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Prepaid debit card providers are adding an array of features to differentiate their products. Among them is a savings-account option, which slowly is gaining traction.
Two weeks ago, FSV Payment Systems Inc. announced the launch of a savings account for holders of its PaycheckPLUS payroll and general-purpose reloadable cards. The program is designed to assist unbanked and underbanked consumers in particular who lack a convenient way to save for near and long-term financial goals, says Jonathan Palmer, FSV president and CEO.
Unbanked and underbanked consumers often use money orders as savings mechanisms, Palmer says. "They'll buy a money order every payday, put it away, and that's their savings account," he says.
The PaycheckPLUS savings option enables prepaid cardholders instead to have a portion of their wages deposited into the account each pay period. Cardholders need as little as $10 to open a savings account online or by phone. The accounts are FDIC-insured, and cardholders pay no monthly fees to maintain them.
FSV does not link the cards to the savings account, Instead, cardholders can transfer funds to and from the account from their prepaid card account, according to the Houston-based company.
FSV is partnering with three of its issuing banks to provide the savings accounts, which generate interest at "competitive rates" that vary by institution but are similar to those of typical savings accounts, Palmer says. Metropolitan National Bank of New York, MetaBank of Storm Lake, Iowa, and the Bancorp Inc. of Delaware issue the prepaid cards. FSV processes the transactions.
Palmer does not expect substantial use of the savings option initially, but he hopes users will help spread the word about the program's advantages. FSV believes additional features such as savings initiatives will increase use of prepaid cards, thus boosting revenue.
Bringing unbanked and underbanked consumers into the financial mainstream is a challenge both the prepaid card industry and lawmakers are addressing, Palmer says.
Palmer recently returned from a two-day trip to Washington, D.C., where he met with fellow industry executives and politicians to discuss how financial services can be delivered "to people who don't have a lot of money, and do it conveniently, efficiently, securely and give them real value, and do it at a cost that makes it feasible for financial services providers."
Tying prepaid cards to savings accounts is not new. Austin, Texas-based NetSpend Corp. first introduced a prepaid card savings plan in 2005. In October 2008, the company announced users deposited more than $31 million into their savings accounts during the first eight months of that year.
McAllen, Texas-based Inter National Bank handles the savings account for NetSpend's cards, which Inter National and MetaBank issue.
Earlier this year, the Center for Financial Services Innovation, an affiliate of ShoreBank Corp. in Chicago, published survey results in which industry executives cited rewards programs, savings accounts and credit-building as the top features they would consider adding to prepaid cards. FSV plans to announce details of a cashback rewards program in early November, Palmer says.
Many prepaid card providers may hesitate to add a savings-account feature because it may be difficult to find the right partner to handle the deposits, contends NetSpend spokesperson Brad Russell.
Moreover, providers may be slow to offer a savings feature because cardholder demand for savings accounts has been low, Russell believes. "Maybe there has just been a sense that a savings-account feature was a lower priority for the cardholder," he says.
The savings-account feature, however, can give unbanked and underbanked consumers "the sense that they are participating in a banking relationship," says Rachel Schneider, innovation director at the Center for Financial Services Innovation. "A prepaid card savings-account feature is a convenient, reliable way for a certain portion of the population to save money," she adds.
Credit-building features may be the next significant add-on for prepaid cards, Schneider says.
Last year, Cincinnati-based UniRush LLC added an option to its prepaid RushCard and Baby Phat card to enable cardholders to build credit histories based on their ability to show they can pay bills on time. Pay Rent Build Credit Inc., an alternative credit-scoring company based in Annapolis, Md., compiles payment histories for cardholders who choose to use the credit-reporting service.
However, Pay Rent does not report to the three major credit-reporting bureaus–Equifax Inc., Experian PLC and TransUnion LLC. So the initiative would only help organizations that subscribe to its service.
Schneider, however, believes the major credit bureaus eventually will accept credit-building data tied to prepaid cards.
Consumers have asked NetSpend for a credit-building option, and the company is exploring the issue, Russell says. ATM
