The Consumer Financial Protection Bureau has just released comprehensive rules designed to make the prepaid industry safer, fairer and more transparent. There were few surprises among the rules, which have been a long time coming. The big takeaway? In giving prepaid cards the same regulated status as other products, the CFPB has not only made it harder for bad actors in the space to flourish but created an opportunity for prepaid card providers — yes, opportunity — that regulated status will afford.
At the Center for Financial Services Innovation, we've been looking at the prepaid industry for a long time — and there's no denying that the quality of prepaid products has dramatically improved over the years — especially in the greater pursuit of financial health. CFSI earlier this year gave the industry grades, respectively, of A-minus, B and B-minus for the basic standards, best practices and next-generation features that define a high-quality prepaid product. When we do our next scorecard, we are hoping for straight A's.
Consider the cards that already offer features that promote financial health. RushCard has a customizable budgeting tool with easy to understand charts and graphs that identify how cardholders are spending their money each month. The NetSpend Card, which requires no minimum balance, offers cardholders access to a savings account with a 5% APY. Urban FT, through various partnerships, provides Boost Mobile wallet cardholders with access to international and domestic money transfers. And the fintech startup FamZoo uses prepaid cards as the backbone of a family finance tool where parents can help kids learn to make financially healthy decisions.
The new rules from the CFPB around stronger fraud and error resolution policies, standardized fee disclosures and more accessible account information will certainly strengthen the results we see for basic standards and best practices. But perhaps the greatest impact of these rules is yet to come — in how they affect products that haven't even been dreamt up yet.
Think about it: The new rules apply not just to run-of-the-mill reloadable prepaid cards, but to payroll, digital wallets and peer-to-peer payments — in short, the new rules apply to the future. And all of these digital products show promise in helping to promote consumer financial health.
But there's more the industry can do to design experiences that help users build and sustain financial health.
Providers can expand mobile remote deposit capture functionality and let users load funds at ATMs. Program managers could proactively offer alerts and guidance to cardholders about how they can reduce the fees they pay, such as avoiding out-of-network ATMs. Providers could continue to offer enhanced functionality such as reminders and alerts, bill-pay features, and companion cards that allow users to manage their money wisely. And program managers can leverage cardholders' account information to provide customers with access to other beneficial financial services, such as checking accounts, secured credit cards and basic insurance products.
As finance continues to evolve from cash to checks to cards to digital, prepaid will be less a card in someone's wallet and more often an app on a consumer's smartphone. This is where the industry needs to be focused, to ensure it isn't seen as yesterday's innovation, and to ensure it stays relevant to consumers and their challenges.
This is also why these new rules matter for consumers — not only because they are better protected with the products they use today, but because they'll be better off with the products they'll use in the future.
Thea Garon is manager and Jennifer Tescher is president and CEO at the Center for Financial Services Innovation.