A pilot program approved by the FDIC Board of Directors yesterday to evaluate the feasibility of offering no-frills, low-cost checking and savings accounts is an interesting idea. The program is designed to help millions of "unbanked" and "underbanked" Americans regain trust in the banking system, and develop a relationship with a financial services provider. On the one hand, although well intentioned, this strikes me as "too little and too late."
On the other hand, there's already an answer for this serious problem in the relatively new, but high-growth reloadable prepaid debit card industry. These cards are essentially portable bank accounts and are the solution for a growing number of people. A reloadable prepaid debit card can be purchased for as little as $3, and consumers can even load their paychecks onto these cards for free. The prepaid card industry is in the business of catering to this underserved population and is growing very rapidly as a result.
An article in yesterday's USA Today ("Many shun bank accounts but pay more for financial services") calls attention to the program and quotes numbers from an FDIC study in 2009 which found that nearly 8 percent of U.S. households or 17 million people are unbanked and don't have bank accounts. An additional 43 million people are underbanked. That means they have bank accounts but often fall victim to expensive financial alternatives outside the mainstream such as check-cashing services, pawn shops and pay day lenders.
Thanks to recent federal financial reforms, the banks are charging many of us less in fees lately. Revenues from overdraft protection coverage and debit card transactions are smaller than they used to be. That's good news for most Americans although monthly fees for checking accounts have already started to escalate to make up the difference. One bank which built its slogan around free checking is now charging as much as $15 a month for a checking account depending on the minimum monthly deposit and balance.
Rather than treat the unbanked and underbanked as second class citizens, the prepaid card industry is listening to their needs. This large group of 60 million Americans can have their paychecks deposited onto reloadable prepaid debit cards for free and therefore, save on outrageous check-cashing fees of 2 to 5 percent of the value of their paycheck. People can use the cards to make purchases at any retail location, get cash at ATMs, pay bills and purchase items online.
It's very interesting to see the FDIC incentivize banks to provide services to millions of Americans, but why should the government have to offer this? The reloadable prepaid debit card industry already recognizes the opportunity in providing excellent low-cost banking services to 60 million consumers without the need for any stimulus from the government.
Welch is CEO and Chairman of the Board for nFinanSe, a financial services company and provider of stored value and prepaid card solutions headquartered in Tampa, Fla.