Over the years, the primary way banks make money has shifted from collecting interest on loans to collecting fees from customers using their debit and credit cards and other bank products. As regulations make it more difficult to collect some fees—namely, debit card overdrafts—banks are growing more interested in prepaid debit cards.
Why? A Globe and Mail story puts it succinctly:
They’re the least-regulated plastic products on the market.
While most prepaid debit cards don’t have terms quite as bad as celeb-touted total ripoff Kardashian Kard, which was killed off for being predatory and (even worse) resulted in bad publicity, most of these cards come with tons of fees. Studies have shown that using such a reloadable, disposable card, which can be used just like a standard debit card but isn’t attached to a bank account and requires no I.D. or credit history, typically incurs $40 to $80 in fees in the first two months of usage.
It is understandable why banks like these cards—Big fees! Few pesky regulations! No strings attached!—but what consumers would be naïve enough to think such a product is a good idea? Based on whom these prepaid cards are being marketed to, the answer is: teenagers.
As the Globe and Mail story points out, these cards are often aimed at kids ages 13 to 15 and feature the likes of the actors from the “Twilight” movies. Not long ago, there was even a card emblazoned with Hello Kitty. A big reason the Kardashian’s card caught hell was because it was being pushed primarily on youngsters who are impressionable enough to think that the high-flying Kardashians are good consumer role models.
The WSJ writes that banks are expecting to lose billions of dollars due to the fees they’ll no longer collect on debit card overdrafts and interchange fees in the post-reform era. To make up some of the losses, they’re putting a big push behind loosely regulated, fee-heavy prepaid cards. In some cases, banks seem to be hoping that prepaid cards will replace traditional accounts and debit cards:
Banks are pursuing a number of alternatives for prepaid cards, including potentially using them as a debit-card replacement for low-income customers who keep small checking-account balances and don’t make many transactions. Such customers aren’t very profitable for banks, and a prepaid card could cost banks less than checking accounts to maintain.
So in addition to teenagers, the other group being targeted for prepaid debit cards is poor people. If the main two groups attracted to these kind of cards fall into the category of naïve and/or desperate, what does this say about the product?
Also, the thought has had to occur to banks that getting teenagers accustomed to prepaid cards (and their fees) while they’re young increases the likelihood that they’ll keep using such cards (and not balk when they’re confronted with fees) as they grow up. Paying fees left and right also increases the likelihood that when teenagers grow up, they’ll fall into the other key demographic ripe for prepaid debit cards: They’ll be poor.
Read more:
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