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We wish you the best of luck as you begin your work with prepaid cards. As you go forward, we
want to hear from you. We welcome your feedback on this guide and encourage you to email us at
info@cfsinnovation.com with your questions and comments, and to tell us about your experiences,
innovations, and best practices.
The CFSI Team
September 2010
1 There are many online prepaid card comparison tools such as CreditCards.com
http://www.creditcards.com/prepaid.php, Credit Card Guide, http://www.creditcardguide.com/prepaid.html, and Compare Cards
http://www.comparecards.com/compare-by-category/prepaid-debit-credit-cards/page/1; however CFSI cannot vouch for the accuracy
or completeness of the information provided on these websites.
Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Appendix A: Case Studies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Understanding Clients’ Financial Services Needs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
One Nonprofit’s Distribution Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
1 The Federal Deposit Insurance Corporation’s (FDIC’s) December 2009 National Survey of Unbanked and Underbanked Households
[http://www.fdic.gov/householdsurvey/] estimates 9 million unbanked households and 21 million underbanked, while CFSI’s 2008
Underbanked Consumer Study [http://www.cfsinnovation.com/publications/list/CFSIUnderbankedConsumerStudy] estimates 18.5 million
unbanked households and 21.6 million underbanked. Differences in the unbanked estimates are likely due to differences in research
methodologies.
2 CFSI estimate based on publicly available financial services transaction volume data and average industry fees.
3 Satisfaction with and Usage of Prepaid Cards, NBPCA/CFSI Survey Results, http://www.cfsinnovation.com/topics/article/330558,
April 2009.
Closed-loop—The money stored on these cards can be used only in certain stores and/or on certain
goods and services.
Open-loop—These cards are issued by a financial institution and the funds may be accessed in any
location that accepts the card payment network (e.g., MasterCard®, Visa®) for any type of purchase.
One-time use—These cards can be loaded only once. When the money is spent, the card is no
longer useable.
Reloadable—These cards can be reloaded with money again and again.
Furthermore, the main application of the card is often determined by who loads funds onto
the card. As illustrated in Figure 1 on the next page, these parameters map out the prepaid
card space.
Corporate
Rebate Refund
Government
Consumer
*General Purpose
Reloadable Cards are
Welfare the focus of this guide
Phone Cards
Closed-loop
Money Transfer
Gift
H
ealthcare and
Defined Benefit
Promotional
This guide focuses exclusively on general-purpose, open-loop, reloadable (GPR) prepaid cards
carrying one of the major payment network brands (such as MasterCard® and Visa®). GPR cards
have many advantages over closed-loop cards, including wider acceptance and more consumer
protections; closed-loop cards facilitate spending only within the closed loop. For the rest of the
guide, prepaid cards will refer only to general-purpose, open-loop, reloadable (GPR) prepaid cards.
1 2 3
Load/reload money Store and Spend money in
onto FDIC-insured card manage money a variety of ways
Below are the most common advanced features on prepaid cards. However, the industry is evolving
rapidly, and new features are being introduced regularly. For any nonprofit organization actively
engaged with prepaid, it is important to stay abreast of new developments and changes.4
Fee Structures
Two pricing models prevail in the industry today. One charges a moderate monthly fee (e.g., $10 a
month) and no fee for individual transactions (signature or PIN purchases). The other has a low or
no monthly fee and instead charges for certain transactions made using the card. In both of these
models, there are often still charges for other transactions (e.g. ATM withdrawals, reloading, etc.).
Like card features, prepaid card fees vary a great deal. In addition to monthly and pay-as-you-go
pricing models, there are also basic card products with fewer features and lower costs, as well as
feature-rich products that often have higher costs. Table 2 shows common fees and their average
amounts. Competition and technological innovation have spurred a broad reduction in prices as
the industry has matured.
Please note that Table 2 is not comprehensive. Any specific prepaid card agreement may contain
fees not listed here. Nonprofits and their clients should review prepaid card agreements (available
on the card programs’ website and in printed form in the cards’ packaging) carefully to understand
the fees associated with any given card.
