A Refreshing Option

Some CUs are finding success offering reloadable prepaid cards.

Today's consumers are savvy and use a number of tools and access points to manage their personal finances. From budgeting to convenient travel, to teaching young people how to manage their finances, offering prepaid, reloadable cards can be a viable way for credit unions to support a number of member demands and expand wallet share.

The terms "prepaid" and "stored value" are used interchangeably. Either card issued by a financial institution can be preloaded with funds in a branch or online (through another credit card), and used like a credit card.

A prepaid card works in the opposite way of a normal credit card. Instead of buying something with borrowed funds (through credit), members buy things with funds that have already been paid, like a gift card.

A reloadable prepaid card is a personalized card that can receive deposits-either programmed into the card network on the next swipe, such as a person's direct deposit from their employer, or reloaded in a store or CU using another card to make the payment. These cards can be an alternative to a debit card, which requires a linked checking account, for which some members may not qualify. Reloadable cards also can appeal to members looking for help with budgeting, as the card will stop working when the pre-loaded value is spent.

Cards can normally be loaded/reloaded for free via direct deposit and in person at CU branch locations. Cash loads at retailers normally require the consumer to pay a fee for the load.

The market for these cards may have a great deal of potential. Based on a 2013 study, Aite Group (www.aitegroup.com), Boston, expects the general purpose reloadable prepaid and the payroll prepaid card market to double over the next three years. (Check out the Aite study author's blog at http://aitegroupblog.com/tag/ prepaid.) In the same vein, a 2012 study by the Federal Reserve Bank of Philadelphia (http:// tinyurl.com/phillyfedprepaid) found that the rate of prepaid transaction growth is outpacing debit and credit.

While not every CU is getting on the prepaid card bandwagon (see http'J/tinyurl. com/cuscoolonprepa), Columbus Metro Federal Credit Union has been offering reloadable prepaid cards since 2009.

"We have members with a checking account who don't qualify for a debit card; they can use the reloadable card instead," says CUES member Jennifer Banker, CME, VP/marketing for the $231 million CU (www.columbusmetro.org) in Columbus, Ohio.

"Others use the reloadable card as a checkless checking account-they set up direct deposit to the card and use it to pay bills and make purchases. And there's a smaller group of folks who are concerned about their credit and debit card information being compromised, so they use a reloadable card to make purchases online or for other transactions they might otherwise consider 'risky.'"

Today's prepaid programs offer many of the same services found in traditional checking accounts, including direct deposit, online access, online bill pay, rewards/ merchant discounts and even federal deposit insurance.

Getting Started With Prepaid

"The first and most critical step in the (prepaid card program setup) process, but one that is often overlooked, is for the CU to realistically evaluate the potential for prepaid cards in its market," says Phil Valvardi, general manager of prepaid solutions at Fiserv (www.fiserv. com), a CUES Supplier member based in Brookfield, Wis.

"Once market opportunity has been established (by reviewing opportunities in its market footprint, outside of its footprint and within its existing member base), the investment the CU should make in its program will become evident. If there is a large underserved population the CU can reach, then a custom program-which usually includes a custom card design, custom collateral materials and flexibility in product pricing-will provide a compelling return. If the opportunity is small, then a reseller program-a turnkey program with limited choice in card design, marketing material, pricing and other card featuresis probably the best bet."

According to Valvardi, implementations can take from as few as 21 days with a fully outsourced program (where the CU is just a reseller of an existing program) to 120 days or more for a new processing relationship where the CU is issuing the cards.

In addition to normal set-up processes involving selection of card designs, collateral and marketing materials, if a credit union decides to issue its own cards, the CU may need to register new BINs ("bank identification numbers"-the first six digits of the card number) with national networks. BINs are loaded into the routing tables of the various networks and processors to ensure transactions are processed and authorized correctly.

Valvardi adds that a program can cost less than a hundred dollars to implement with low monthly maintenance fees. Custom implementations can run as high as six figures.

Reloadable prepaid cards can allow members to conduct transactions in a familiar fashion, with a debit card, while reducing expenses for the credit union, Valvardi says. He cites industry studies by First Annapolis Consulting (www.first annapolis.com) indicating that a share draft account has an annual service cost of around $120, while prepaid cards have an annual service cost around $60. Prepaid cards also offer higher margins and profit than a share draft, without overdraft fees, he says.

CU Examples

CUES member Sarah Bohan, VP/corporate relations for $2.4 billionMichigan State University Federal Credit Union {www. msufcu.org) E. Lansing, says program cost also depends on the volume of cards issued.

