By Ray Birch
LOUISVILLE, Ky.—As FIs focus on Walmart’s GoBank account as a threat to transaction revenue, are they paying attention to the threat from reloadable prepaid?
Bob Giltner
One analyst thinks they are not, adding that general purpose reloadable prepaid is stealing payments transactions from underneath the noses of credit unions and banks, which are also not recognizing who the real users of reloadable prepaid cards are.
“This is insidious,” said Bob Giltner, CEO at R.C. Giltner Services Inc. “These transactions are being lost to credit unions and banks and they are not really aware what is happening. If I take out money from my checking account and put it on prepaid, the credit union does not notice what is happening—this is below the radar.”
Prepaid reloadable is growing and more so with the well banked than the underbanked, a statistic Giltner said is not often recognized.
Prepaid also has become a focus of the Consumer Financial Protection Bureau, which recently proposed strong, new federal consumer protections for the prepaid market.
Well-Banked Consumers Use Prepaid
Pointing to two prepaid studies this year, one from the Pew Charitable Trusts and another from the Federal Reserve Bank of Philadelphia, Giltner shared, “Both said the same thing: 80% of the prepaid transactions are by well-banked consumers who use the prepaid card as a companion card to the checking account.”
Eighty-percent of the heaviest users are millennials as well as those making more than $100,000 a year, he added. “The rapid growth of prepaid is not being driven by the underbanked—the consumer segment most often thought of when you talk about prepaid.”
As is expected to take place with Walmart’s GoBank account, what is driving prepaid’s attraction is no overdraft fees. Giltner said the shift is another example of how the payments landscape, and the financial habits of consumers are changing.
Giltner said users like prepaid as a budgeting tool, and as a means to control kids’ spending and overdrafts.
“Twenty-five percent of all transactions now are on ways to pay that won’t allow an overdraft,” said Giltner. “The horse has left the barn on this and banks, credit unions and Walmart are late to the fee chain. The companies offering the prepaid cards primary marketing is ‘no overdraft fees ever.’”
The shift to prepaid usage by the well banked has been happening for about two years, said Giltner, who has been closely following the trend. “The Fed’s payment study in 2013 already showed that prepaid cards represented about 20% of all debit card transactions—and how many transactions can the underbanked really make? Clearly the signals have been there.”
To adjust to the shift, Giltner recommended banks and credit unions develop a separate checking account that does not offer overdrafts and is only accessible by debit card—no checks. Allow other cards to be coupled for a small fee. And make the account easy to transfer money to and from, such as with a mobile phone. Then market the debit card simply as a companion card.
“It’s all marketing,” said Giltner. “Don’t call the account ‘checking.’ Don’t call the card ‘debit.’ ”
Most of all, pay attention to the shift, advised Giltner.
“Again, these are well-banked consumers—this 80% using prepaid. These are people with bank accounts that could write a check or use a debit card and they are choosing another payment choice other than the credit union’s service.”
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