JPMorgan Chase is jumping into the rapidly growing business of prepaid cards, introducing its own called Chase Liquid. It is a move that could help it recoup revenue lost to new regulation while bringing new customers into the fold.
“To see a national bank experimenting with how it (a prepaid card) can be part of a product portfolio is interesting,” said Rachel Schneider, vice president for innovation research and policy at the Center for Financial Services Innovation. The center advocates for the estimated 30 million to 40 million underbanked consumers in the U.S.
Interesting, Schneider said, in that the card could bring in customers who cannot afford the monthly fees on a Chase checking account, while potentially recouping revenue lost to the Durbin amendment. Durbin limits the amount of revenue a retailer pays a bank with more than $10 billion in assets for executing a debit card transaction, unless that transaction is linked to a prepaid card like Chase Liquid.
In a statement, JPMorgan Chase's CEO of Consumer Banking Ryan McInerney said, “Chase Liquid is a low-cost alternative to traditional checking accounts and its terms are clear and simple.”
For a flat fee of $4.95 a month, Chase Liquid customers can load $25 dollars or more onto the card to start. After that they are not required to keep any minimum on the card. Paychecks can be direct deposited onto the card and other checks and cash loaded for free as long as clients use one of Chase’s 10,500 "deposit friendly" ATMs. Customers can also withdraw cash from the card for free at Chase’s ATMS and pay for purchases anywhere Visa debit cards are accepted.
“It’s a very transparent offering,” said Greg McBride of Bankrate.com, “in a marketplace that is rife with fees for various transactions.”
McBride points out that some prepaid cards not only charge fees for services like a balance inquiry, these fees will not be disclosed in a clear way to the customer. The end result: Fees can quickly pile up. Chase Liquid is clear in stating it provides services like balance inquiries, and that they are provided for free.
In his annual letter to shareholders, JPMorgan’s CEO Jamie Dimon hinted about Chase Liquid, writing: “Soon after this letter goes to press, we will be launching an exciting new product that will have innovative features and broad appeal. I believe this could be a breakthrough product for consumers in terms of pricing, transparency, convenience and simplicity.”
As for Chase Liquid’s impact on the prepaid card industry, Ken Edwards, vice president of Federal Affairs, said, “The fee structure is definitely something those in the industry will take note of.” He declined to guess how many other banks may follow suit.
Spending on prepaid cards has been growing in leaps and bounds. According to Mercator Advisory Group, more than $50 billion was loaded onto these cards in 2011, a number that is expected to jump to $160 billion by 2014.