Competition, Demographic Shifts Push TD Deeper into Prepaid

TD Bank is expanding its prepaid offerings to meet higher demand from upmarket consumers and to counter competition from rival issuers.

TD Bank expects to release new research on the evolution of prepaid users in a few weeks, so it did not discuss average income levels or changes in the economic profile of expected prepaid users. But Tami Farrow, head of retail deposit payment products at TD Bank, did highlight a change in prepaid demographics to include people with deeper banking relationships.

"It's definitely a product that's becoming more mainstream as we are seeing more banks offer prepaid, and even more customers that already have a checking account are using prepaid to offer an extra layer of control for their spending," Farrow said. "And as more banks start to offer prepaid cards you will see more consumer uptake."

TD Bank's new TD Connect card is open to any consumer 18 and over with a Social Security Number, valid ID and a $25 initial deposit. The product serves a wider audience than TD Go, which launched in January 2014 as a product for parents to use to monitor their children's spending.

The bank is positioning TD Connect as a "debit card with more controls," Farrow said.

"You can only spend what's on the card, and we also have alerts for daily balance and transaction alerts," Farrow said, adding TD Connect is designed to meet the financial needs posed by a "digital world…You can't operate in a cash-only environment." 

There are two major groups of people that TD Bank expects to TD Connect: consumers with bank accounts who are looking to segment expenses and consumers without checking accounts. Though its prepaid fees are lower for consumers with a checking account, the bank still expects underbanked consumers to want the product.  "We would love to have them," Farrow said.

Banks in the past avoided prepaid products, but have gradually warmed to the market over the past few years.

More recently, the average income of prepaid users has passed the national level, according to Aite Group, and that trend has caused both bank and non-bank prepaid providers to look to prepaid to reach "higher end" consumers.

UniRush, the company behind RushCard, has changed strategy to meet the demographic shifts of its maturing user base. Amex has also added more sophisticated financial management tools to its Serve and Bluebird prepaid products. Banks also face competition from companies such as Moven and Simple, which use prepaid accounts as a gateway to build deeper financial relationships with unbanked consumers.

"We have said all along that this is not just a product for the unbanked. It has so many use cases," said Madeline Aufseeser, a senior analyst at Aite Group who covers debit card issuing, processing and marketing. "Income levels are higher than what you would expect and we're seeing huge levels of adoption among younger people."

Prepaid cards are a major way to attract younger consumers, Aufseeser said.

"When I was in college, I got dropped off at school and my parents walked me down to the local branch to open a checking account," Aufseeser said, adding younger consumers today do not have the same affinity toward banks, necessitating a new approach. "I don't necessarily see prepaid debit cards as a class of product by themselves anymore…but part of the checking continuum. It's the 'pay as you go' rather than the 'all you can eat' model."