Prepaid Card Issuers Seek an ‘Edge’ by Linking to Banking Products

A pair of companies specializing in stored-value products for the underbanked population are reaching beyond prepaid cards to extend credit and savings options to their cardholders. Next Estate Communications Inc., which launched its Green Dot Financial Network to support check-cashing and prepaid cards, already offers its cardholders a program to build a credit score that can later be used to apply for a credit card or additional loan products. The scoring model uses in-house cardholder behavioral data and other information. But now, rather than risk losing customers who ultimately establish a good credit score to banks, Next Estate says it is preparing to launch several credit products, such as low-cost loans, without being more specific. The Monrovia, Calif.-based company also plans to begin offering cash remittances by the end of September. “We view ourselves as a long-term relationship holder, not a transaction company that cashes checks for people,” says Next Estate Chief Executive Steven Streit. Green Dot, which has 40,000 merchant locations in its network, including units of Radio Shack Corp., Rite Aid Corp., CVS Corp., and Sunoco Inc., has issued more than 1 million prepaid cards, primarily through Columbus Bank & Trust. The company also manages a secured credit card program for Merrick Bank of Utah, and has a deal in the works to manage a prepaid card for one of the five largest banks in the country. Green Dot cardholders are charged $4.95 to load value onto their card. Next Estate has also partnered with Boost Mobile to offer a cobranded, prepaid Visa card through Columbus Bank and Trust, Columbus, Ga. Cardholders buy airtime from Boost along with goods and services from Visa merchants. Users hand over cash at Green Dot merchants to load funds onto the card. Cardholders purchasing airtime with the card receive an additional 10% in Boost Mobile dollars that can be applied to their wireless accounts. And now Next Estate is testing a recurring-billing arrangement for cardholders with Boost Mobile. Austin, Texas-based NetSpend Corp., which launched in 1999 and reportedly has more than 700,000 prepaid cards in circulation, is launching a savings account for cardholders. The program is endorsed by the Financial Service Centers of America (FiSCA), a trade association for check-cashing services. FiSCA's endorsement is expected to help NetSpend garner the support of such leading check-cashers as ACE Cash Express. Accounts will be held by InterNational Bank, which plans to offer competitive interest rates. During enrollment, cardholders can elect to make a one-time deposit to the account or opt to have a fixed, preset amount transferred into the account each time they load value onto their NetSpend card. In the case of the latter, the transferred amount cannot exceed 25% of the amount being loaded onto the card. Cardholders pay no enrollment or maintenance fees. The opportunity to offer a savings account to customers through NetSpend is expected to give check-cashing services a way to retain customers in the face of stiffening competition, says Sherrie L.W. Rhine, a senior economist for the Federal Reserve Bank of New York. “It's a way for check-cashers to make up some lost ground,” she says. “Savings programs are something the non-banked and under-banked want because payroll cards and general-spending prepaid cards are not necessarily FDIC insured,” she adds. “Providing these kinds of bells and whistles can give check-cashers and prepaid card issuers an edge.”