BB&T Corp. is launching a prepaid card that costs slightly more per month than some competing products — but lacks many back-end fees that have caught the ire of advocacy groups.
Its new product comes as many banks are bracing for the loss of billions of dollars in debit card revenue under pending limits on so-called swipe fees they earn from merchants. Prepaid cards, which function like a regular debit card, are an attractive option to many banks because they are exempt from the proposed caps.
BB&T, which is expected to announce the card on Wednesday, planned to offer the product before interchange regulation became an issue and is looking to deepen relationships with customers who have "difficulty managing and/or qualifying for a bank account," said Scott Qualls, the senior vice president of deposit access products for the Winston-Salem, N.C., banking company.
"It truly is integrated into our banking network and leverages our existing infrastructure, which may be our mobile infrastructure, our bill-pay infrastructure, our electronic payments infrastructure, at BB&T," Qualls said.
In targeting the underbanked, BB&T is going up against a handful of third-party providers that have marketed to the segment through retail stores in recent years. Those companies, such as Green Dot Corp. and NetSpend Holdings Inc., say they have been successful at attracting consumers partly by being transparent about the fees their cards carry.
Payments experts say the prepaid market is still open for competition, especially from banks that market the cards as an alternative for consumers who don't meet minimum balance requirements for a checking account or are establishing a banking relationship for the first time.
"Prepaid is a great tool for the bank to use to capture that dissatisfied checking-account prospect and convert them into a relationship at a bank," said Philip Philliou, a partner with the payments consulting firm Philliou Selwanes Partners LLC in New York. "Think of it as an account turn-down strategy. That, I think, is the great opportunity for them to grow their customer base."
Companies such as Green Dot, which manages the customer relationship but offers cards issued through sponsor banks, have been successful at marketing via retailers, Philliou said. "Retailers have carved out a space with prepaid in part because they haven't had any competition from the banks," Philliou said.
BB&T is focusing on offering its prepaid card, called MoneyAccount, through its branches and online but may look to sell through "alternative" channels, such as other financial services companies and retailers, Qualls said.
"Right now that's down the road," he said. "That's not something we're doing any time soon."
Qualls acknowledged that the $10 monthly fee the card carries is slightly higher than what some other prepaid cards charge — including the infamous Kardashian Kard, which charged $7.95 a month, but was criticized for collecting six to 12 months of fees up front. Qualls noted that BB&T does not charge for many of the services that competitors do, such as automated teller machine balance inquiries at BB&T ATMs and some point of sale transactions.
The monthly fee can be lowered to $5 per month for customers who load at least $1,000 on it every month.
Feedback solicited from its bank branches and client focus groups suggested that customers "would prefer kind of an up-front all-in fee versus a bunch of transaction fees on the back end," Qualls said.
Comparing the card to a checking account, "this pricing is very reasonable," Philliou said.
Qualls said: "We clearly looked at the competition, both the bank and the nonbank, and largely looked to how to best integrate it within our transaction account … portfolio."
Qualls downplayed the role that regulations played in BB&T's interest in prepaid, adding that the bank has offered gift cards as well as employee payroll and benefits cards for some time. "Clearly we paused and waited to ensure that it was still a good value proposition for our clients and for our shareholders in offering this product," Qualls said. "This was on our original prepaid road map and has been for some period of time."
Banks would likely have the most success leveraging the product to convert low-dollar checking customers to prepaid cards, instead of competing head-to-head with program managers like Green Dot, said Ben Jackson, a senior analyst in the prepaid advisory service at Mercator Advisory Group in Maynard, Mass. "We're still seeing the banks working through how they might offer these cards in lieu of checking accounts, but certainly a lot of them have in-house programs that they could easily convert," Jackson said.
Analysts expect more banks to offer prepaid cards in response to the interchange regulation. Under rules proposed by the Federal Reserve Board in December, debit card fees would be capped at 12 cents per transaction, compared with a current average of 44 cents per transaction. The rules, which were added to the Dodd-Frank Act last year under an amendment proposed by Sen. Richard Durbin, D-Ill., could reduce debit card revenue by $9 billion to $12 billion, according to various estimates.
"In the post-Durbin world, it is likely that banks, especially those with assets over $10 billion, will be looking at reloadable prepaid cards as one option to serve a portion of their customer base," Terry Maher, a partner at the Baird Holm LLP law firm in Omaha, Neb., and general counsel for the Network Branded Prepaid Card Association, said in an e-mail.
Steve Streit, Green Dot's chairman, president and chief executive, said in an interview last week that his company is in discussions with a few banks to manage prepaid card programs on their behalf.
Philliou said he is consulting a large national bank that is planning to offer general purpose reloadable cards to customers.
