J.P Morgan Chase are looking to take the lead amongst a growing number of mainstream banks that are looking to add additional alternative financial products such as prepaid cards to their product menu with the aim of attracting new customers and retaining existing ones. The first initiative involves test marketing a re-loadable prepaid card across 200 branches.
Traditionally, prepaid cards have been targeted towards low income families and marketed as an alternative payment mechanism by dedicated prepaid card providers, alternative financial service providers, supermarkets, etc and banks have been slow to adopt prepaid cards which may be attributed to their desire to avoid cannibalising their existing credit based product revenue.
The US market has also seen prepaid cards being subject to additional scrutiny from regulators due to criticism from various consumer groups who have complained about hidden costs and fees buried in terms and conditions.
Ryan McInerney, chief executive officer of consumer banking for J.P. Morgan Chase, stated “what we did is design a product for customers who want a low-cost alternative to traditional checking accounts and banking accounts, and for people really looking for the control and flexibility of the design that we put in place”.
Some view the launch of prepaid cards by J.P. Morgan Chase as an attempt to move less profitable customers into new accounts with the aim of improving earnings in a business that has taken a pretty significant hammering due to new regulations.
Todd Maclin, Head Chase’s Consumer and Business banking unit said “when we get out of the overdraft business, we also get out of the check business, which means we get out of the paper business, which means we also get out of a lot of processing, which means we save a lot of money”.
A number of banks in the UK have tested the prepaid card market in the past but these have traditionally been prepaid travel cards with Euro, Dollar and Sterling prepaid cards being offered and these have been mostly restricted to existing customers and not really designed as a tool attract new customers. Some examples would be the Clydesdale Bank and Yorkshire Bank prepaid cards which were originally launched by PrePay Solutions (formerly PrePay Technologies) in 2006 but take up of the cards has not been wholsesale across the industry and traditionally FX houses and Foreign Exchange companies such as Caxton FX, Fair FX, MoneyCorp and myTravelCash have performed better in the FX market by offering a more friendly solution with excellent FX rates which can be availed by all consumers.
Amit Sharma, Senior Prepaid Consultant at leading UK comparison site Prepaid365.com, commented “it is interesting to watch the American experiment as the US market has traditionally taken the lead on prepaid innovations through the year and the best innovations have been adopted by providers on this side of the pond. However, it stands to reason that part of the reason why consumers are turning to prepaid cards with basic bank account facilities such as those provided by Secure Trust Bank or perhaps Thinkbanking is because of the growing frustration and mistrust towards banks and banking products and it would be interesting to see if banks can convince customers to walk back through the door with an enhanced product menu that includes prepaid cards; interesting times ahead”.