Larger banks may feel threatened by the string of new, aggressively priced prepaid cards, but a group of credit unions is attempting instead to embrace this trend by modifying their ATMs to sell fee-free prepaid gift cards.
Credit Union West, MariSol Federal Credit Union and Pinal County Federal Credit Union are testing a system for offering their members cards loaded with $25. Members may purchase the nonreloadable cards at ATMs for free during the test period, which will run at least through the second quarter.
The credit unions are working with a Mesa, Ariz.-based technology vendor Better ATM Services Inc., which announced the tests Jan. 10. Better ATM Services funded the upgrades to the credit unions' ATMs. It provides the cards and collects the interchange when members use them for payment.
"If I were a banker, I'd be concerned," says Todd Nuttall, chief executive of Better ATM Services. "[A customer] comes to me for loans and for checks, but if [that customer] needs a prepaid card, they go down the street to Wal-Mart."
The Visa-branded prepaid cards more closely resemble transit cards than credit cards; they are printed on thin plastic, which is more easily dispensed by a machine. The cards come on a perforated sheet about the size of a dollar bill and includes a coupon and customer service information.
Better ATM Services has been developing this project for five years, says Nuttall. The vendor launched at the 2006 Card Forum & Expo, a SourceMedia Inc. conference. (SourceMedia publishes PaymentsSource.)
Within the next several months members will be able to request cards for denominations other than $25, says Robert MacGregor, president and chief executive off Credit Union West. The credit union is testing this system "to better serve our members," he says.
The current absence of fees on the cards is "a selling point," says Ben Jackson, a senior analyst in the prepaid advisory service at Mercator Advisory Group Inc. "That is a competitive advantage to get their customers to keep that money in-house."
Though the technology currently serves just the credit unions' members, it can also be used to serve the unbanked by letting ATM users deposit cash to load cards.
"Cash-to-card [is] not a part of our pilot today, but it is part of our technology," Nuttall says. "So you can see where this can grow into a number of different products and services in the coming months and years."
Kate Fitzgerald contributed to this story.
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