Ever since the Credit CARD Act went into effect and restricted banks` ability to collect certain fees from their customers, banks have been looking for ways to increase revenue streams, from adding monthly fees to formerly “free” checking accounts to upping their ATM fees. Prepaid cards have enjoyed a recent surge in popularity, in part due to customers who want to try to avoid what they perceive to be costly checking accounts, and in part because banks are able to impose fees on prepaid cards, for everything from activating the card and loading it with money to making a balance inquiry or getting money from an ATM.
Now Chase Bank, whose shares fell one percent this week, is introducing a new prepaid card, the Chase Liquid card, which will be reloadable and offer lower fees than many other prepaid cards on the market. The Chase Liquid card will cost $4.95 a month, and is available to anyone who can pay the initial $25 deposit to open a balance. Card holders need not be Chase customers or have a checking or savings account at all.
Underbanked and Overcharged
Many prepaid card users, in fact, are the so-called “underbanked” population who aren`t able to qualify for checking accounts due to lack of documentation, poor credit history, or a record of writing bad checks. Prepaid cards are used like debit cards, but instead of drawing funds from a checking account, money is pre-loaded directly onto the card and then used until it`s gone. This way there is no way to overdraw an account.
Prepaid cards can be used at brick-and-mortar stores, to make purchases online, or to pay bills. Cash can be withdrawn from the prepaid card at any participating network ATM, usually for a fee. That`s the downside – many prepaid cards are loaded with fees, not only for ATM withdrawals but for any transaction, even reloading the card with more money.
Cutting the Fees
The Chase Liquid card will not charge a fee for ATM withdrawals at Chase ATMs, giving it an edge over most other prepaid cards. Withdrawals, transfers, or balance inquiries at non-Chase ATMs will cost $2.00, but customers can withdraw money from a teller at a non-Chase bank for free.
With many checking accounts charging monthly fees between $7.50 and $15.00 for a no-frills account, some frustrated bank customers may decide that a reloadable prepaid card that costs $4.95 a month is a better idea than a full checking account. With the ability to deposit money – you can deposit checks directly to your prepaid card account – and withdraw it, as well as pay bills and use the card online, there aren`t many things customers can`t do with a prepaid card.
“Clear and Simple”
Ryan McInerney, Chase`s CEO of consumer banking, released a statement saying that “Chase Liquid is a low-cost alternative to traditional checking accounts, and its terms are clear and simple. We are very proud of the product and think it will make a positive difference in our customers` lives.”
Since the Chase card does charge significantly lower fees than many prepaid cards, with the $4.95 monthly fee the only charge for customers who do things like make transfers, deposits, and withdrawals at Chase branches or ATMs, how exactly does Chase stand to rake in profit from the prepaid card market? It costs nothing for a prepaid card holder to make a purchase using the card, but in fact, banks are allowed to collect a higher processing fee from merchants when customers use a prepaid card instead of a debit card. This is due to a loophole in the Credit CARD Act and it remains to be seen whether it will remain this way.
In the meantime, people who are fed up with paying high fees for checking accounts or who cannot get a checking account will be wise to look into the Chase Liquid card when it becomes widely available.
The Chase Liquid prepaid card is currently being test-marketed at 200 branches in two different test markets and Chase plans to make it available at branches nationwide later this year – probably sometime this summer.