Oct 03, 2011
Prepaid Bill Payment
Must Issuers be Portable Banks?
Automated bill payment is quickly becoming a must-have feature for prepaid debit cards – signaling a trend in which prepaid issuers are offering as many bank-like options as possible.
Where once prepaid debit cards were a wallet side kick – tools to store small amounts of spending money or to make purchases online – they are now increasingly associated with direct deposit, employee-based health funds, government benefits like social security and food stamps, and even tax returns. And as the dollar amounts on these cards get larger, cards are becoming more like portable banks accounts, offering features like bill payment and electronic transfer.
Durbin Amendment Prompts Rapid Change
Recent regulatory changes – most notably the Durbin Amendment – are pushing prepaid issuers to include banking features, including automated bill pay. The Durbin Amendment limits the amount of money banks and other credit card issuers can earn on transactions (otherwise known as swipe fees). Even so, the amendment largely protects independent prepaid providers.
As revenues from transaction fees drop, analysts expect banks to begin shedding their debit card programs and those associated customers. But users that don’t have good credit, or may not have any credit history, will not be able to simply switch to credit card programs. What’s more, credit card programs are expected to become even less lenient on who they’ll accept now that they’ll also be losing out on transaction revenue. Ultimately, these users will turn to prepaid debit cards, and they’ll need these cards to take on many of the same functions their debit cards once offered.
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“Under the changing regulatory environment, banks will find themselves shedding customers as the economics of credit change,” said Rob Rosenblatt, CEO of UniRush, providers of the prepaid Visa RushCard. UniRush is preparing itself in every way possible to offer these customers an alternative.
At the same time, prepaid debit cards issuers are also seeking to shepherd underbanked and unbanked consumers into using bank-like features, such as bill payment, associated to their prepaid debit cards.
“The unbanked and underbanked are folks that are dependent on cash and MoneyGrams and check cashing stores. They’re customers whose banking needs are very basic,” said Rosenblatt. “They tend to pay their bills very close to the bill due date and we’re trying to show them that the easiest way to pay a bill is simply to use their RushCard to set that up on a recurring basis.”
Prepaid Bill Payment Features
AccountNow, issuer of AccountNow Visa prepaid cards, offers two bill payment options, including electronic settlement and check settlement. With electronic settlement, users can get online or call in to customer service and choose a payee from a large AccountNow database, sending money directly to their account via electronic transfer. Users can also choose to have a paper check sent to any payee from AccountNow. For paper checks, users go online, indicate the amount of money to be included, where the check should be sent and any reference numbers that must be included for bill payment. AccountNow then directly sends what appears to be a bank check.
“Our customers use it as a primary mode of bill payment,” said Jim Jones, AccountNow CEO. “It’s not like carrying a check book but it’s certainly more convnenient than having to buy money orders.”
For AccountNow, bill payment features aren’t money makers since there are no fees attached to these transactions. In fact, that these transactions are free may be a differentiator for the company in a hotly competitive market in which many other issuers charge for each bill payment transaction.
“This is meant to emulate services that are available from checking accounts and the real objective as a marketing tool was not so much differentiation as it was customer maintenance and consistency,” said Jones. “People who use this service tend to keep their accounts for longer periods of time and they tend to put more money in their accounts.”
UniRush cards have similar features. Users sign up for the bill payment program for a $2 fee and then they can search their intended payee from a large database, specify the bill payment date and either pay once or set up a recurring bill payment plan. There is a $1 charge for each transaction. After that, users can check the status of their bill online and retrieve bill payment histories.
Both UniRush and AccountNow see bill payment features as being especially crucial when users sign up for direct deposit.
In fact, direct deposit is often the first interaction with customers that enables prepaid issuers to begin to educate consumers around using the bill payment features.
“Once they enroll their card in direct deposit or to receive their benefits checks or social security cards, we’ve begun the task of establishing a partnership for life,” said Rosenblatt. “Once the funds are on the card, we can really educate them about the benefits of electronic bill pay.”
Users Skepticism is Still High for Prepaid Bill Payment
It may be true that customers that use direct deposit and bill payment features on their prepaid cards are more likely to stick with an issuer or program longer, but it’s also true that it’s no small feat to get customers to engage in using these features.
That’s especially the case when it comes to underbanked and unbanked customers who may not have a history or using features like direct deposit or online bill payment.
“If you look at the people who use bill payment, they are our best customers in terms of size of accounts and persistency of accounts. Unfortunately, it’s a modest population that avail themselves of that service,” said Jones. “I think there’s a segment of the population that is skeptical about paying bills online and whether that’s going to happen in a timely fashion or whether they are going to get hit with late fees. Also in some cases our customers have limited online access. They might be using a computer on breaks at work or when one of their kids comes to visit.”
Both Jones and Rosenblatt say there must be a real focus placed on consumer education around using banking features like direct deposit and bill payment. Where and how that education is being offered is still a work in progress.
“We are going to have to do a lot more education in order for this to work. We still sell RushCards through television commercials, so we have the opportunity to advertise bill payment. But these are features that [customers] are going to have to use over time so that we can show them how they work and that Rush can play a major role in their lives.” Rosenblatt added that the best time to educate customers about bill payment is when they sign up for direct deposit, since the two are so intrinsically linked.
As the type of prepaid user becomes more varied, there may be segments of users that are easier to reach, while others will clearly not be candidates.
“Bill payment goes with how people are using the account. If the purpose was to establish a travel account that doesn’t expose their debit or credit relationships, bill payment isn’t particularly important. If, on the other hand, somebody is having their payroll put into the card, then bill payment becomes a significant feature or benefit,” said Jones.
Prepaid Bill Payment and Person-to-Person Payment
Bill payment might be a newer prepaid feature, but it’s already beginning to take on new forms with features such as person-to-person payment that let users transfer funds between their prepaid accounts. That means that a mother could pay her babysitter via prepaid card by simply placing a call to the call center or getting online to transfer funds.
“Person-to-person payments may be in the form of long distance remittances. In other cases they may be as simple as trying to make a payment to the person standing next to you,” said Jones.
AccountNow provides card transfers in real-time, a feature that could very easily change the way people use their prepaid cards.
“If my daughter were in Los Angeles and standing at an airline counter and they wanted to charge her for baggage and she didn’t have enough money on a card I can say, ‘hang on just a second.’And it doesn’t require a batch update over night or anything else,” said Jones.
Other forms of person-to-person payment enable users to call the card processing center, give another person’s account number and email address or cell phone number, add value to their account. At that point, the card company would text or email a code to that user telling them they have new funds on their card.
It will take time for bill payment, direct deposit and other features to experience mass uptake, but the process won’t be dissimilar to when people were first learning to use checks and then debit cards, Jones said.
“The best customers have moved early and it’s not surprising that the underbanked are later adopters with regard to this type of service,” said Jones. “I have been through a lengthy career in banking. When I first went for job interviews, I read articles abut the ‘cashless society’. Now 30 years later we certainly have fewer cash transactions, but we’re still not a cashless society. It’s a process that takes time.” •
