A variety of companies that do not qualify as banks or credit unions have started to offer prepaid debit cards. American Express announced a new deal with Wal-Mart this week that will give low-income customers access to the American Express Bluebird card, which means low-income customers can have access to credit card features like smartphone deposits, mobile banking, and roadside assistance.
Bluebird has gotten some close scrutiny from financial rivals but it’s gaining popularity with consumers. The consumer watchdog organization, the Consumer Financial Protection Bureau, is preparing restrictions on prepaid cards and says it has concerns about high fees and less than adequate disclosures.
While products like Bluebird clearly compete with conventional checking accounts and ATM cards, other new prepaid products are emerging to take on other banking sectors. Social Money, a start-up developing white-labeled products, has just announced CorePro, an FDIC-insured pre-paid card product that integrates savings with online and mobile solutions.
CorePro is similar to Social Money’s online savings system, SmartyPig, with savings goals and goal management. This is an API-driven account that helps consumers save and costs issuers $0.39 per month per account.
What makes this approach different from conventional prepaid cards is the savings component. These kinds of savings accounts have been criticized in the past because they are difficult to manage, difficult to maintain, and they are closely scrutinized by regulators. Smart Money is addressing those concerns by offering these cards through merchants, payroll companies, and other groups with a simple pricing model. For example, merchants can use the card in conjunction with a wish list or layaway plan.
To help simplify complexity issues, Social Money will take on bank affiliation, core processing, interest accruals, interest payments, 1099 processing, and account opening for customers. They also claim that CorePro will cost one-quarter of other savings solutions.
So does this mean consumers are going to flock to products like CorePro and ditch their savings accounts? Probably not, but it will make pre-paid cards powered by CorePro look more attractive to consumers.
What’s your take on pre-paid debit cards? Are they a threat to conventional banking products or just another product in the mix? We’d love to hear your thoughts.