A Thing
The Green SheetGreen Sheet

News from the Wire

Research shows prepaid can be cheaper than checking

Thursday, January 26, 2012 — 11:57:37 (EST)

Montvale, N.J., Jan. 26, 2012 -- The recent launch of several new prepaid debit cards has brought fresh attention to prepaid cards. Unlike credit cards, prepaid debit cards allow consumers to manage their money, control spending, and avoid interest charges and credit card debt.

Both Federal and State governments are using prepaid cards to distribute government benefits including unemployment compensation and Social Security. According to a 2011 Hudson Institute study, The Move to Digital Payment: When the Check is No Longer in the Mail, US Treasury estimates that moving all Social Security payments to direct deposit or prepaid cards would save taxpayers $125 million a year.

"Not only is there is a cultural shift happening in the way businesses and governments manage their payments, but also in the way people manage their finances. Many young people today have never set foot in a bank or written a check, while others are choosing prepaid cards because they either can't qualify for a bank account or don't want to pay rising checking account fees," said Kirsten Trusko, President & Executive Director of the Network Branded Prepaid Card Association (NBPCA).

Additionally, many prepaid cards offer savings programs, which help consumers save money. As noted in New America Foundation's policy paper, Beyond Barriers: Designing Savings Accounts for Lower-Income Consumers, "consumers using the savings pocket of a prepaid card reported that customers who set up defaults or automatic transfers into their savings accounts had more success accumulating savings." The policy paper further recommended "to help bridge the gap between where small-dollar savings products are offered and where consumers are located . . . the small-dollar savings products could be sold at retail outlets through branchless banking or as a reloadable prepaid product."

Stacked up against low-balance checking accounts, the yearly cost of using a prepaid debit card is less. Prepaid debit cards, like checking accounts, offer different fee structures to meet each individual's needs. Most card providers will waive monthly fees if consumers either get their wages or benefits directly deposited to the cards or maintain higher monthly balances, similar to checking account options offered by banks. Moreover, prepaid cardholders can avoid paying ATM fees by using in-network ATMs, just like debit card users, or by requesting cash back with purchases at retailers, just like debit card users.

A Bretton Woods March 2011 study comparing the cost of using cash, low-balance checking accounts and prepaid cards concluded:

  • Reloadable prepaid card users' costs range from $76 to $261.35 annually if they use direct deposit and without direct deposit yearly fees range from $184.35 to $380.15.
  • Bank customers pay from $218 to $284 annually for a basic checking account.
  • Consumers who pay to cash checks and live a cash-based lifestyle pay $140 to more than $720 annually.

Prepaid cards are viable alternatives to checking accounts, are issued by highly regulated banks and offer a variety of consumer protections including FDIC insurance on a pass-through basis and the card brand's zero liability protections against lost, stolen or fraudulent charges. Additionally, the majority of general purpose reloadable card issuers voluntarily provide Regulation E coverage as it applies to payroll cards. Prepaid card issuers comply with all applicable fee disclosure requirements and consumers also have access to card and fee data both online, or via a toll-free telephone call.

"It's important to remember that not everyone qualifies for free checking and the basic checking account services that many of us take for granted. Prepaid cards often compare favorably with the potential costs of low balance checking accounts," continued Trusko. "Prepaid cards provide an option to consumers who might otherwise be dependent on an insecure and inefficient cash-and-carry lifestyle."

A significant portion of the American population cannot pass the processes used by banks, such as ChexSystems, which qualify consumers for a bank account. According to the 2009 FDIC National Survey of Unbanked and Underbanked Households an estimated 7.7% of US households, about 9 million, are unbanked and an estimated 17.9% of US households, about 21 million, are underbanked. Approximately 80% of all banks and credit unions nationwide are members of, or use, ChexSystems. Prepaid card fills a void in the financial services marketplace for these individuals, enabling them to access the financial mainstream.

According to a KPMG study, today's financially underserved market who may choose the prepaid debit card option include recent graduates, hourly workers, immigrants and higher income workers who may have lost jobs, homes to foreclosures or filed bankruptcy due to the recession and can no longer qualify for checking accounts. For those who need or want another option in handling their finances, prepaid cards allow individuals to participate in our electronic, card-based marketplace with the safety, convenience and security of a bank debit card without the discrimination, risk and cost of carrying cash.

About the NBPCA

The Network Branded Prepaid Card Association (NBPCA) is a non-profit, inter-industry trade association that seeks to educate, advocate, protect and promote on behalf of network branded prepaid debit cards and represents the common interests of the many types of companies who come together to deliver the wide variety of prepaid products. For additional information, visit www.NBPCA.org .

The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information: bankcardlife.com?orid=33533&opid=1 .

Source: Company press release. end of article

A Thing