The Payments Center at the Philadelphia Fed, along with Rachel Schneider at CFSI published a great report on prepaid card usage back in August. The paper has more seventy pages of information about how people use the cards. If you are a payments nerd (as says the Vice President over prepaid at one large Southeastern bank), then it makes for great reading.
Usage of prepaid cards differs greatly. A fair share of people buy a card and discard it after just a handful of transactions. Others use the card for years. As a result, it becomes difficult to speak in terms of ‘average’ customers. The authors have attempted to overcome this problem by breaking cards down in several ways: quintiles of transaction volume, source of purchase, and presence of direct deposit on the account. The data comes from Meta Payment Systems.
We hear that direct deposit accounts generate the most revenue, but it is news that “web GPR” cards are equally profitable. Cardholders with direct deposit paid an average of $10.72 per month whereas the web GPR’ers paid $10.54. Moreover, issuers received $6.60 from the direct deposit-enabled accounts but more than eight dollars from each web GPR account. On investor calls, analysts always ask if direct deposit enrollment is increasing. I have never heard anyone ask about fluctuations in the share of accounts opened up over the internet.
A small sliver of accounts make up most of the transaction volume. With the case of both those accounts opened up online or in a retail store, the top quintile of users (by transaction activity) make more transactions than all other quintile groups combined. The results for interchange fees show the same dynamic. Moreover, many accounts are absolutely worthless. On average, the lowest quintile of retail cardholders paid only 78 cents in fees per month of use. This is why it is hard to fault companies for charging a fee to buy a card in a store.
Loading is the exception to the rule that web GPR users pay more than retail GPR’ers. When limited to those people who set up their cards with direct deposit, retail buyers actually purchased 26 percent more loads. That is one more reason why I think people are misjudging the value of Green Dot.
Prepaid card users don’t fill up their gas tanks: The average purchase at a service station was approximately thirteen dollars. On a good day, thirteen dollars buys about four gallons of regular unleaded. It probably buys less than that in Chicago or California.
Fees from web and retail GPR are very different: More than half of fees paid by retail buyers were generated from transactions. That category only accounted for 22 percent of the fees paid on web accounts. With web accounts, more than half came from maintenance fees.
Direct deposit is a win for consumers. It is even better for program managers and issuers: With direct deposit, a customer eliminates his or her need to pay to have a check cashed. That saves a lot of money. Conversely, the median revenue generated by a card purchased in a store jumps 1279 percent when it is set up with a direct deposit.
Monthly card usage, web GPR with direct deposit: 11.3 purchases, 2.3 withdrawals, 1.5 loads. For store bought cards with direct deposit, the frequency of loads and withdrawals is slightly greater but the frequency of purchases is slightly less.