We have written here in the past about the migration to pre-paid cards offered by non-banks. As the prepaid card trend continues to gain momentum, more banks are stepping up, adopting the attitude that if you can’t beat ‘em, join ‘em.
According to Accenture, 35 percent of the market share for today’s banking institutions will be “up for grabs” by 2020 as new financial options, like prepaid cards, gain in popularity. The Pew Charitable Trust reports that consumers loaded $64 billion onto prepaid cards in 2012; double the amount from 2009.
Consumers have been flocking to prepaid cards because of their convenience, the fact they can’t be overdrawn, and because they provide purchasing power online and elsewhere. And prepaid cards are becoming more popular. Starbucks, PayPal, Wal-Mart and other companies are offering their own branded prepaid cards and their customers love them.
The banks are responding with their own prepaid cards. For example,PNC Bank’s SmartAccess Visa card has been popular with non-banking customers since 2012. For a $5 monthly fee customers can use the card like a prepaid Visa card without usage fees, and it’s FDIC insured. JP Morgan Chaise has its Liquid prepaid card with a flat rate of $4.95 per month. Fifth Third Bank also has an Access 360 prepaid card available to customers for 4 per month and non-customers for $7 per month.
Bank of America has come up with a different strategy to attract prepaid card customers with a hybrid product. BofA’s SafeBalance account has no check writing or bank overdraft fees, but it provides access to traditional banking services such as online banking, mobile banking, service center access, and ATM access, all for a flat fee of $4.95 per month. It’s designed to compete head-to-head with prepaid cards and woo the underbanked with an easy-to-use product that offers the same protection and costs the same as most prepaid cards.
This type of “banking lite” strategy might be just what consumers want to meet their needs. Most of those who use prepaid cards fit into one of four categories: 1) they won’t qualify for a checking account; 2) they don’t want a checking account; 3) they like prepaid cards because it controls spending; or 4) prepaid cards are useful for providing a payment mechanism for kids at college or other family members. Offering an alternative such as SafeBalance gives customers a choice, and lets BofA upsell and cross-sell to increase customers’ share of wallet.
So how big a threat are prepaid cards to your banking business? Are you looking at alternatives to attract the underbanked, or do you feel your current service offering is enough to compete, even if Accenture’s predictions are accurate and 35 percent of potentially bankable cash is going elsewhere? We would love to hear from you.