In Prepaid Cards: Second-Tier Bank Account Substitutes, Consumers Union analyzed 19 network-branded, reloadable prepaid cards, including cards issued by Green Dot Corp., NetSpend Holdings Inc., UniRush LLC and nFinanSe Inc. The nonprofit consumer advocacy found a range of fees associated with the cards, such as activation, monthly, ATM, balance inquiry, paper statement, customer service, inactivity and overdraft fees.
Twelve of the 19 cards examined had activation fees, according to the advocacy group. On the low end was $3 for the Walmart Money Card and nFinanSe cards while the First Vineyard card, a MasterCard Worldwide-branded incentive card, charged a "whopping" $39.95, said Consumers Union. Additionally, the organization noted:
Michelle Jun, Consumers Union Staff Attorney and author of the report, said "the devil is in the details, and upon closer examination, these cards are laden with numerous types of fees and other gotchas, making prepaid cards a shaky alternative to a bank account with a debit card."
Jerry Welch, Chief Executive Officer of nFinanSe, said the wide range of fees is not uncommon in a relatively new and growing industry. He predicted the fees will come down as players vie for market share.
"I think what you'll see is a much tighter range," he said. "I don't think you're going to see people selling cards for $9.95, and then the rest of us are in at $3.00. … That is not to say that there will be people who believe their card is worth more; the market will decide how good a strategy that is."
Welch believes consumers are becoming increasingly aware of prepaid cards and more sophisticated about choosing the more cost-friendly ones. Welch posits nFinanSe as a market leader in that regard.
As pointed out by the Consumer Union report, nFinanSe offers the lowest activation, monthly and ATM fees. "It's part of our strategy," Welch said. "We've been very much in the forefront of trying to price it that way, price it low so that you can encourage trial and usage."
Welch added that it is still early days in the industry, with only about 10 million prepaid cards in circulation in a U.S. marketplace where between 120 and 150 million consumers could benefit from them.
Therefore, keeping the product simple and straightforward at this point in the industry's development is important, Welch said. That's why he takes issue with the strategy of Green Dot charging a $5.95 monthly maintenance fee unless consumers maintain balances of $1,000 or have 30 posted transactions, as mentioned by the Consumer Union report.
Welch pointed out that not many prepaid cardholders are sustaining a $1,000 balance. "And, honestly, that's what you want," he said. "Right now you want people to try it, put money on it, use it and to like it, understand it, and over time those balances will certainly increase. But right now this is all about trial and usage.
"I just don't believe that at the end of the day, that is going to motivate that many people to grab your card. Simplicity, I would argue, is paramount in this early stage in our industry."
In the report, Jun said consumer protections on prepaid cards must be improved to equal protections afforded debit cardholders, such as FDIC insurance. But Welch said the industry is well on its way toward reaching that goal.
"I think the level of fees have come down," he said. "Transparency's improved. All of that you would expect in a rapidly emerging marketplace. Seems to me that the market is actually working. If you looked at all these things two years ago, when you look at it today, you see that, by and large, our industry is moving in the right direction."
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