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Many prepaid card companies will be forced to strip away features — or even change bank partners — if they want to qualify for exemptions from the new caps on debit interchange fees.
July 6
Green Dot Corp.'s top executive says its reloadable prepaid cards will be exempt from the Federal Reserve Board's new rules limiting debit card interchange.
The Monrovia, Calif., company recently conducted a review of the Fed's new rules, which limit the fees that merchants pay when a customer pays with a debit card, and determined that its cards will meet the requirements that would allow its cards to avoid the fee cap, Steve Streit, Green Dot's chairman, chief executive and president, said during an earnings conference call on Thursday.
Green Dot manages Wal-Mart Stores Inc.'s MoneyCard program, for which General Electric Co.'s GE Money Bank issues cards. Streit said the partners will be adding the ability for cardholders to make a free ATM withdrawal each month, a requirement for the Fed's exemption.
The partners had already been planning to add this feature in 2012, Streit said. Green Dot's other cards already offer a free ATM withdrawal each month.
Many industry analysts expected prepaid cards would gain more interest from banks, third-party program managers and other companies because they ostensibly were exempt from the Durbin amendment to the Dodd-Frank Act, which instructed the Fed to establish lower interchange fees. Streit said that instead, interest from mainstream banks has faded.
In addition to the free ATM withdrawal requirement, the Fed's finalized rules carrying out the regulation included an unexpected provision that bans the ability for consumers to access funds in a prepaid card account via "check, ACH, wire transfer or other method" to qualify for the exemption.
As a result, analysts say features such as bill pay and person-to-person transfers would make cards ineligible for the exemption.
Streit would not comment on changes Green Dot might have to make to its program with Wal-Mart or its own reloadable prepaid cards.
However, he said, "whatever changes we may need to make" are "way at the fringes" of how cardholders use their cards.
"We may need to reroute certain kinds" of transactions but it would not affect "the vast majority" of Green Dot's customers, Streit said.
Interchange revenue accounted for 28.8% of Green Dot's total operating revenue in the second quarter, which increased 27% from a year earlier, to $115.03 million.
The revenue increase was driven by growth in the number of active cards and higher dollar loads onto its cards.
The company said active cards, or those that customers have used to make a purchase, reload funds or conduct an ATM withdrawal in the previous 90 days, were at 4.1 million as of June 30. That is down from the 4.3 million active cards reported at the end of the first quarter, when Green Dot's figures typically are higher because of tax-refund card programs.
In general, customers loaded more money on Green Dot's cards, which function like a traditional debit card but lack a corresponding demand deposit account offered by mainstream banks. The gross dollar volume loaded onto Green Dot cards was $3.6 billion, up 53% from a year earlier. The company also activated 1.82 million new cards during the quarter, up 23% from a year earlier.
The higher figures helped Green Dot post a 27% increase in operating revenue, to $115.03 million. The company's net income fell 3.5%, to $12.5 million, or 27 cents per diluted share.
