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Liberty Tax Service's decision last week to offer accounts tied to reloadable, Visa-branded prepaid cards into which clients can load their tax refunds represents an ongoing trend by large tax-preparation companies, which receive card-transaction fees plus the potential for long-term business relationships with clients.
Liberty, the nation's third-largest tax preparation company with 2,850 offices nationwide, announced Friday the signing of a multiyear agreement with NetSpend Corp., an Austin, Texas-based prepaid card marketer.
NetSpend will promote the All-Access Liberty Prepaid Card to Liberty's clients, and Inter National Bank in McAllen, Texas, will issue the card.
NetSpend will process the card transactions over its network, says Martha O'Gorman, Liberty chief marketing officer.
Liberty joins H&R Block Inc., the nation's largest tax-preparation company with 13,038 offices nationwide, and Jackson Hewitt Inc., which operates 6,800 tax-preparation offices across the country, in offering a network-branded prepaid card to clients.
H&R Block offers clients the Emerald Master-Card reloadable prepaid card, and Jackson Hewitt offers customers iPower, a reloadable Visa prepaid card.
John Hewitt, Liberty CEO, founded Jackson Hewitt, which is based in Parsippany, N.J. Liberty is based in Virginia Beach, Va., and H&R Block has its headquarters in Kansas City, Mo.
"Loading tax refunds onto reloadable debit cards is a niche market that tax-preparation companies and the card networks discovered and are pushing," says Adil Moussa, an analyst with Aite Group LLC, a Boston-based consulting firm.
"Visa and MasterCard encourage it because it drives transaction volume through their networks. Tax-preparation companies are pushing the card out more because they receive transaction fees all year."
Moussa did not know how many tax filers have their federal tax refunds downloaded into prepaid card accounts.
But Mark Baumgartener, Liberty chief financial officer, expects 3% to 5% of the company's customers this year to do so.
Liberty also prepares federal taxes in Canada, and Baumgartener says 12% to 13% of its Canadian customers have their tax refunds downloaded into prepaid card accounts.
Liberty is working with NetSpend to drive more U.S.-consumer interest in having tax refunds deposited into prepaid card accounts.
Baumgartener declined to detail specific marketing plans.
Kansas, Mo.-based H&R Block Bank issued 2.6 million Emerald cards in 2008 and it expects to issue 3 million during this tax season, says Russ Smyth, the company's president and CEO.
H&R Block Bank first issued the prepaid card in late 2006.
In the U.S., federal tax filing is a growing business. In 2007, the Internal Revenue Service says, 139.3 million consumers filed individual taxes returns, up 2.4% from 136.1 million who did in 2006 and up 4% from 134 million in 2005.
More than six out of 10 individual tax filers hire professionals to prepare their taxes, according to the Appleton, Wis.-based National Association of Tax Professionals.
Reloadable prepaid cards can help tax preparers maintain business relationships with their customers, observers say.
"Because the customer carries a reloadable prepaid card with the tax-preparation companies' names, it becomes harder and harder for the customers to go elsewhere," Moussa says.
Baumgartener agrees. "It maintains a relationship with the customer throughout the year," he says. "Previously, we offered a disbursement card, which was more like an ATM card. When the money was gone, the client no longer had use for the card."
Liberty's goal is to create a versatile card for year-round use, Hewitt says.
"We are tapping its potential as a brand builder beyond the time limits of the tax season," he said in a statement.
H&R Block also has encouraged clients to use their cards after they have spent their tax refunds by enabling them to load their payroll funds and money orders onto the card account, says Elizabeth McKinley, an H&R Block spokesperson.
The tax preparer can directly load payroll checks onto clients' Emerald card accounts, or the clients can have it done at Green Dot, MoneyGram or Western Union network loading stations.
Liberty markets its prepaid card to customers at the end of the tax-preparation process, Baumgartener says.
Liberty tax preparers ask filers if they want their refunds via a check, through a direct deposit into a checking account or through an electronic deposit into a prepaid card account.
If they want their funds deposited into a checking account, they fill out a form stating the name of their bank and the routing number from a personal check.
If the filer does not have a checking account, Liberty's tax preparer writes in Inter National Bank's bank routing number, and bank officials load the tax refund onto the prepaid Visa card account, Baumgartener says.
Liberty charges a fee for the card.
Baumgartener declined to disclose price, but Moussa says tax preparers typically charge $6 to $10 for a prepaid card.
The company also charges $2 for debit card transactions and an equal amount for ATM withdrawals.
Baumgartener contends Liberty's fees are much less expensive than the fees check-cashing stores charge to cash a check. Such businesses typically charge 2% to 3% of the amount of the check, he says.
In the case of H&R Block, the company does not charge transaction fees, but its charges a panoply of other fees.
They include a $1.95 domestic ATM cash-withdrawal fee and a $1 per ATM balance-inquiry.
Downloading tax refunds into a card account also appeals to some tax filers because Liberty, H&R Block and Jackson Hewitt promote electronic filing of federal income taxes, which speeds the refund process.
"E-filing a tax return allows you to receive your income tax return in half the time than if you mailed a paper copy of your return," Jackson Hewitt says on its Web site.
"If you have it directly downloaded into your account, you will receive it even faster," the company says.
Electronic filing for the 2009 began Jan. 15. In 2007, 73.3 million tax filers filed electronically, up 7% from 68.5 million who did in 2006, the IRS says.
Some 57.4% of individuals who filed taxes in 2007 filed their returns electronically, up from 53.8% in 2006, the IRS says. ATM
