As regulation spurs banks to cut operating costs, FIS has developed a purely electronic account that dispenses with paper statements and checks and does not even require a debit card.
The vendor said it views the product as occupying a middle ground between reloadable prepaid cards and conventional demand deposit accounts. Banks will be able to offer the "financial account" under their own brand, as will retailers and other nonfinancial firms. The bare-bones product will be usable for all manner of electronic transactions, such as point of sale purchases and, ultimately, online bill payments.
It will be compatible with a prepaid debit card and usable at automated teller machines. But paper statements will not be an option, and it is envisioned that consumers will access the account primarily in self-service transactions, such as checking their balances and making purchases online or through mobile devices.
Financial institutions have been seeking ways to offset the loss of fee income from the Dodd-Frank Act, including the Durbin amendment regulating interchange rates on debit transactions.
Avivah Litan, a vice president and distinguished analyst at Gartner Inc. in Stamford, Conn., said FIS' product does this in part by "cutting down on the cost typically associated with a DDA."
Jim Johnson, the senior vice president of FIS' payment solutions group, said the new account would be suitable for people who might have been turned down for a bank account before, or who, because of the regulatory reforms affecting fees and interchange, "will be unprofitable going forward" for banks to serve with conventional checking accounts.
FIS, of Jacksonville, Fla., said it plans to use its eFunds unit, which assesses the risk of prospective checking clients for banks, to do the same for the new financial account. "We have a hold on the marketplace for this functionality — this is a giant database of people we have information on, and we will leverage this capacity as part of our onboarding for this product," Johnson said.
FIS is in discussions to test the product at bank and nonbank customers. It will be widely available by July.
Litan said that FIS, with its deep relationships with thousands of bank and nonbank partners, as well as its ownership of Metavante and eFunds, has the capability to make the product work. "They are the main company that banks use for risk on checking accounts," she said. "They are uniquely positioned to bundle this."
However, there are some downsides associated with the product, analysts said. Banks that use it could be viewed as trying to skirt the new restrictions on debit interchange, which do not apply to prepaid products.
"The product has some reputational risk, and could be seen as something that might concern lawmakers" who might suspect "that banks are using this to is avoid new interchange regulations," said Gwenn Bezard, research director and co-founder of Aite Group LLC.
FIS (whose full legal name is Fidelity National Information Services Inc.) said it had been developing the product for several years in response to demand it has heard from bank and nonbank clients.
"The motivation behind the product was not the new regulations," Johnson said.
At the same time, some banks have received backlash for selling products seen as costly, riddled with unnecessary fees and preying on vulnerable consumers.
Observers said FIS might also be attempting to enter the program-management space, occupied by entities like Green Dot Corp. and Netspend Holdings Inc.
"This is one of the largest processors in the world now coming out with a program-managed, general-purpose reloadable solution," said Tim Sloane, director of the prepaid practice for Mercator Advisory Group. "FIS is essentially saying, 'We have done the program management and you can have a product up and ready to go quickly.' "
But Johnson said FIS has no intent of becoming a program manager. "This is us supplying technology that we feel does not exist today and is in great demand," he said.
A Bank of America Corp. spokesman said that as a general matter, prepaid programs are on its radar.
"Bank of America's objective is to provide our customers with easy-to-use, clear and straightforward banking products," the spokesman said.
"We are constantly evaluating solutions that will expand our customers' payment choices, including prepaid cards."
