Checking vs. Prepaid: Threat or Opportunity?

The dynamics of the card-issuing business — and, in turn, those of the banking industry — have changed dramatically in recent years as an array of economic, regulatory, and governmental factors and initiatives have combined to drive expansion in the use of prepaid instruments as well as continued evolution in the payments business. This has led financial institutions to seek new ways to achieve profitability, encompassing alternatives such as product restructuring, staff downsizing, and innovations to traditional products and delivery. Two critical areas that have been directly affected include card issuing and the demand deposit account (DDA) relationship. This report evaluates selected prepaid products in the market today to determine how fees for bank prepaid products compare to those of non-bank prepaid products and also to compare prepaid fees to those of basic checking accounts.

Pimary Questions:

• What factors are encouraging the expansion of prepaid products in the U.S. market?
• How do fees of bank prepaid cards compare with those offered by non-bank providers?
• Does prepaid augment banks’ product lines or detract from traditional checking products?
• How are bank prepaid products positioned with key demographic segments?
• How competitively priced are prepaid cards when compared with basic checking account services?
• What regulatory factors influence the prepaid market?

Companies Mentioned: American Express, Bancorp Bank, Bank of America, BB&T, Capital One, Central Trust Bank, Citi, Comdata, Comerica Bank, First California Bank, GE Capital Retail, H&R Block, JPMorgan Chase, MetaBank, MasterCard, NetSpend, Plastyc, PNC, Regions Bank, SunTrust, Synovus, TD Bank, U.S. Bank, UMB Bank, Visa, Webster Bank, Wells Fargo

• A survey collected online by Javelin in October 2012 from a random‐sample panel of 3,217 consumers. 
• A survey collected online by Javelin in March 2013 from a random‐sample panel of 5,534 consumers. 
• A survey collected online by Javelin in October 2011 from a random‐sample panel of 3,210 consumers.