ORLANDO — Some banks are missing out on a large opportunity to offer prepaid cards to potential customers who don't qualify for traditional checking accounts, according to data from prepaid specialist The Bancorp (TBBK).
About 15% of the people who walk into a bank get turned down, Bancorp Senior Vice President John Barbella said during a panel discussion at the Card Forum and Expo on Wednesday morning.
Some banks are increasingly trying to offer such potential customers prepaid cards as a "turn-down" alternative to traditional checking accounts. On Tuesday, JPMorgan Chase (JPM) became the latest big bank to introduce a reloadable prepaid card for people to use instead of, or in addition to, one of its checking accounts.
Prepaid cards are primarily marketed to young, immigrant or low-income customers known as the "underbanked," who do not qualify for traditional bank accounts or who also use alternative types of financial services, such as check-cashers or remittance companies. But as banks have tightened credit standards and seen regulations bite into their traditional checking account revenues, more and more of them are trying to appeal to underbanked customers by introducing prepaid cards and other alternative financial products.
JPMorgan Chase and other big banks, including Regions Financial (RF) and BB&T (BBT), have "clearly embraced" prepaid cards, Hyung Choi, Visa's head of U.S. prepaid products, said during the panel discussion on Wednesday.
"It's another deposit account," he said. "Depending on the financial institution, it may or may not make sense for them" to offer a prepaid card, but "given the momentum in the market … I suspect that more and more retail financial institutions will look at it."
But Barbella cautioned that for some banks, offering potential customers prepaid cards as a "turn-down" alternative to checking accounts may not be the most effective way of doing business.
"I'm not sure that's the best play," he said, adding that some banks would gain more from prepaid by running payroll or benefits cards on behalf of companies and governments who disperse funds on such cards.
For some banks, especially smaller companies with fewer resources, offering their own prepaid card to customers is "more time-consuming," Barbella added.
The annual card industry conference is sponsored by American Banker and its publisher, SourceMedia.