U.S. Bancorp has introduced a line of prepaid cards that cost consumers nothing to reload, becoming one of the first of the large commercial banks to embrace the prepaid model.

Until recently, alternative financial service providers largely cornered the prepaid market, which caters mainly to underbanked consumers. Customers without access to a checking account could purchase a prepaid card, and for a fee, load it with money to be spent as on a regular debit card.

U.S. Bank's prepaid cards, announced Tuesday, cost $3 to purchase and $3 a month to maintain, with no fee for loading the card at the bank's branches or ATMs. The absence of a fee for loading money is a key differentiator from other prepaid card issuers, says Kevin Morrison, a senior vice president with U.S. Bank's retail payment solutions division.

Another advantage over the prepaid pack, he says, is U.S. Bank's familiarity. "You're walking into a branded, trusted bank, as opposed to cards that are issued from other channels that don't have that same branding."

U.S. Bancorp's move comes as the nation's largest financial institutions grapple with regulatory changes, including the Dodd-Frank Act's Durbin amendment capping interchange fees on regular debit cards.

How banks will recoup revenue lost to regulations is an open question, as is where consumers will choose to put their money if the banks' answer is raising checking fees.

"Banks are testing a lot of different products," says Paul Miller, an analyst for FBR Capital Markets.

Some banks had initially warned they would need to start charging debit card fees to make up for reduced revenues, a move that industry players predicted could drive up use of credit and prepaid cards as alternatives to debit cards. (The Durbin amendment carved out an exemption for certain prepaid cards.)

But almost all of the major banks have since backed away from plans to charge fees for debit card use in recent days, perhaps removing one of the biggest potential drivers into alternative products like prepaid cards.

Morrison at U.S. Bank nevertheless says consumer response to a prepaid card pilot test in July was quite positive, with enrollment numbers and load volumes vastly exceeding expectations.

Consumers used the products for a variety of purposes, including keeping children's spending in line or as an alternative to carrying cash when traveling, he says.

It remains to be seen whether the appeal of prepaid will be enough to win over the vast majority of consumers accustomed to standard debit and credit cards.

"A debit card is a passive card, while a prepaid card is more of an active card because you have to physically put money in an account," Miller says. "So [the banks] have to put some type of fee on the debit card to force people into prepaid cards."

Some institutions that tested prepaid products have found that "consumers hated" them, Miller says. "I truly think that it's going to be a very difficult product to make money off of."

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