The new American Express Prepaid Card is being touted by the card brand as a game changer for the industry. With ever increasing scrutiny on the business practices of prepaid card companies, especially when it comes to the fees they charge consumers, the new offering from American Express Co. simplifies the fee structure and provides what the card brand believes is an unbeatable value proposition.
For the new card, AmEx does not charge online purchasing, monthly maintenance, activation, balance inquiry, alert, card replacement, foreign currency conversion and loading (via bank account) fees. Additionally, the funds loaded on the card never expire. The first monthly cash withdrawal using the card is also free, with a $2.00 fee for each withdrawal thereafter, along with applicable bank ATM surcharges.
Stefan Happ, General Manager and Vice President, U.S. Gift Cards for AmEx's prepaid card business, said the card represents a brand new category for the company. "We've been working on this for a considerable amount of time," he said. "We've been watching the marketplace. We've been listening to the consumers. … We've talked at length and over a sustained period of time to consumer advocates, all with the aim to bring out a product and a payment vehicle that is a game changer for this category."
Happ noted AmEx is able to be profitable with the cards without charging fees other companies rely on because of the card brand's unique business model. "Unlike really any other prepaid card player in this space, we manage and facilitate the end-to-end consumer experience," he said. "So we are the merchant acquirer, the merchant processor, the transaction processor and we are the card issuer. And that closed loop provides the efficiencies that are generally not available in the marketplace."
Happ called feedback AmEx has received on the card "overwhelmingly positive." AmEx is partnering with the consumer advocacy nonprofit Consumer Action to launch an educational program nationally on how to compare, select and use prepaid cards.
Perhaps the most vocal critic of the prepaid card industry is another nonprofit, Consumers Union. Suzanne Martindale, Staff Attorney at Consumers Union, gives AmEx credit for simplifying the fee schedule. "It is consumer friendly to the extent that it has a very simple set of terms and conditions," she said. "The fees that could be charged are fairly simple. There's no monthly fees. There's not a lot of these nickel-and-diming fees for ordinary uses of the card, like making a purchase or checking your balance."
However, Martindale is critical of AmEx for one way of recharging the cards – via Green Dot Corp.'s MoneyPak. It costs $4.95 to purchase a MoneyPak card, which can then be used to fund AmEx's card. With the MoneyPak, "you typically reload online," she said. "You log in and you enter in the card number and you enter in the funds online. Well, if you use that method, it costs you $4.95 just to put money on your card.
"With the AmEx card, AmEx does not directly charge you very much. But it still costs money to use these prepaid cards. It's good that they don't have a monthly fee, but it's still going to typically cost you money to get cash out and to put cash on. And that's a real problem."
Martindale also takes issue with what she calls the lack of consumer protections on prepaid cards in general. "Because of a little wrinkle in how the laws are written, it's exempt from all the guaranteed consumer protections you would get if you had a debit card linked to a bank account," she said. "If your prepaid card is lost or stolen, there is no guarantee under the law that you are going to get your money back."
AmEx is offering its prepaid cardholders a service called Purchase Protection for accidental damage or theft of purchases made using the cards.
In February 2009, discount retailer Wal-Mart Stores Inc. lowered the activation fee on its MoneyCard to $3.00. In June of that year, stored-value and prepaid card provider nFinanSe Inc. followed suit. However, it is not clear how the market will respond to AmEx's reduced fee prepaid card. Happ could not predict the outcome, but expects it be profound for the industry. Martindale is more circumspect.
When Wal-Mart lowered the activation fee, other than nFinanSe, the rest of the industry apparently did not follow. "It kind of just didn't happen," Martindale said. "It's a very strange market. The terms and conditions, the number of fees, the amount of fees vary so widely from one card to the next, that it is hard for a consumer to really know what to do with it – not even when they realize that not all prepaid cards are created equal."
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