Key Federal of Md. offers prepaid telephone card.

Key Federal Savings Bank, best known in the credit card industry as a provider of secured cards, is carving a new niche in prepaid telephone cards.

The Havre de Grace, Md., thrift is hoping to capitalize on the explosion of prepaid services, in which financial institutions until now have had little involvement.

Customers pay for such cards up front, usually getting a certain quantity of long-distance minutes that can be used right away or over an extended period. The major telecommunications carriers, led by AT&T, have developed competing prepaid services, which Key Federal is underpricing.

Collectors' Items

A growing number of other organizations also market such cards, typically by buying time wholesale from long-distance companies and reselling it. Some of the cards carry attractive designs and are sold as collectibles.

Key Federal's main objective is "to enhance our product and create a better marketing edge," said Robert M. Bouza, president of the bank's card operation.

As with secured credit cards, which require customers to set aside a deposit as collateral, telephone cards entail little risk because of the prepayment procedure.

Key Federal, however, is tying the two services together by billing customers' card accounts, whether secured or unsecured, for phone card purchases.

Popularity Has Grown

Prepaid phone cards began to be introduced about four years ago, but only in the last year have they become popular. Organizations ranging from sports teams to automobile companies are offering the cards as promotional items or to hype special events.

But consumers have not yet fully accepted prepaid phone cards as an alternative to other methods of calling and billing.

Some industry observers see these cards as a precursor of the "electronic purse," which can be used for small, routine transactions in place of cash, and replenished when the stored value runs out.

"Right now, these cards are seen more as a collectible item," said Thomas Womack, vice president of operations for Televest Communications Network Inc. of Indianapolis, which is brokering time from AT&T for Key Federal's prepaid program. Statement Stuffers Over the next three months, Key Federal expects to evaluate the cards' appeal.

This month, Key Federal customers are receiving statement inserts offering the prepaid phone card. For $10 cardholders can get a renewable card, which allows them to continually pay for more telephone time without replacing the original card.

The thrift's customers can avoid the $10 one-time fee by ordering a nonrenewable card, which expires after the money is used up.

Mr. Bouza, who believes that Key Federal is the first bank to offer prepaid renewable phone cards, said that if they prove popular they will be marketed by the bank as part of its standard advertising.

Activating the Card

The card works like this:

A customer calls a toll-free number, established just for Key Federal customers, and follows voice prompts for completing the call. The automated voice also tells how much time and money are remaining on the card, and adds a special warning when three minutes are left.

Callers are billed 2.5 cents for each six seconds, which works out to 25 cents a minute. The cards arc sold in $10 increments up to $50 - $10 buys 40 minutes and $50 200 minutes of phone time. Calls to Alaska and Hawaii cost 35 cents a minute, and international calls cost more.

If the card is lost, the customer must call Key Federal immediately to cancel the account. Otherwise, the card can be used by any bearer, just like lost or stolen cash.

Key Federal is targeting its existing customers first, but the general public can buy a Key Federal phone card in any of the thrift's seven branches.

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