William Smith relies on prepaid debit as he travels the country tattooing musicians in vans, trailers, hotel rooms and houses.
The 32-year-old tattooer has no bank account — just a low-cost MoneyCard from Wal-Mart Stores Inc.
"You know the few bills that I have come out of there. I pay my rent in cash, but other than that, everything [that] can be done automatically is through that" card, said Smith, who typically works out of Ocala Tattoo in Ocala, Fla. "I don't have a bank account. I get paid in cash."
Prepaid card companies are pushing much harder to win the business of cardholders like Smith by introducing products with lower fees.
This month, nFinanSe Inc. introduced a prepaid card with a $3 activation fee and a $2.95 monthly fee — a fee structure very similar to Green Dot Corp.'s Wal-Mart MoneyCard.
SmartyPig LLC, which offers an online consumer savings service, is also releasing a low-fee prepaid card. The card's only fees are its initial $4.95 cost and a $1.95 fee for using out-of-network automated teller machines.
In being marketed for their relatively low fees, these cards stand in sharp contrast to recent entrants such as the ill-fated Kardashian Kard, which was criticized for charging up to a year's worth of fees up-front.
The "prepaid card industry has suffered an image problem in the past from high and sometimes opaque fees," Zilvinas Bareisis, a senior analyst at Celent, wrote in an e-mail. "There has been a general trend toward lower and clear fees." The low-fee play is more than just a competitive move, though, analysts said.
Impending debit interchange rules could bode well for those in the prepaid business. Some industry watchers said the rules, expected to be announced by the Federal Reserve on Thursday, would inevitably force retail banking companies to raise consumer fees. Such changes could make prepaid cards more attractive by comparison.
"There is an opportunity here for alternative payment providers," said Gwenn Bezard, a co-founder and research director at Aite Group who manages the firm's banking and payments practice. "It's definitely an opportunity for them to compete with banks."
Fees have been in the spotlight since the Kardashian Kard, endorsed by reality television's Kardashian sisters, was pulled from the market just three weeks after its introduction.
The cost of activating the card was $59.95 or $99.95, depending on how many months of fees the customer wished to pay in advance, but the card's $7.95 monthly fee was in line with what typical prepaid cards charge. The business model behind the card was an apparent attempt to lock in consumers over time.
"We all got a good laugh out of that," said Jerry R. Welch, the chairman of nFinanSe, referring to the Kardashian product. "It's hard to believe the consumer was going to pay that kind of price to buy a card. It was almost not even serious."
Smith — who goes by the moniker Shauncey Fury and tattoos members of popular bands on concert tours — said there are clear benefits to choosing a prepaid card over a bank checking account. "I would just get killed on overdraft fees, it would be ridiculous. Not only did I not have enough money for what I wanted to buy, but I owe [the bank] money," he said.
Smith also said he prefers a card over cash for the sense of security it provides. On one concert tour, "I would have, like, thousands of dollars in my wallet. That's not a good scenario; … people get tempted."