This morning VISA announced a series of new standards for prepaid cards in its network which should make
their "designated" cards the new baseline for consumer-friendly payment products. VISA says it will offer the special designation for cards that meet a set of criteria:
- The first game-changer: VISA will not permit any card to carry overdraft. I guess that VISA has decided that it can no longer wait on the CFPB. This probably settles the overdraft question once and for all. Note - it happened without regulatory intervention.
- Second game-changer: VISA-branded cards will offer fee-free customer service and customer service. This includes fees for declines, for in-network ATMs, and for cash back at the point-of-sale.
- Third game-changer: Full zero-liability protection.
Other provisions will essentially ratify current best practices: all VISA cards must come with FDIC insurance and with full Reg E protection.
Moreover, it appears that VISA is going to establish its own disclosure box.
What Comes Next:
I will be intrigued to see how MasterCard responds to VISA's plan. Going forward, I have to believe that anyone offering advice for someone who is in the process of choosing a prepaid card will include the statement "make sure you get a VISA card." The savvier shopper will know to look for the specific "designation" symbol on the package. So clearly the best advice will be to go for a designated card, but I'm sure the trust will spill over to other VISA-network cards.
Plenty of people still buy pay-as-you-go cards. But pay-as-you-go is also the sub-optimal share of the market. Pay-as-you-go cards serve people that plan to make only a few transactions. Moreover, pay-as-you-go may itself be felled by government fiat in the near future. Stay tuned.
But after MasterCard picks up a few short-term accounts, the new normal will emerge. Now we don't have to wait for the CFPB to decide on overdraft. The business side now agrees with the advocacy side on overdraft (no surprises) and one-fee pricing (cost certainty)!
Will this mean that the de facto $4.95 per month maintenance fee (i.e. Liquid) for one-fee cards is suddenly imperiled?
It also puts a major dent in one of the skeptical narratives about prepaid cards. Lots of people comment that prepaid cards "nickel-and-dime" their customers. When a card charges an upfront monthly fee but never imposes a transaction fee, that critique is no longer credible.