The debate continues over whether general purpose reloadable (GPR) prepaid cards are more affordable than low-balance checking accounts for financially underserved, low income individuals. In November 2013, financial services advisory firm Bretton Woods Inc. concluded that they are.
In Analysis of General Purpose Reloadable Prepaid Cards: A Comparative Cost Analysis of GPR Cards Using Program Manager and Issuer Data, Bretton Woods examined data supplied by prepaid card program managers with research conducted by The Payment Cards Center of the Federal Reserve Bank of Philadelphia and the Center for Financial Services Innovation. The researchers then filtered their results through the transaction profile model created by Consumers Union.
The report concluded that the average amount of fees charged users of GPR cards is approximately half those charged basic checking account users. The researchers found that the majority of GPR users pay less than $7.50 per month in fees, compared to basic (meaning low balance) checking account fees that range up to $13.95 per month.
Bretton Woods said that, over the last three years, the average costs that consumers incur for checking accounts have been increasing while costs have been decreasing for GPR cardholders. At the low end, the yearly costs of basic checking accounts rose from $60 in 2010 to $250 in 2013. In that same time, GPR card costs reduced from $76.35 in 2010 to $58 in 2013.
The researchers concluded that the trends are "unmistakable and undeniable"; GPR cards have a "demonstrable cost advantage" over checking accounts. "While similar to checking accounts, prepaid cards serve unique markets and needs and are a textbook example of the market filling a need in a responsible manner," Bretton Woods said.
Bretton Woods' findings directly contradict Consumers Union research. In April 2011, the research and consumer advocacy arm of the organization that publishes Consumer Reports, issued a report that claimed most prepaid cards charge higher fees than basic checking accounts.
Consumers Union found that, in comparison to GPR cards, consumers can save more money and enjoy stronger protections with basic checking accounts. "Some prepaid card issuers do such a poor job disclosing fees that consumers may be surprised at how quickly fees can add up," the report said.
Consumers Union compared the fees charged for low balance, no-interest checking accounts at several national banks to the fees tied to over a dozen different GPR cards, including cards managed by Green Dot Corp., NetSpend Holdings Inc. and UniRush LLC.
Consumers Union then ran the numbers through its transaction profile model, which supposes an average consumer in a month pays three bills (two online, one by check) and makes eight POS purchases, three ATM withdrawals, two balance inquiries and two deposits.
The researchers found that, based on the financial habits of its hypothetical consumer, checking accounts represented "a cheaper deal than 10 of the 12 prepaid card programs" evaluated. Additionally, even if checking account customers pay monthly fees, they are better off in most cases than GPR cardholders, according to Consumers Union.
But using Consumers Union's own transaction model, Bretton Woods discovered the exact opposite. In 2011, a basic bank checking account cost between $179 and $464 per year, while a GPR card (that comes with direct deposit) ranged from $97.56 to $238.95, according to Bretton Woods. However, those numbers jumped to $265.92 to $333.75 for GPR cards that did not feature direct deposit, the researchers said.
Bretton Woods noted that community banks, especially those with under $1 billion in assets, are struggling to devise business models that withstand 21st century pressures, such as changing consumer behaviors and loss of fee income due to regulation. GPR cards are seen as a way to "both meet the needs of existing consumers as well as attempt to meet the needs of the low to moderate consumer," the researchers said.
Finally, while the Consumers Union's 2011 analysis found that GPR card fee schedules were difficult to find on websites and sometimes the information was presented in a confusing manner, Bretton Woods discovered recent improvements in the fee disclosure department. "Most GPR card providers' fee disclosures are within one click from the home page," the firm said, adding that bank websites fared worst, with "some complete fee disclosures two or more clicks away."
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