The controversial Kardashian Kard may have only been on the market for a few short weeks, but its fifteen minutes of fame are far from over.
The prepaid debit card, which failed within weeks of its launch because many considered its pricing predatory, has become as famous in its own right as its sponsors, reality television stars the Kardashian sisters.
"Oddly enough, we've had more demand from people who want the card as a souvenir now" than when the card was available for sale, said David Reiling, chief executive of Sunrise Community Banks, the holding company for the card's issuer, University National Bank of St. Paul, Minn.
But the card's novelty shouldn't undercut the real lessons that can be learned from a failed prepaid program.
"I'd love to go back in time," Reiling said recently, invoking a sense of "If I knew then what I know now" regret.
"The largest risk to banks is managing those third parties," he said last week during a panel discussion at the Underbanked Financial Services Forum, a conference jointly sponsored by American Banker and the Center for Financial Services Innovation. "The bank is in charge of every distribution outlet where those cards are placed."
Reiling's comments, a rare public confession of its lessons from the Kardashian Kard debacle, should serve as prescient advice for others who might be considering getting into the prepaid business.
"Any time a bank is working through third parties, they have to exercise due diligence over those third parties," said Lauren Saunders, managing attorney at the National Consumer Law Center. "Banks need to not only know who they're working with but do their own due diligence and not just trust other entities to do it for them."
A total of 16 cards were sold before the Kardashians made the decision to pull the prepaid card from the market, less than three weeks after its debut in early November.
Much of the controversy around the card centered on its fees, but experts say a bigger concern was the fact that consumers would be locked in to having the card for a long period of time. Users were charged six to 12 months of fees at once just to activate the card. The monthly fees averaged out to around $7.95, roughly in line with what other prepaid cards charge.
"It was the feeling that it was designed to trap people into something that might not suit their needs," Saunders said. "I'm not saying that was the intent. Obviously the prepaid card industry is having a hard time getting consumers to use the cards for a long time and keep the cards for a long time. There's very high turnover. But the way to keep people is not by making them feel trapped."
One of the major impediments to successful prepaid card programs has been consumers' propensity to activate the cards and forget about them after their first use.
When the card was first launched, the bank defended the pricing structure, saying it was meant to help retain customers and encourage repeat use.
"Running a prepaid program is expensive," wrote Jeannie Bauer, the e-banking product manager for Sunrise Community Banks told American Banker in an email at the time of the card's launch. The card avoids "consumers choosing the card simply to carry a picture of the Kardashians and to encourage the use of the card."
But consumer advocates thought otherwise. Following outcries over the fees from such high-profile figures as Richard Blumenthal, Connecticut's attorney general, the Kardashians pulled their endorsement and the website that sold the card was shut down.
The marketer of the card, Revenue Resource Group, countered with a $75 million lawsuit for breach of contract. That suit was recently thrown out by a judge in California, the Associated Press reported Monday. The judge said the Kardashians weren't bound to promote a product that might be unlawful and voicing their concerns about the debit card was in accordance with their First Amendment rights.
Sunrise Community Banks isn't giving up on products like prepaid cards that are designed to help the underbanked.
The bank recently launched a program titled Sunrise Underbanked Empowerment Journey, an effort to focus more resources on developing services designed for underbanked consumers. Prepaid cards are just one aspect of that.
But Reiling acknowledges that there are still many obstacles. "The bank is not the trusted source," for these consumers, Reiling said.
But banks have the power to change that perception, Saunders said. "It's really important for the industry to promote itself as a fair and simple place for consumers to go."
And in order to do that, banks must do their homework first.
"On a day-to-day basis, the bank has to ensure due diligence up front of who their partner is and the bank has complete responsibility from a regulatory perspective and all the operational aspects," said Philip Philliou, managing partner of Philliou Partners LLC, a consulting firm in New York. "As a practical matter, the bank has to have complete visibility and in fact sign off on all the contracts of the party that partners with them. They need to approve all the marketing collateral. They, in effect, step into the shoes of their marketing partner."