02/04/2013 05:48 pm ET Updated Dec 06, 2017

Prepaid Is the New Checking (With Help From Your Cellphone)

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.

Phone + card = 21st Century checking

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.