's availability at so many merchant locations was a bonus for Discover, Mr. Crowder said. Green Dot primarily focuses on the unbanked and underbanked communities, and Discover's future programs will go after this segment, he said.
Retailers that sell Green Dot's prepaid cards include Cumberland Farms Inc., Dollar General Corp., Eckerd Corp., Food Lion LLC, Hess Corp., Kum & Go LC, Pantry Inc., Pathmark Stores Inc., RadioShack Corp., Rite Aid Corp., Sunoco Inc., and Walgreen Co.
Synovus Financial Corp.'s Columbus Bank and Trust Co., a Green Dot partner, issues the Green Dot Discover Network prepaid card. The cards sell for $9.95 and consumers pay an additional $1 fee for each purchase made with the card. Green Dot typically charges $4.95 to reload its cards.
Visa, of San Francisco, completed its reload network technology in March and signed a deal with Blackhawk Marketing Services in early December. Blackhawk markets products for more than 100 retailers, including its parent company, Safeway Inc. of Pleasanton, Calif. Visa's reload capability is currently available only through Blackhawk at point of sale terminals at Safeway stores.
In December, MasterCard, of Purchase, N.Y., announced a partnership with Interactive Communications International Inc. of Atlanta, which is known as InComm and which, like Blackhawk, markets prepaid products for dozens of retailers.
MasterCard's reload network was launched at 148 Village Pantry stores, a Marsh Supermarkets Inc. subsidiary with branches in Indiana and Ohio.
Visa and MasterCard have said that they will expand the reload capability to other locations of their prepaid marketer partners and that they will seek new partnerships this year.
InComm has a partnership with Green Dot that allows holders of InComm-marketed prepaid cards to access the Green Dot reload network.
Mr. Streit said the program with Discover was not a response to the Visa and MasterCard initiatives.
Also in December, Metavante Corp., the technology subsidiary of the Milwaukee banking company Marshall & Ilsley Corp., became the first major third-party processor to introduce a reload network.
Metavante's system would be the first to let cardholders add funds to prepaid payroll or benefits cards as well as general-purpose cards. Metavante, which owns the NYCE network, has said the reload capability is available at 1,550 retail locations, including those of Safeway, Carrs, Dominick's, Genuardi's, Pak 'n Save, Pavilions, Randalls, Vons, and Tom Thumb.