5 The ChexSystems, Inc., network comprises member financial institutions that regularly contribute information on mishandled checking
and savings accounts to a central location. ChexSystems shares this information among member institutions to help them assess the risk
of opening new accounts. For more information about ChexSystems see https://www.consumerdebit.com/consumerinfo/us/en/index.htm.
Table 3 – Prepaid Cards versus Checking Accounts, Credit Cards, and Check Cashing
Product Prepaid Checking account Check Credit
card with debit card cashing card
Check cashing Direct deposit free if Direct deposit free, regular check Yes No
feasible; otherwise still may add delay
need to cash check
Pay bills Yes Yes No—must buy Yes
money order
Earns interest Rarely Sometimes No No
Credit check required No Sometimes. ChexSystems check No Yes
often required.
Overdraft protection Rarely Yes, although regulation may No Yes, when credit limits
and fees make overdraft less common are exceeded
Fees Some combination of Often no monthly fee, but other Fees (can be Sometimes monthly
monthly fee and some fees: for checks, risk of overdraft high) at time of fee, interest charges,
transaction fees fees, or minimum balance fees check cashing late charges, overdraft
charges
Theft protection Yes* Yes No Yes
Credit Sometimes† No No Yes
Builds credit score Yes – Limited** No No Yes
ID requirements -State-issued ID or passport -State-issued ID or passport Photo -State-issued ID
(some cards accept other -Social Security number or ITIN identification or passport
foreign IDs) (not always required) only -Social Security number
-Social Security number or -Address - Address
ITIN*** (not always required
because often there is no
interest income to report)
-Address
Minimum balance No Yes (usually) No No
requirements
* MasterCard® and Visa® currently limit consumer theft liability on prepaid cards to $50, but they are not required by law to do so.
† Prepaid cards sometimes offer a short-term loan or line of credit (see page 12).
** Sometimes cards report payment of regular bills to credit agencies, which can help to build credit.
*** ITIN stands for Individual Tax Identification Number.
6 See Appleseed’s Understanding Prepaid Card Partnerships: A Guide for Nonprofit Organizations in New York,
http://ny.appleseednetwork.org/LinkClick.aspx?fileticket=Ghvb_f7S6fA%3D&tabid=628, 2010.
Industry Structure
Producing a prepaid card, issuing it to customers, and ensuring its proper operation requires
collaboration by multiple companies. There are six distinct functions within the industry:
1. Payment network: The networks (Visa®, MasterCard®, Discover®, and American Express®)
provide the electronic channels through which transactions occur.
2. Card issuer: The issuing bank or other depository institution that provides the BIN (bank
identification number) for the cards and holds the funds stored on the cards.
3. Fulfillment and transaction processor: The processor facilitates fulfillment and shipment of
the cards, processes transactions, and tracks and distributes funds held in the issuing financial
institution. Sometimes these services are provided by multiple companies; some companies
specialize in fulfillment, while others specialize in transaction processing, though many carry
out both functions.
4. Program manager: This entity or person provides the customer interface for the prepaid product
and handles the marketing and day-to-day operations of a card program. Program managers can
provide fulfillment and distribution services, but more often they contract with other companies
for these services. Issuers and processors also may act as program managers, but frequently the
program manager is a third party.
5. Loading network: Reload networks allow cardholders to add funds to their cards by giving cash
to a merchant at a point of sale.
6. Distributor/Vendor: An entity that distributes and markets prepaid cards to consumers.
These six functions come together to reach and serve the customer, as illustrated in Figure 3.
7F ourth Annual Network Branded Prepaid Card Market Assessment, and Sixth Annual Network Branded Prepaid Card Market Assessment,
Mercator Advisory Group, September 2007 and September 2009; and Cardholder Use of General Spending Prepaid Cards, CFSI and
Federal Reserve Bank of New York, February 2007.
