As recently as a decade ago, banks competed with other banks and really, it wasn’t that much of a stretch to woo customers. Free checking was one way to do it and banks were more than happy to provide their customers that courtesy; after all, a loyal customer is a lifelong customer.
The goal was to ensure those customers turned to them for all of their financial needs, including their credit cards and even their mortgages. There were more than enough customers for all the banks to turn profits. Now, though, it looks as though many big banks have painted themselves into the proverbial corner – and it’s the prepaid card companies that are now holding that paint brush.
Every big bank has altered, in some way, its free checking program. Wells Fargo, Bank of America and others are either no longer offering free checking or have put into place restrictions that make it difficult for may consumers to qualify. On average, minimum account balances of $723 is what’s required to meet the free checking threshold. Monthly fees are on the increase, too, as are ATM fees and even overdraft fees. As a result, consumers are abandoning their big banks. They’re opting to include alternative financial products, such as prepaid debit cards.
FDIC completed a recent survey and what it found was that 25 percent of households in the U.S. now use what it calls alternative financial services, most notably, prepaid debit cards. Not only that, but a whopping 10% of American households no longer have checking accounts. Much of this can be chalked up to past problems with NSF charges or other credit problems that make consumers unbanked or underbanked. For many, though, they’re simply avoiding the banks and turning to the reloadable options.
Now, though, many of the banks, realizing they’ve burned a few proverbial bridges are also offering prepaid debit cards. In fact, 60% of banks now offer these products. The problem is – many consumers are feeling used and even abused, according to FDIC. This is one reason why prepaid products, including the incredibly popular Amex and Wal Mart offering of Bluebird prepaid card as well as the new American Express Serve card are in big demand.
One reason is the way American Express treats its prepaid customers. It offers the same benefits as its traditional credit card, including Globe Assist Services, which provides emergency assistance for card holders to replace their passports or other identification when they’re outside the U.S. They also get those great perks associated with around the clock customer service and purchase protection, too. With benefits like these, it’s little wonder the banks are sweating the change.
There’s another reason the American Express Serve card is slated to become one of the best in the industry – it has benefits that no other prepaid card can even touch at this time. Card members can set up what’s known as sub accounts. They can make these extended accounts for family members, friends, co workers and even “vacation fund”. It’s all linked to the same Serve account and it’s easily managed online.
Serve also pays attention to the charitable efforts of many of its consumers. It’s partnered with five charities to give back to the communities that support it. It’s a great way to introduce any product – and certainly a product that comes from the financial sector.
Not only that, but prepaid products are now likely to be cheaper than traditional checking accounts. For instance, the American Express Bluebird prepaid debit card promises far more reasonable fees than most checking accounts. It should be noted most agree American Express, with its Bluebird and Serve products, are proving to be the most formidable competition in this particular area. The only downside could be many consumers are unaware of how each prepaid card offer varies in how it defines monthly fees, service fees and other fee structures. That could soon change, though. The Consumer Financial Protection Bureau is currently considering recommendations regarding how to standardize fees and disclosures for prepaid debit cards and credit cards.
Remember though, not all prepaid products are cost effective. There are still a lot of prepaid debit card offers that come with entirely too many fees. Your goal is to not only get away from fee heavy checking accounts, but to also avoid the same fee heavy dynamics of the wrong prepaid debit card. Another study, this time conducted by the Pew Charitable Trusts, shows that there are confusing verbiage and an overwhelming number of fees that are part of some prepaid products. It studied 52 prepaid debit cards and some of these cards had few fees, while others had up to 15 different fees. Those fees add up and worse if you’re unsure what they are, it’s going to be difficult to bypass them. Be sure you understand it before you spend your time setting the account up.
So who else is using prepaid debit cards? College students and their parents are increasingly turning to prepaid debit products. It’s actually proving to be a great solution especially if kids are attending school away from home. The money transfers are usually instant and parents can easily stay on track of where their kids are spending their money. Plus, it’s one way of ensuring there aren’t any pesky overdraft fees or late payment fees common in both checking accounts and credit card accounts.
It’s believed that 9% of checking account users are responsible for 84% of overdrafts. It makes sense, then, that those who struggle to keep their checkbooks balanced would benefit from prepaid products. It eliminates those gray areas – not to mention the overwhelming number of NSF fees that come with not having enough money in the bank.
Finally, for those who simply have grown weary of their banks and the profit seeking grins they see every time they walk into their branch, prepaid cards provide an alternative way of bypassing all of the forced pleasantries – and you’d be surprised at just how many consumers have had enough of that.