Pushing Prepaid to Checking Customers: Bad Aim or Bullseye?

As more banks offer prepaid cards, some are tying the cards' pricing to other relationships with the bank — a decision that may send the wrong message to the underbanked consumers most likely to use prepaid.

Prepaid cards have strong following among the underbanked population, which uses the cards to lessen its dependence on cash and the traditional banking system. Many prepaid card owners use the product as a way to deliberately avoid doing business with a bank — even when they know a bank could save them money. 

Products like Fifth Third Bank's new Access 360 prepaid card, which discounts its $7 monthly fee to $4 for customers that link the card account to a Fifth Third checking account, challenge the premise that a prepaid card user can't also have a checking account (customers can also lower the fee by loading $500 or more a month to the prepaid account).

The bank argues that prepaid cards fill a need within a banked customer's lifestyle.

"Some people might look at [the Access 360] card as a budgeting tool," rather than as a primary account, says Stephanie Honan, spokesperson with Fifth Third Bank, the principal subsidiary of Fifth Third Bancorp.

JPMorgan Chase's Liquid prepaid card has a similar pricing structure — its $4.95 monthly fee is waived only when the account is linked to certain checking accounts. However, many of those accounts are designed for people with deep bank relationships. The Chase Premier Plus account, for example, provides the option to waive its $25 monthly fee by setting up automatic payments to a Chase mortgage. 

Even so, "we designed the card to appeal to new members of Chase," says Jon Wilk, consumer banking product and marketing executive with the Chicago-based company. "A significant percentage of Chase Liquid customers are new to Chase, with no previous relationship."

Some bank customers indeed use prepaid cards to prevent exposure of their credit card number when traveling or shopping online, but "other than that I can't figure out for the life of me why people with a checking account would want a prepaid card," says Jim Wells, president of Wellspring Consulting International out of Fort Lauderdale, Fla.

"Most users of prepaid cards are folks that don't use banks," he says. "And the only place you can get one of these cards is at bank branches, but the people who they're trying to reach don't go into branches."

While Wells says its "nice" banks are finally creating a product to assist the underserved, prepaid card providers such as Green Dot and NetSpend are selling their cards in places the underbanked are more likely to frequent, such as convenience stores. 

Wells says too many financial institutions' prepaid programs focus on trying to get those customers to spend money instead of save it. Regions Financial Corp. also offers its Regions Now prepaid card in branches, but Wells cites it as a rare example of a financial institution card linked to savings accounts.