8 FDIC Survey of Unbanked and Underbanked Households, Tables A-13 and A-14.
PAYMENT NETWORK
MasterCard® Visa®
Distributor/
Fulfillment & Marketer
Program
Transaction
Card Issuer Manager ACE Cash Express
Processor
MetaBank Account Now Walgreens
FIS
The Bancorp, Inc. GreenDot CVS/pharmacy
FirstData
GE Money NetSpend Walmart
MT&L
RushCard Univision
FSV Payment Systems
Western Union
Loading Networks
GreenDot Western Union MoneyGram Visa ReadyLink MasterCard rePower
Although there are six distinct functions, the lines can blur between the functions because some
companies are vertically integrated, meaning they perform more than one function in the supply
chain. NetSpend is an example of a vertically integrated company. They fulfill and process their
own transactions and manage their own programs, but also market and distribute their cards
directly to consumers online and through distribution partners such as check cashers and grocery
stores. NetSpend also has its own reload network with more than 100,000 reload locations in the
United States. Another example is GreenDot, which serves as a program manager, distributor, and
cash reload network.
$
Revenue
PROFIT
$0 Number of Active
0 Active Cards Cardholders
9 Regulation E implements the Electronic Fund Transfer Act, which establishes guidelines for account disclosures, error resolution procedures,
periodic statement requirements, and more for accounts involving electronic transactions. Payroll card accounts are subject to Regulation E.
Most issuers of GPR cards offer Regulation E types of protections to cardholders, in addition to the card brands’ zero-liability policies.
“I’m not a bank or Transparency and predictability: Fees for transactions and deposits are charged upfront for prepaid
credit card type of cards. The cards are difficult to overdraft and tend to have fewer back-end charges than checking
person. Reloadable accounts. Almost three-quarters of prepaid card users say the fees for using their cards are fair,
prepaid cards give and an even greater percentage say they understand the fees well. These numbers increase even
me the ability to further for consumers who use the cards regularly.12
make purchases.” Convenience: Consumers can make purchases and access funds at any location that accepts the
network brand (e.g., Visa® or MasterCard®) and all hours of the day. Prepaid cards allow customers
to make purchases and pay bills online.
Accessibility: Many underbanked consumers either do not have, or do not perceive themselves
“I rent a car with it, as having, sufficient identification or credit history to open a traditional checking account at a
and that’s major.” financial institution. Prepaid cards do not require a check of consumers’ files with the credit
bureaus or ChexSystems, a reporting agency that catalogs negative bank account actions such
as bounced checks and fraud.
“I think it is more Acceptance/Inclusion: Having a card gives customers a way to pay that does not differentiate them
socially acceptable from other consumers who may be more financially advantaged. Whereas using a money order is
to own/use a credit a visible sign of not having a checking account, the prepaid cards act and look like credit or debit
card, and by using cards.
a prepaid card I Financial discipline: Prepaid cards help consumers limit spending and stay on budget. People
feel more socially can only spend what they have, so it is hard to overdraft or get into debt.
acceptable.”
Build savings: Prepaid cards can help people build savings, particularly if the card has a linked
savings account with automated deposit and/or a competitive APY.
“I primarily use
reloadable prepaid
cards for items like
gas, groceries, and
smaller bills like
phone or Internet
services. It’s easy
to place the money
into the account
during the month
and stay within
the confines of
the budget I have
allotted to spend
for these goods
and services.”
12 S
atisfaction with and Usage of Prepaid Cards, NBPCA/CFSI Survey Results, http://www.cfsinnovation.com/topics/article/330558,
April 2009.
13 F
or more comparison of Ms. J’s options, and for other financial services cost comparisons, see One Size Does Not Fit All: A Comparison of Monthly Financial
Services Spending, http://www.cfsinnovation.com/publications/article/330606, June 2009.
