Reloadable Prepaid Cards May Be A Better Choice Over Checking Accounts

 A comparison between checking-account offerings from top issuers and popular reloadable prepaid debit cards suggests that in some cases the cards are a better value, new research suggests.

The Network Branded Prepaid Card Association, whose sole purpose is to promote cards carrying the brand marks of Visa Inc., MasterCard Worldwide and other card networks, sponsored the study.

Bretton Woods Inc., which conducted the study independently, according to the association, examined checking-account products from Bank of America Corp., Citibank NA, JPMorgan Chase & Co., Wells Fargo & Co. and prepaid cards from AccountNow Inc., Green Dot Corp., NetSpend Corp., Ready Credit Corp., UniRush LLC and Wal-Mart Stores Inc.

Using the same consumer transaction behavior Consumers Union did for a report it published last year (see story),  the research company found consumers using a basic bank checking account paid on average between $218.35 and $314 in costs per year. A prepaid account with direct deposit on average cost users between $76.35 and $267 annually, the study found.

The transaction profile included three ATM withdrawals, three bill payments (rent, utilities and phone), eight point-of-sale purchases (groceries and meals once a week), four balance inquiries, and two deposits or loads.

The final costs for a checking account presented in the report are conservative, as just five overdrafts per year were included, says G. Michael Flores, the report’s author and Bretton CEO. Bretton’s previous overdraft studies found that some 20% of a bank’s customer base generates 80% of overdraft fees, and their average number of overdrafts is four per month, Flores adds. However, new debit card rules enacted last year have caused banks’ overdraft fee revenues to drop considerably (see story). http://www.paymentssource.com/news/consumers-no-overdraft-survey-3004052-1.html

Consumers who overdraw that often likely fall into the underbanked demographic usually associated with the typical prepaid card user, Flores notes. “For this segment, prepaid cards are certainly the better value,” he says.

Prepaid cardholders not using direct deposit experience significant cost increases. Consumers could pay between $184.34 and $380.15 per year. Check-cashing store users pay between $139.68 and $719.64 per year.

Consumers could find these figures significant in light of recent statements from at least one bank regarding checking account offerings. Jamie Dimon, Chase CEO, believes potential new interchange rules could have “the adverse consequences of making a portion of current bank clients unbanked (see story).” Some 5% of consumers would be pushed out of the banking system, he told analysts during a recent earnings call.

Flores writes in the report that a reduction in checking-account options for the financially underserved would push such consumers back into a “cash economy” if restrictions or regulations are brought to reloadable prepaid debit cards.

The researchers also analyzed prepaid card fee disclosures and discovered that finding them on provider’s website ranged from intuitive to confusing. Basic fee information was sometimes possible within one mouse click from the home page, while others required five clicks. Overall, disclosures are becoming more prominent, Flores says.

The report addressed reloadable prepaid debit card fee caps, which Flores says he opposes because price control limits innovation, which includes products with savings account and mobile features.

“Right now, the comparative marketplace is moving fees down as consumers become more acquainted with prepaid cards,” Flores says. “Long-term, the market does call out the bad actors–those who charge outrageous fees.”

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