'We Know It's Coming': More Prepaid Cards Slice ATM Fees

Pundits often criticize prepaid card providers for having high monthly fees, but the real market pressure is on the fees charged for ATM access. As it turns out, prepaid card users very much want to keep using cash — but they don't want to pay to get it.

Pricing pressure in this market can be severe. The Kardashians couldn't keep up (their VIP prepaid 'Kard' famously flared out within weeks of its introduction), and even long-term participants such as UniRush have rapidly lowered fees over the years.

Kostas Sgoutas, chief revenue officer at prepaid card marketer Green Dot Corp., says he hasn't seen a huge uptake in relationships between prepaid cards and surcharge-free ATM networks, but "we know it's coming."

In some cases, it's already here.

In July, Cincinnati-based Kroger Co. announced that it offers free ATM withdrawals through the MoneyPass surcharge-free ATM network for the reloadable prepaid debit cards it sells in conjunction with U.S. Bank, which issues the cards and owns MoneyPass. And earlier that month, Kmart announced the availability of the Halogen Reloadable Prepaid MasterCard, which similarly provides free ATM access through MoneyPass. 

Green Dot provides the Kmart card. None of Green Dot's 4.4 million cardholders pay surcharges or foreign-ATM fees when using any of MoneyPass' 23,000 ATMs nationwide. Green Dot has participated in MoneyPass since 2009, six years after the network started.

Allpoint, the surcharge-free ATM network owned by Cardtronics Inc., has seen rapid growth in prepaid cardholder use of its machines, which are deployed primarily in retail locations.

Prepaid card transactions at Cardtronics-owned and -operated ATMs, which constitute the vast majority of Allpoint's 43,000 machines, now represent 14% of transactions at those machines in the U.S.

Prepaid card transactions at Allpoint's U.S. machines are growing by 20% year over year, according to network spokesperson Nicholas Pappathopoulos. (That figure excludes machines added through recent acquisitions.)

This growth has been fueled by tax preparer H&R Block, refund cards from Intuit Inc., financial-planning cards from Suze Orman and m-Via (now Boom), payroll cards from Bank of America Merchant Services, and federal financial aid cards from Blackboard Inc., he says.

MoneyPass also has seen a boost in prepaid card activity at its ATMs from unemployment and other government card programs, as well as payroll cards, cards from tax preparers and merchant-distributed cards.

"Because of the explosion of prepaid cards in the marketplace, it's almost a critical feature to provide some surcharge-free ATM access," Doug Miraglia, president of MoneyPass, says.

More issuers and marketers also are supporting free ATM withdrawals because of competitive pressures to push prepaid fees down, Ben Psillas, Allpoint's CEO, said in an interview. Walmart started the push with its low-fee cards, and Amex later followed up with its own, he says, citing what he views as the chief catalysts. 

Regulation (or the fear of it) also plays a role in pressing down fees. Players in the market are reducing fees to ward off pricing policies the Consumer Financial Protection Bureau might impose, Psillas says.

Consumer use of cards also has changed, as more consumers view prepaid cards as a long-term product instead of a disposable one, he says.

But card issuers and marketers still must make a profit to support their card programs. Green Dot's Sgoutas says his company pays MoneyPass an undisclosed sum to enable cardholders to access its machines at no cost.

"That's definitely a cost for us," he says. "But we found that the cost is more than recovered by having longer interaction and a higher level of customers."

About half of Green Dot's cardholders also have a bank account, and the median annual income for its customers is $40,000 to $45,000 according to company spokeswoman Liz Brady.

Green Dot earns interchange revenue when its cards are used for purchases, but it pays interchange to ATM owners. It also receives monthly fees from cardholders who don't meet fee-waiver requirements, Sgoutas says. Roughly 20% of Green Dot's customers meet those requirements, he says.