Degree of Intensity
Provide
Develop
Answer information Own and
Direct partnership
basic and Distribute operate
clients to to formally
questions educate prepaid financial
specific connect
about clients cards2 services
product(s) clients and
products about business3
providers1
products
1. “Develop partnership…” includes helping with outreach and providing customer follow-up, while the provider delivers the product.
2. “Distribute prepaid cards” includes the full process from marketing to enrollment to ongoing customer service.
3. “Own and operate financial services business” includes distributing prepaid cards as part of a broader product suite.
How your organization ultimately engages with prepaid will depend on its mission, core
competencies, capacity, and interests. No single option fits every organization.
This guide is designed to present a range of options and a series of critical questions and issues
that will assist you in deciding the best approach for your individual organization. Choosing the
proper approach is not a science, and the best course of action may not be readily apparent. CFSI
recommends comparing several options against your organizational realities and to err on the side of
conservatism in terms of your capabilities and expectations. Below is a list of key strategic questions
to consider and discuss across your organization before you select an engagement approach.
How much capacity does your organization have to take on this effort? The further to the right
on the continuum you move, the more organizational capacity you will need to successfully
incorporate prepaid into your programming. For instance, adding prepaid to your financial
education curriculum will likely require only the upfront investment of staff time to learn about
the product and to update lesson plans. However, if you choose to actively partner with a
prepaid provider to do outreach and marketing or to distribute cards, capacity demands increase
significantly. CFSI’s experience suggests that you need at least one to two full-time staff members
for a successful launch and maintenance of a distribution program.
What financial resources do you have to devote to this effort? What are your expectations around
financial sustainability? As you move from left to right across the continuum, the options require
more financial resources. Providing information or educating clients about prepaid may not
require hiring additional staff, but an active partnership or card distribution program will, thereby
increasing your organizational expenses. Nonprofits sometimes see engagement in prepaid
as a path to financial diversification and sustainability. We recommend caution with this line
of thinking. It is unlikely that there will be funding available beyond traditional foundation or
government grant support for efforts to inform or educate consumers about prepaid. Similarly,
if your organization wants to distribute prepaid cards as a social venture, you should look closely
at revenue generation and the true cost of operating the program. To make the project self-
sustaining, you would need to negotiate revenue sharing with the prepaid card provider and then
enroll and keep active thousands of cardholders—an unfeasible undertaking for many small to
midsize organizations. We suggest you make conservative assumptions when planning, strive for
sustainability in your business model, and approach card distribution as a source of long-term
benefit rather than short-term profit. A partnership and referral approach may offer an opportunity
to earn a commission from the card provider for client referrals. Providers commonly pay other
companies for customer referrals or spend money directly on customer acquisitions themselves
(costs often range from $50 to $250 per new acquired customer). It may be possible to negotiate
a fee for each new active customer you deliver to help offset your costs.
Description:
A nonprofit organization working in consumer financial services, asset building, financial education
or a related field should have a basic understanding of prepaid in order to respond to clients’
questions as prepaid cards become more prevalent in the marketplace. Be prepared to answer
basic questions such as: Where can I get a card? How much does a prepaid card cost? How do
I use it? How can I reload it? Nonprofits have choices about how much information they
provide and how deeply they educate their constituents on this issue.
Organizations that provide financial education or individual financial counseling or coaching should
incorporate information about prepaid cards into their curriculum or programming. This should
include how the cards work, fee structures, how to compare cards, and help in assessing the
product’s benefits given the client’s needs and preferences. If the client goes on to purchase a card,
you should help cardholders maximize the benefits of the chosen product(s). For example, you might
help them in accessing their accounts online to check balances, monitor fees, pay bills, etc.
Examples of the types of nonprofit organizations that might be well-suited for this option:
• A nonprofit that already refers clients to low-cost checking accounts and wants to add low-cost
prepaid cards to the list of recommended products.
• A nonprofit credit counseling agency that seeks an alternative payment product and budgeting
tool for consumers who have encountered trouble with credit cards.
