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An Institutional Approach to Prepaid Cards

Adam Rust's picture

Posted May 31, 2013

Traditional banks face an interesting choice when the pick a strategy to acquire customers for their prepaid cards.

At first blush, most of the big bank cards have generated customers by reaching

out into the community, often through unusual channels, to find people. Example One: Chase recently presented its marketing strategy to policy makers at the FDIC. Chase has decided to go directly to the community in a number of ways. Here are a few:

The Air Show was on an air base in Florida.

Chase says that since roll-out, 69 percent of Liquid cardholders had no previous relationship with Chase. Moreover, that energy is gaining steam: In March 2013, seventy-four percent were new to the family.

That kind of result is certainly paying dividends, as Liquid now has hundreds of thousands of accounts.

But another approach is to build upon some of the pre-existing relationships inside the bank.

I met with the payments staff at one Southeastern bank recently where this is the strategy. Most of their prepaid card customers come from the bank's treasury management division. They are picking up accounts by pitching the service to businesses. "It's like a three percent raise for the worker and a savings for the business."

Granted, teaming up on payroll cards is hardly novel. Still, that bank has also discovered a niche with the cruise ships. It is not great to have hundreds of staff working on a ship with hundreds of thousands of dollars in cash lying around. It isn't entirely simple to offer such a product, as a bank has to be able to work in currencies from all over the world. They also have some accounts with universities.

I think another likely target will be prisons. There are only a few companies out there that specialize in this space. One is Continental Prison Systems, a start-up that puts kiosks in a variety of prisons and jails. Generally, the kiosk ends up taking payments from family, to family, or through the commissary. Sometimes the kiosk can be the vehicle for child support payments, as well. There are some potential opportunities for program managers to generate very high fees, of course, but there is still a lot of value when a person can leave prison with money on a card.

The big banks with large branch networks are probably the only entities that can pull off an institutional strategy. Doing so means that a bank can lower its acquisition costs to virtually nothing. Moreover, it tends to mean that the program benefits from higher rates of direct deposit. At the aforementioned bank, almost 7 in 10 accounts have a direct deposit. It is also appears to be fairly "sticky," as average tenure is now approaching two years.