"MSU FCU partners with Harland (Financial Solutions, www.harlandfinancial solutions.com, a CUES Supplier member based in Lake Mary, Fla.) to issue our reloadable cards," she says. "The program also involves buying card stock, programming, and marketing of the product."

Columbus Metro FCU made sure accounting and IT details were arranged to make handling prepaid cards as easy as possible for front-line and back-office staff.

"Once we signed a contract with the vendor [Meta Payment Systems {www. metapay.com), Sioux Falls, S.D.], we submitted paperwork to Visa to obtain an additional BIN. We submitted our logo (to MetaPay) and approved its placement on the plastics," Banker says. "I'm the administrator for the program, so I was trained on both selling the cards and setting up and maintaining users on MetaPay's online system. Then, we trained the member services representatives and branch managers who actually sell the cards to our members. The entire process took roughly six to eight weeks from start to finish."

A supply of plastics is on hand at each branch, typically four or five gift card designs, as well as one reloadable card design and one travel card design.

"When a member purchases a card, we process the transaction on our core (Episys from CUES Supplier member Symitar, www.symitar.com, San Diego) first, then we go to MetaPay's website to activate the card," Banker says. "Members can load anywhere from $10 to $1,000 on a gift card and from $20 to $3,000 on a reloadable or travel card. We use the Inventory Manager function within Episys to manage the cards, and then there is a separate inventory management function on the website-both sides do important things for us."

On Episys, MSRs indicate which type of card they are selling, and the system automatically notes funds placed on the card and those going to pay fees. On MetaPay's website, specific cards are assigned to specific branches, which allows Banker to see which branch needs more cards and which designs sell better.

There was an upfront cost and the credit union pays Visa $100 a year in association fees plus $25 a month for product and technical support. Plastic and activation costs are covered by the purchase fees members pay. The CU charges $2.95 to purchase a gift card and $7.95 to purchase a reloadable or travel card. Under MetaPay's guidelines, it could charge up to $6.95 for the gift card and up to $9.95 for the reloadable and travel cards, but opted to keep the prices on the low end, while covering costs.

"It's significantly cheaper than, say, a debit or credit card program, but then the market for the reloadable cards is much smaller than for those types of cards," Banker says. "We don't sell a large volume of reloadable cards. From September 2012 to August 2013, we sold 31 reloadable cards (compared to 731 gift cards over the same period). But it's such an easy product to offer when you're already selling the gift cards, it still made sense to us."

Originally, Columbus Metro FCU sold gift cards through another vendor for several years before it moved to MetaPay and added the reloadable and travel cards. Reasons for the change included the ability to offer the additional card types, plus it had a few members asking for a reloadable product that would give them ATM access.

Traditional vs. Prepaid

Bohan recommends that CUs coach members about whether a traditional product can still be used to help with budgeting and money management.

"Compare the reloadable card features with those of the standard debit card and see what fits their financial needs at this time," she says. "It's also important for consumers to read the disclosures and be aware of the fees and requirements for the product they are choosing. Making an educated decision may save the consumer money and ensure they are obtaining the right product for them."

Besides helping members, offering prepaid may help CUs stay competitive in the card market as more and more retailers, supermarkets, pawn shops and convenience stores bring financial products to the table.

Philliou Partners {www.philliou.com), Englewood Cliffs, N.J., has worked with CUs in issuing standard and specialty prepaid programs, such as prepaid health insurance premium, student and tax refund cards, notes Philip J. Philliou, president of the Englewood Cliffs, N.J.-based firm. This illustrates the creative opportunities that prepaid cards present.

"Reloadable cards are a great addition to a credit union's product and service strategy," says Nikkee Rhody, VP/agent products for Meta Payment Systems. "It's important for financial institutions to understand the opportunity they have to bring in-demand financial services back in house."

For many reasons, consumers are moving toward prepaid cards, which can be viewed as both a threat and an opportunity for credit unions. Those credit unions that have a prepaid "plan" and continue to offer services their members want and need will fare far better than those that ignore the trend and believe prepaid is going to be a short-lived personal finance trend. (2)

Resources

Read three bonus articles, "Prepaid in the Package," "Prepaid Chip Cards" and "Why Offer Prepaid Cards?" at cumanagement.org/121313 prepaidpackage, cumanagement.org/ 121613prepaid and cumanagement. org/122013whyoffer.

Also read "Payment Products Staffing Strategy: Should a single executive oversee it all?" at cumanagement.org/0713payments.

Experts from Cornerstone Advisors are lead faculty for both the CUES School of Product and Channel Management and the CUES School of Growth and Profitability. The two schools will be held back to back-April 28-29 and April 30-May 1-in Austin, Texas. Learn more about each-and register to attend-at cues.org/schools.

Keith Loria is a freelance writer based in Virginia.