• A nonprofit affordable housing provider that seeks a more efficient way to collect rental
payments from unbanked clients, while simultaneously promoting residents’ financial stability.
Such an organization might be well-suited for distribution, depending on its core competencies,
financial resources, and capacity.
• A nonprofit workforce development organization that seeks a method for its clients to receive
direct deposit of paychecks, which many (potential) employers prefer.
• A nonprofit domestic violence agency that seeks a quick method to provide abused women
access to emergency cash.
Description:
Nonprofit organizations whose clients could benefit from prepaid cards might consider making
referrals to a particular product or set of products with an appropriate combination of low fees,
security, transparency and features. They could also formally partner with one or more prepaid card
providers to assist with product marketing, customer acquisition, and ongoing service and support.
There are many different partnership models. Roles and responsibilities between the nonprofit and
the card provider will depend on the partners’ core competencies and capacity.
If your organization already provides financial education, counseling, or coaching, CFSI
recommends you consider the referral or partnership option, as it could be a logical addition
to existing services. Our research and experience suggest that financial education will be most
effective if it is closely coupled with access to financial products and services, so that clients can
more easily put knowledge into practice.14 Directly combining access to a financial product such
as a prepaid card with education makes it more likely that you will spur positive behavior changes
and see improved financial outcomes among your clients. Pursuing the referral/partnership option
versus the distribution option also allows you to remain focused on your core competency—
education—rather than overextending yourself into areas where you lack experience and expertise.
You can rely on your prepaid card provider partner to do what they do best—namely, delivering a
card product.
Increasingly, prepaid card providers are interested and willing to partner with nonprofit
organizations. Many providers understand that there is a general lack of awareness and
understanding around prepaid cards, and they are looking to expand their reach. Nonprofits can
potentially be helpful on both fronts. It is important in the partner engagement process that you
sell your organization and the additional value you can offer to the provider’s business. Often,
this involves assisting the provider in acquiring new customers and providing ongoing customer
education and service. Industry also increasingly recognizes the important role of nonprofits in
shaping public discourse and opinion about the product. Accordingly, they embrace nonprofits
as prepaid champions, promoting cards among potential users and policy makers.
14 CFSI recently completed research to assess the current financial education landscape and determine the types of educational efforts
that are most effective in changing behaviors and improving financial outcomes for underserved consumers. CFSI found that the most
effective interventions are those that are immediately relevant to consumers’ lives, coincide with key life events or moments of financial
decision, allow them to execute newly gained knowledge into action immediately, and help consumers acquire and preserve assets
over the course of their lives. To read the complete findings see From Financial Education to Financial Capability: Opportunities for
Innovation, http://cfsinnovation.com/publications/article/440486.
Distribution
This option might be a good fit for your organization if:
• Prepaid is a strong fit for a large enough number of your clients to justify your investment
of time and resources.
• Consumer financial services are central to your organization’s mission, and you are committed
to including a prepaid card program.
• You have strong leadership and sufficient capacity, financial resources, and physical space
to successfully launch the initiative.
• Your organization is known by clients as a place to address financial issues.
• You have a strong business sense, are savvy about the prepaid card industry, and have past
experience with marketing, delivering, and servicing consumer financial products.
• You are patient, comfortable taking risks, and effective in managing nonprofit/for-profit
relationships.
• You have a commitment to customer tracking and follow-up.
Examples of the types of nonprofit organizations that might be well-suited for this option:
• A nonprofit tax preparer looking for product solutions to help unbanked consumers receive
electronic refunds. (See the VITA case study in Appendix A for a real-world example.)
• A nonprofit lender looking for an entry product for unbanked clients that they must turn
down for loans.
• A union with a large membership that seeks to provide a useful transaction product both
to promote financial prosperity and facilitate dues collection.
