Did you notice? After years of being two separate product lines, prepaid card accounts and checking accounts are merging into a single new offering:
- American Express calls Bluebird "The Checking & Debit Alternative by American Express"
- Simple's tag line is "Worry-Free Alternative to Traditional Banking"
- GoBank's pitches itself as "A New Kind of Checking Account"
- ... and of course, at Plastyc, we have had UPside and iBankUP providing "The Power of a Bank Account in a Phone" for a few years now
All the above products are built from a prepaid card foundation, with multiple add-ons to expand their usefulness, not the least of which is a mobile application that turns customers' smartphones into mobile checkbooks.
The convergence comes after a number of changes in best practices, regulations and innovations for prepaid cards:
- FDIC "pass-through" insurance applies to individual prepaid card accounts
- Prepaid cards are routable via ACH allows direct deposits and bank transfers
- Cards able to receive federal funds have Reg E consumer protection
- On-demand paper checks enable payments to anyone
- New services like Walmart's Rapid Reload™ allow cashing checks directly into cards at low costs
- Mobile Remote Deposit Capture allows depositing of paper checks 24x7
This results in an all-around equivalence between checking accounts and prepaid card accounts, from a consumer stand-point.
Even major market players like H&R Block are deploying prepaid-based financial services that provide a full-blown replacement for a checking account: look at the Emerald Card, which is now available with optional access to a line of credit product called Emerald Advance and a Savings accounts.
How should banks react to this new market reality? I believe they should think hard about introducing "prepaid as the new checking" if they want to serve more customers at a lower cost.
For consumers, the upside is more access to premium services even if you keep a low balance.