Prepaid Debit Card Reviews, Complaints, Etc

Tag: Dodd-Frank

  • Banks Sponsor Prepaid Debit Cards

    Banks Sponsor Prepaid Debit Cards

    The recent announcement about wireless carrier T-Mobile’s new prepaid debit card has highlighted the popularity of this still relatively new financial product among banks. According to a recent article in The Washington Post, banks are increasingly excited about the prospect of teaming up with retailers like T-Mobile to offer prepaid debit cards.

    The reason? Money, of course. “The cards are attractive because they are exempt from an amendment in Dodd-Frank that restricts the amount banks can earn from debit and credit card fees,” writes Post reporter, Danielle Douglas. It’s also a matter of simple popularity. Indeed, according to data compiled by the trade journal Nilson Report consumers made nearly 3 billion prepaid Visa and MasterCard transactions totaling almost $100 billion in 2012, a spike of 19 percent from the year before. With numbers like these, readers may continue to see more headlines like “Banks Sponsor Prepaid Debit Cards” over the next few years.

    But there’s also a symbiosis at work here. As Douglas explains in her article, prepaid cards issued by the likes of T-Mobile are only possible when they have a bank to handle card transactions and hold deposits – which they’re more than happy to do for a cut of the fee income. In the case of T-Mobile, Bancorp Bank is the sponsor of the wireless carrier’s new Visa prepaid debit card. In fact, Nilson Report estimates that Bancorp sponsors 25 percent of all prepaid cards.

    Still, as attractive as it may be, not all banks are cut out to do it. Banks have to be sophisticated enough to handle millions of transactions and well equipped to respond to government regulation. “There’s great demand for bank sponsors,” Karen Garrett of Stinson Leonard Street told The Washington Post. “But it’s not something to be done without an enormous investment into the infrastructure to manage the whole thing.”

    Nevertheless, it’s likely that more revenue-seeking banks will pursue sponsorship of prepaid debit cards in the future. A growth industry like prepaid debit cards is just too enticing to skip. “Payment transactions have been an area that banks have identified as a potential revenue stream,” Bankrate.com analyst Greg McBride told the Post. “They understand the risks.”

     

     

     

  • The Battle Over Swipe Fees

    The Battle Over Swipe Fees

    When the so-called Dodd-Frank law passed in 2010, one of its measures was pretty easy to quantify. A sprawling, complicated and controversial piece of legislation aimed at taming the most egregious of abuses perpetrated by the financial services industry in the years before the 2008 financial collapse, Dodd-Frank also addressed the amount of money debit card issuers could charge retailers when a customer made a purchase with plastic. The Federal Reserve was tasked with deciding what the cap should be and eventually settled on a number just below 25 cents per transaction. Estimates on the impact of the ceiling on that fee– known as a swipe fee because it’s a charge that gets racked up when a retailer swipes a card – on banks and card processors come to around $8 billion annually, a hefty chunk of change.

    According to a recent report from Bloomberg News, banks and payment networks are working hard in state capitals around the country in an effort to prevent restaurant and clothing storeowners from charging their clients more to pay their tabs with credit cards than they do for debit card and cash transactions. According to the Bloomberg story, written by reporter Carter Dougherty, banks and their allies have already been successful in banning surcharges on credit card purchases in Utah, and around 20 other states are also considering bills related to swipe fees.

    In a nutshell, what the legislative initiatives in Utah and other states is aimed at doing is preventing retailers from urging – particularly through the use of surcharges – their customers from opting for cash or debit cards over credit. At issue, of course, is money. Banks and card processors are eager to keep as many customers as possible in the habit of using their credit cards when they buy a meal or an iPod; according to the Bloomberg report, card issuers earn between 1 and 3 percent of a transaction whenever someone uses their Visa, MasterCard or American Express card.

    Not surprisingly, retailers want to see swipe fees associated with credit cards as low as possible, contending that they are already too much of an unfair cash cow for banks. “I view the banks and credit-card companies as unwanted business partners. They do not work anywhere near as hard as I do, yet they collect nearly as much in fees as the average restaurant earns in profit,” wrote Ted Burke, the co-owner of the Shadowbrook Restaurant in Capitola, California, in the San Francisco Chronicle. “Business owners like me can negotiate virtually all of our costs, but we are powerless to negotiate swipe fees.” If banks and card processors are successful on the state level, many retailers also won’t be able to encourage customers to opt for lower fee debit cards. Under federal law, business a credit card transaction can cost a consumer more than a debit or cash purchase.

Prepaid Debit Card Reviews, Complaints, Etc