Description:
The prepaid card industry uses many different channels to market and distribute cards
to consumers—the Internet, banks, employers, retailers, and direct sales. A few nonprofit
organizations have also begun serving as distributors of prepaid cards. Distribution is a major
commitment, but some organizations may decide that it complements their existing programs
and services and will enhance their ability to achieve their missions.
Client
Know your clients!
Understand their needs,
and the potential size of
the market for your card.
Realistic
Card offering organizational
that meets approach that
clients’ needs meets clients’
needs
Product
Partner Organization
Distribution should fit with
Pick a strong partner
your core competencies,
with realistic expectations for
align well with your mission,
product volume, a long time
and be a high priority for
horizon, and an excellent Shared senior management and
product. expectations, key team members.
understanding
of roles and
responsibilities
A successful card offering requires a deep understanding of your clients, the capabilities of your
organization, and a strong product partner, as illustrated in Figure 6.
15 The nonprofit social justice organization Appleseed’s report Understanding Prepaid Card Partnerships: A Guide for Nonprofit Organizations
in New York provides information on the potential compliance responsibilities nonprofits might face when partnering with prepaid card
providers, as well as considerations when negotiating a contract.
See http://ny.appleseednetwork.org/LinkClick.aspx?fileticket=Ghvb_f7S6fA%3D&tabid=628, pages 20-29.
6. Resolve operational issues early: Have your staff test the product to make sure it functions as
anticipated. Your organization’s reputation depends on satisfaction with the card. You’ll need
the ability to enroll customers easily and efficiently, deliver cards consistently and provide
strong customer service.
7. Promote direct deposit: Prepaid cards are often more useful, convenient, and affordable for
those who use direct deposit. Incentives such as reduced or waived fees can help motivate
clients to take action.
8. Be patient: It can take multiple interactions with clients to educate them about the product
before they are ready to enroll. Develop a strong system for client tracking and follow-up to
improve efficiency during what can sometimes be a long and frustrating engagement process.
16 The Worker Center Collaborative’s experience provides several other valuable lessons as it relates to nonprofit distribution of prepaid
cards, detailed in the CFSI Learning Brief, Alliance to Develop Power’s Worker Center Collaborative,
http://cfsinnovation.com/system/files/ADP%20Learning%20Brief%20Final%2011-30-09.pdf
BANKING
Unbanked/Previously Banked U.S. Born
SEGMENTATION
The segmentation analysis organizes worker center clients along a spectrum of income and financial sophistication.
Desired Characteristics
1. Experience:
Look for a vendor that has been in operation for at least two years (ideally more)
and a proven track record in providing a high-quality product to satisfied customers.
2. Financial stability: The majority of prepaid debit card vendors are not publicly traded companies,
and those that are usually exist as a segment of a much larger business. If it is not publicly
traded, sign a non-disclosure agreement and ask the company for audited financial statements.
Look for a positive cash flow and strong financial position.
3. Commitment to prepaid cards: A company in which prepaid cards are a core part of its business
strategy is more likely to stay committed to the product and the partnership. It is an advantage
if your partner already offers a product with features that align with your clients’ needs,
because it likely means less need for customization.
4. Size: If the vendor is too large relative to your project, you run the risk of being insignificant to
that vendor. If the vendor is too small, it may not have the resources you need and may run the
risk of going out of business.
5. Cost: Factor in both the price of the product for consumers as well as the amount of revenue
share you will get as an organization. There is an inherent trade-off here. The lower the prices
for consumers, the less revenue the card generates.
NBPCA
The Network Branded Prepaid Card Association (NBPCA) is a group of diverse organizations that
combine to deliver network branded prepaid cards to consumers, businesses, and government.
A nonprofit trade association, the NBPCA promotes education and collaboration with government,
media, and consumers. It also works with members to establish and encourage best practices to
benefit card users and industry participants. The NBPCA’s members include financial institutions,
card organizations, processors, program managers, marketing and incentive companies, card
distributors, law firms, and media. More information about NBPCA and prepaid cards can be
found at www.nbpca.com.