Banks need to educate customers on the immense possibilities with prepaid cards – customers often think of finite uses of these cards but are not aware that they can be used to help them make purchases, pay bills, and avoid exorbitant check cashing fees.
Even if they are aware of prepaid cards, consumers may not think prepaid cards are reasonably priced or are better than their other options. For example, a survey of 2,000 people by Mintel Group Limited found that 77% of respondents did not want to receive their wages on prepaid cards. Thirty-one percent said they prefer cash or checks, and 28% said they were afraid of losing the card.
The American Banker noted that a Synergistics Research Corp. survey of 1,003 households conducted in September and October that asked about Wal-Mart’s prepaid cards found that only 1% of the respondents had purchased the cards, despite 20% being aware of them and that 83% called the up-front fee unreasonable.
Since that survey was completed, Wal-Mart has lowered its card fees, but consumers may feel that other prepaid cards cost too much.
Some Initial Observations from the Literature Review
1. Prepaid cards are still in a relatively nascent state of their product lifecycle and the business model, technology and regulations are still evolving. However the product offers significant promise to CDFI banks and other depository institutions in bringing underserved people into responsible financial service providers.
2. Prepaid cards have the potential to become a profitable product line for CDFI Banks for serving the needs of both unbanked consumers and commercial clients.
3. Transition of prepaid card customers into bank account customers will happen over a long period of time; banks need to invest for the longer term to achieve this transition while seeking fee-based profitability in the shorter term.
4. Banks need to achieve scale in terms of the number of active cards to get significant profitability.
5. Banks may need to offer a range of cards for deepening customer relationships; these include payroll cards, incentive cards, and rebate cards.
6. Network branded cards – those carrying a Visa, MasterCard, Discover, or American Express mark – which can be reloaded, have recognizable value to cardholders.