Chase enters growing market for prepaid cards
The prepaid card market is getting crowded as more mainstream banks start providing the checking account alternatives pioneered by such alternative financial services firms as Green Dot Corp. of Monrovia.
JPMorgan Chase & Co. is the latest bank to offer the cards, which are designed for lower-income people who can’t afford the monthly charges and frequent additional fees that come with basic checking accounts. They also are an alternative to credit cards for people with poor or no credit histories.
Chase said that its “Liquid” card, to be made available at all of its branches this summer, will have a $4.95 monthly fee. Customers can load paychecks or cash onto the card for free and withdraw cash from Chase ATMs or tellers without being charged.
Prepaid use grew 18% in 2011 compared to 2010, according to Javelin Research. U.S. Bank is among the mainstream institutions already offering the cards, with American Express and even financial advisor Suze Orman competing in the burgeoning market.
The new laws and regulations that followed the financial crisis cost banks billions of dollars in fees that they raked in from merchants that accept debit cards. The new rules didn’t limit such charges on prepaid cards, making them a tempting new source of revenue for banks.
“The interchange fee that retailers have to pay on debit card transactions was basically cut in half,” said Bill Hardekopf, chief executive of LowCards.com, an online tracker of cards. “Banks have scrambled to come up with other revenue streams to make up for this.”
In a guide to prepaid cards, the nonprofit Consumer Action and American Express advised consumers to look for free customer service and consider their own habits and needs when shopping for one of the cards.
For example, consumers who make many purchases would want a card without transaction fees, while those who withdraw cash should look for a card with a free ATM network. To avoid ATM fees, choose a card that allows you to get cash back when you buy groceries.
For the record: 2:20 p.m. May 11: A previous version of this post described Green Dot as a nonbank financial services firm. It became a bank holding company in December by buying a small bank in Utah.
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