Prepaid card executives should feel great about 2010 — the number of cards issued increased; spending growth is way up; the average life for reloadable cards is increasing; and the industry survived attempts by lawmakers to regulate the economics of reloadable prepaid cards. Successful IPO's of Higher One, NetSpend and GreenDot have helped to further define prepaid as a credible and established corner of the payments card business.
And yet, just when the segment has achieved near respectability, the Kardashian Kard comes along and casts a black eye on prepaid and puts the entire segment at risk again. Although Connecticut Attorney General Richard Blumenthal issued the strongly worded warning shot about the Kardashian Kards, he was just one of many highly influential critics.
The pricing is not what bothered me about the Kardashian Kard. Quite frankly, front-loading the fees and charging a modest monthly fee did not make the Kard a "bad" product. The pitch seemed to be based on no more than the merits of a basic prepaid card — "easy to get," "no credit check" and "spend what you have." Like the pricing, pitching a standard prepaid card did not make the Kard a bad product either.
My issue was the marketing of the card and our industry's somewhat lax approval process for allowing such a product to come to market. Marketing financial products to young adults requires thoughtfulness and an extra degree of care. Credit card marketers learned the hard way. After years of blanketing college campuses with take-ones and aggressive card-acquisition campaigns, lawmakers had enough and changed the playing field. Credit card marketers are now effectively prohibited from marketing to students on campus.
Sadly, lots of high-quality, responsibly marketed, credit card products were terminated because of the antics of a few irresponsible issuers. As an industry we were aware of the over-the-top abuses to acquire students, but we kept quiet and ultimately paid the price.
On the face of it, the Kardashian Kard was terrible value as marketed exclusively to young adults with a message of frivolous spending. With moderately priced reloadable prepaid cards such as the H&R Block Emerald Card and the Walmart MoneyCard in the market, it is extremely bothersome to see a fee-intensive reloadable prepaid card being marketed to youth. Whereas front-loading fees may make sense on cards marketed to adults, it is distasteful to push that out to youth. Similarly, any message to young adults that deviates from "save" or at worst "spend responsibly" is also distasteful.
As an industry we need to be more thoughtful. Let's not let cards like the Kardashian Kard come to market and make a bad name for all prepaid products. We need to impress upon our peers the need to act responsibly. With prepaid you have an ecosystem that consists of a program manager, the card processor, the card issuer and the network — together those entities should serve as a protective barrier ensuring that only quality programs come to market. Each player in the prepaid ecosystem has a certain level of responsibility when crafting a card program and must perform the due diligence. At any point, one of these entities could have spoken up and questioned the value proposition and strategy for this product. When we fail to self-police our industry, we are directly inviting the media and state attorneys general into our businesses.
Monday, one of my state's U.S. senators, Robert Menendez, D-N.J., announced that he "is targeting hidden and excessive fees associated with prepaid cards." Quoting from the senator's website: "Menendez also recently sent a letter to Presidential Special Assistant Elizabeth Warren, seeking to work with her and the new Consumer Financial Protection Bureau on issuing common-sense regulations for prepaid cards that would protect consumers relying on them for purchases from getting fleeced." In addition, Menendez also announced Monday that he "will introduce new legislation before the end of the congressional session to eliminate certain prepaid debit card fees and provide consumers with full, up-front disclosure of fees before they purchase the cards."
As an industry, we should be thankful that the Kardashians took their product off the market. Hopefully the demise of the Kard takes the oxygen out of the negative press and provides us with some time to do damage control and work constructively with our legislators and media. We have a phenomenally powerful value story in prepaid that we cannot allow to get foreshadowed by one or two bad stories. As an industry we should reflect on this episode and learn from it.
