To attract more consumers in a down economy, stored-value and prepaid card solution provider nFinanSe Inc. lowered the activation fee on its general purpose, reloadable (GPR) prepaid card. Effective July 1, 2009, the $5.95 fee on its Discover Financial Services-branded card will be reduced to $3, matching the fee that Wal-Mart Stores Inc. recently implemented on its prepaid card.
"We have the best pricing in the market," said Jerry R. Welch, Chairman and Chief Executive Officer at nFinanSe. "Wal-Mart reduced theirs a few months ago. It made sense to bring ours down to that level."
The target market for nFinanSe's card is unbanked consumers - individuals without access to traditional checking and savings accounts. GPR cards are seen as alternative banking tools to fill that financial gap.
But Welch believes the industry as a whole has priced its cards too high. With an estimated 73 million adults in the United States that fit into the financially underserved category, but only 5 or 6 million reloadable cards circulating in the marketplace, Welch recognizes a huge disconnect. "You can see that there is an enormous opportunity there, and that's what we all want to be focused on," he said.
According to Welch, most GPR cards carry a $9.95 activation fee, with a $4.95 monthly maintenance fee and $4.95 reload fee. In addition to the lower activation fee, nFinanSe offers $2.95 on both its maintenance and reload fees. Welch said unbanked consumers complain about two things: fees and customer service. Welch claims that nFinanSe's lowest fees in the marketplace are matched by its free, around-the-clock customer service.
"This is one of the few industries that I've seen where people charge for customer service," he said. "You call up and you ask, 'What's my balance?' And the answer is $150, less the $2 we're going to charge for that call. That upsets a lot of folks. Not only is our customer service free, it's 24 hours a day. It's bilingual. Again, we think a lot of people have missed the water on this piece of it."
In May 2009, nFinanSe launched a new program called Lucky 777. As a reward for signing up for direct deposit with their employers, nFinanSe will deposit $7.77 into the GPR accounts (that now double as payroll card accounts) of its cardholders. "It's a little play on slot machines," Welch said. "What happens right now is you've got 35 percent of all employees in America still getting a paper paycheck. The reason why is they don't have a bank account or they have one they don't use.
"If you match the 73 million [unbanked] and overlay the 35 percent of all employees, you understand why these folks aren't getting direct deposit. This [program] is a way that allows them to deposit their pay directly on their reloadable card, and they don't have go to a check casher."
Welch said check cashers generally charge between 2 and 5 percent of the face value of checks. For example, to cash a $1,000 check might cost an individual anywhere from $25 to $50, which is sizable in comparison to the fees on nFinanSe's GPR card. Despite the steep price, people continue to pay for the service, however.
"When we go around and make presentations, in just about any city I go to, I'll go to the Yellow Pages and I'll tear out the section on check cashers," he said. "Then I'll tear out the fast food pages. ... They'll be more check cashing locations than the major fast food locations. It's stunning.
"What it says is that check cashing is a very profitable business. Look, they provide a real service. But the point is the consumer is paying a lot of money just to get their pay." Welch claims only 10 percent of the Fortune 2000 companies in the United States have payroll card programs. He said the reason is lack of awareness. Employers are generally unaware of workers without bank accounts. And the social stigma attached to not having bank accounts forces workers to hide that information from their employers.
The Tampa, Fla.-based prepaid card company is marketing the Lucky 777 service through its Web site. When customers buy the nFinanSe GPR cards in stores, such as Winn-Dixie Stores Inc. supermarkets and Dollar General Corp. stores, a window pops up with the Lucky 777 offer and a payroll card form. Customers are asked to take the form to their employers' payroll departments to set them up with direct deposit.
"What we want to do is get people to buy our cards," Welch said. "And then what we want people to do is have some really good features and benefits. ... If we can save a cardholder check cashing fees, they're going to feel very good about us and hopefully they'll be a cardholder forever."
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