For many years the prepaid card industry drew flak from consumer advocates for the hefty fees it charged to low-income customers. That started to change more recently, as less expensive cards from issuers such as American Express entered the market.
Green Dot, a pioneer and longtime leader in the prepaid industry, also reduced some of its fees. For example, the Pasadena, Calif.-based company made it easier for its customers to waive monthly service charges.
Green Dot's hope was that its customers would respond by using their cards more frequently, generating more swipe-fee revenue from merchants, which would compensate for the reduction in revenue from consumer fees.
But now the company is again changing course, after acknowledging that the reduced pricing strategy failed.
"Usage increased in some cases, but nowhere near enough to overcome the loss of the fees that we were no longer charging," Chief Executive Steve Streit said Wednesday at an investor conference in New York.
The remarks represented a shift in strategy for the company, which has frequently touted its pro-consumer bona fides.
In an interview published in April, Streit said: "It was so tempting to raise our monthly fee and charge another $3 or $4 a month and still be competitive with our competitors."
"It was so tempting to get rid of a fee waiver. Those things would have guaranteed tremendous growth in profit and revenue on a short-term basis. But it violated our religious conviction that treating the customer right will lead to decades of success and a position as an iconic brand name."
On Wednesday, Streit unveiled a new Green Dot/Visa prepaid debit card. The product will include a $7.95 monthly fee, which can be waived when customers load at least $1,000 onto their cards, according to an investor presentation.
That compares with a $5.95 monthly fee, with similar waiver rules, for Visa prepaid debit cards currently being offered on the Green Dot website.
Another new debit card from Green Dot will charge a $9.99 monthly fee, though that product is not a prepaid card, and it will offer cash-back rewards of up to $100 annually.
Streit emphasized Wednesday that Green Dot continues not to charge overdraft fees, a policy that has set it apart from NetSpend, one of its top competitors. The Consumer Financial Protection Bureau has proposed restrictions on overdraft fees on prepaid cards.
"We have not a single fee at risk based on the new CFPB rules," Streit told investors.
Lauren Saunders, associate director at the National Consumer Law Center, said it is "disappointing" that Green Dot has decided to raise fees, but the company's approach is still "much better" than that of banks that charge overdraft fees.
"Green Dot is being transparent about the price of its product, and consumers can decide whether it is worth it, something they can't do at banks that rely on back-end overdraft fee revenue for profitability," Saunders said in an email.
In the third quarter, Green Dot reported total operating revenues of $146.4 million, up just 1% from the same period a year earlier.
The firm's sluggish revenue growth has been due partly to the renegotiation of a key contract with Walmart, which resulted in more favorable economic terms for the retail giant, as well as the discontinuation of a product that was being exploited by fraudsters, according to Larry Berlin, an analyst at First Analysis.
Berlin, who has an equal-weight rating on Green Dot, expressed doubt that the company will be able to raise fees on consumers substantially, partly due to the regulatory scrutiny the entire industry faces. He added: "There's a lot of competitors out there."
Corrected December 4, 2015 at 9:16AM: An earlier version of this article incorrectly stated that American Express has raised the $1 monthly fee on its Serve prepaid card. The $1 per month product is still available. Amex also offers a Serve-branded product that offers free cash reloads and carries a $4.95 monthly fee, as well as a third Serve-branded product that offers 1% cash back and carries a $5.95 monthly fee