Thursday, July 5, 2012
Prepaid Cards as a Mutually Agreeable Separation
Big banks are not necessarily beloved institutions, and recessions have a way of driving them near to the bottom of many consumers' lists. Throw on some questionably timed decisions to add a usage fee onto debit cards—a banking service consumers expect to receive at no cost—and you can kindle a bonfire of indignation. More than ever, consumers are apt “shop and drop” their consumer banking services. And for consumers who don’t like banks—and who can do without some of the services banks traditionally provide—a prepaid card could fit the bill perfectly.
This may be just fine for many of our largest financial institutions, which are poised to conserve banking margins while continuing to generate revenue with industry-leading prepaid card products. As noted in Packaged Facts' July 2012 Prepaid and Gift Card report, JPMorgan Chase is moving to shed what it determines are lower-profit checking accountholders, many of whom newly fit that description thanks to regulation limiting debit interchange and overdraft fee revenue. In the wings, ready to take flight this summer, is the Chase Liquid prepaid card. Chase Liquid is positioned to redirect at least a portion of these lower-profit consumer banking customers onto a game-changing consumer prepaid product: very well designed, simple to understand and use, and yet one that promises solid profits.
With prepaid products like this promising debit interchange rates untouched by the Durbin Amendment, strong cost containment, solid margins on consumers major banks may deem unprofitable, and the means to earn income from the unbanked in the bargain, what’s not to like for a major bank? While we view increased prepaid regulation as a near certainty, we believe Chase Liquid will demonstrate that substantial headroom exists for consumer general-purpose reloadable (GPR) prepaid products providing transparency, a strong product feature mix, simplicity, and reasonable fee structures. We see Chase’s foray as an opening salvo among major banks: with American Express also pushing aggressively into the consumer GPR prepaid field, it’s only a matter of time before other major banks (such as Citi, Bank of America, Wells Fargo and US Bank—none of which have a consumer GPR prepaid presence) follow suit.