Prevailing wisdom suggests that prepaid cards are an alternative or, at best, a bridge to a bank account, not an overlapping product.
But Fuze Network Inc. says there is enough overlap today that consumers can use a bank’s online bill-pay software to load funds into prepaid debit card accounts.
Fuze built its approach on the premise that there is a sizeable portion of consumers who use both a prepaid card and have a bank account. That assumption contradicts the common thinking that most prepaid card users are “unbanked,” or do not use mainstream banking services either by choice or because of financial hurdles.
That is indeed true for many prepaid users, but there is a good amount of crossover between the two categories, says Ben Jackson, a senior analyst in the prepaid advisory service at Mercator Advisory Group in Maynard, Mass.
Fuze “recognizes that there is a group of individuals who use these cards for budgeting,” Jackson says, noting some banked consumers use general purpose prepaid cards, which function like a regular debit card, for online shopping or to allocate funds to a family member, such as a teen.
A survey Mercator conducted last May found that 8% of the 1,009 respondents had purchased a general-purpose reloadable card in the previous 12 months. Of those, three out of four maintained a checking account in their household.
Additionally, Green Dot Corp., which sells prepaid cards through retailers such as Wal-Mart Stores Inc., 7-Eleven Inc. and Walgreen Co., has said about half of its cardholders have a traditional bank savings or checking account.
Dave Wilkes, Fuze Network chairman and chief executives, estimates that of consumers who use general-purpose reloadable cards, about half are banked or formerly banked. As banks add fees for checking accounts–pricing some consumers out of the market–the use of prepaid cards likely will rise, Wilkes says.
Fuze, a Salt Lake City-based startup, says it is working with prepaid companies to get the issuers of their cards set up to receive electronic payments from banks’ bill-pay systems. In doing so, prepaid card users more easily can transfer funds from their bank accounts without needing to use existing reload services that can cost as much as $5 a pop, Wilkes says.
Using Fuze’s technology, program managers more easily can set their bank partners up to receive payments through online bill-payment software, Wilkes says.
Wilkes declined to say which prepaid companies Fuze is working with. Fuze charges prepaid program managers a monthly “network connectivity” fee of $500 and a transaction fee up to about 40 cents, depending on volume, he says.
Green Dot is not working with Fuze, a spokesperson for the prepaid card company says. A spokesperson for NetSpend Holdings Inc. says the company also is not working with Fuze. Both companies offer free reload options, such as direct deposit.
NetSpend also offers a service from an outside vendor called Vesta Corp. that enables customers to reload their accounts using a bank-issued debit card through NetSpend’s website.
Fuze’s approach resembles one that prepaid marketer Plastyc Inc. has taken through a partnership formed last year with ModaSolutions Corp., the company behind the eBillme online-payment service.
Moda’s system enables consumers to pay for e-commerce purchases through a bank’s online bill-pay system. Plastyc enables its users to generate funding requests through eBillme, much like a merchant would generate an invoice, and these can be paid through online bill pay.
Plastyc is promoting the eBillme link to cardholders who are freelancers or sole proprietors, says Patrice Peyret, the chief executive of the New York-based company.
A small percentage of Plastyc’s prepaid cardholders also have a bank account, but “the reality is that even if they do have a bank account, the reason why they are taking up a prepaid card is that bank account may have gotten them in trouble with overdraft fees and other things,” Peyret says. “It doesn’t mean they’re going to shut down their bank account, but they may keep it dormant.”
Even so, Fuze’s bill-pay reload option is good for its users because banks typically offer bill pay as a free service, says Rachel Schneider, the vice president of innovation and research at the Center for Financial Services Innovation, which conducts research on products geared toward underbanked consumers.
However, she and others says consumers should not take free bill pay for granted as banks add fees for checking accounts and other products and services in response to new regulations limiting their revenue.
“As we go into a new world of banking where everybody is looking at their fees, … you can expect that something like bill pay is going to end up being … chargeable over time,” says Brian Riley, a senior research director for bank cards at TowerGroup in Needham, Mass.
