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Two months after Wal-Mart Stores Inc. slashed fees on its prepaid cards, a high-profile competitor is rethinking its notably expensive product line.
It likely will not be the last.
Russell Simmons, the music-industry mogul whose Rush Communications Inc. offers the prepaid RushCard, gave a nod to Wal-Mart's prices last month as he discussed a plan to introduce new cards.
"Wal-Mart is a different card from my card, but it does some good," he told reporters during a conference call. "We watch them. We figure out about their price structure. We say, 'Oh, there are some cases under which, if we just charge [cardholders] a flat fee per month, they would save money, rather than the way that we charge them up to $10 per month.' So we're creating a card that will address that."
The RushCard fees include an up-front activation fee of $19.95 and a $1 fee per transaction, though it caps the fee at $10 per month.
Wal-Mart, in contrast, now charges $3 to buy, reload and use its MoneyCard on a monthly basis. The retailer does not charge a per-transaction fee for purchases on its cards.
Even before reducing its fees in February, Wal-Mart usually charged a lesser amount than RushCard. The MoneyCard had a setup fee of $8.94, a reloading fee of $4.64 and a monthly maintenance fee of $4.94.
Rush Communications does not plan to lower the fees on its existing cards, Simmons said. "We wouldn't change our fees. We'd create different cards with different fee structures," he said. The company has not yet launched any cards with restructured fees, a RushCard spokesperson confirms.
Observers call this one of the first industry repercussions of Wal-Mart's price cuts.
"Whenever Wal-Mart comes into a market, ... [its] business model is very well known, and for them, it's very successful," says John R. Ulzheimer, president of educational services at lead generator Credit.com Inc. "I don't think this is going to affect just the RushCard people. It's going to affect everyone who issues prepaid cards. They can't ignore this."
The pricing structure for the RushCard "is out of step with where the mainstream industry moved," says Jennifer Tescher, director of the Center for Financial Services Innovation, a nonprofit affiliate of Chicago's ShoreBank Corp.
Despite the fees, Simmons' celebrity status has made the RushCard and the BabyPhat RushCard (both of which run on the Visa Inc. network) among the most visible prepaid products on the market.
Rush claims to have more than 1.5 million cardholders, putting it on par with Wal-Mart, which says it has surpassed 1 million users and is on its way to 2 million, and H&R Block Inc., which says its Emerald Card had more than 2.6 million holders during its last fiscal year. The tax-preparation company said in December it expected the total to exceed 3 million this fiscal year, which ended April 30. It did not address those expectations in its March earnings call. H&R Block will report quarterly earnings again in June.
The introduction of a cheaper version of the RushCard would help improve the prepaid industry's reputation, Tescher says.
"Because of the sheer force of Russell Simmons and the fact that he's such a well-known personality, that card tends to get a lot of attention from mainstream media when talking about the prepaid industry," she says. "Whether or not it's one of the popular or well-used cards in the market, it gets a disproportionate share of attention, so how the card is priced and structured has a bearing on how the industry is perceived."
During the conference call to introduce an online budget-management tool for RushCard users, Simmons welcomed increased competition in the prepaid card industry. "The more, the better," he said. "More people are catching on and may find that, if you support this community, you have a chance to actually find a margin."
The budgeting tool enables cardholders to set monthly spending limits by category, including auto, dining and utilities. It can also send cardholders text or e-mail alerts when they exceed those limits.
William H. McCracken, chief executive of Synergistics Research Corp., an Atlanta-based research company, contends Rush Communications will need to do more than offer such tools; it also should lower the fees on its current cards to remain competitive, especially among underbanked Hispanics.
"In our broad popular culture, [Simmons] is a well-known name. But if you ask yourself who are prepaid cards being marketed to, it's the lower-household-income segment of our population," he says. Simmons "has very high recognition in the African-American community," but according to Synergistics, only 3% of prepaid card buyers are African-American.
For Hispanics, who make up 8% of prepaid card buyers, "the name Russell Simmons doesn't have that much resonance," McCracken says.
