Prepaid and debit cards are low hanging fruit

Community banks can begin offering prepaid cards and earn more from checking accounts by making only small changes to their product offering, according to Bob Giltner, a partner at Velocity Solutions. Giltner led a session at the American Bankers Association's National Conference for Community Bankers on Feb. 18 in Orlando, Fla..Prepaid cards are a mainstream product now, he said. Two desires from consumers drive the force behind the prepaid space: to never have a surprise overdraft and to never spend more than what's in the account, Giltner said..Community banks can easily ride the prepaid wave because prepaid customers are already customers of the bank, Giltner said. "About 86 percent of consumers who used a prepaid card in 2010 also had a checking account, and around 80 percent had a debit card," said Giltner, citing a survey of 500 consumers who used prepaid cards. ."How many banks in the room offer an account with just a debit card, no checks, and e-statements only?" Giltner asked. "What is the difference between these accounts and a prepaid card?" he asked. "There is no difference between prepaid and these accounts. That means you already have the capability to offer a prepaid product without a prepaid vendor," he said..When a customer opts out of the bank's overdraft program, that's a negative for the bank, but Giltner suggested banks can turn that event into a positive. "Create an account with just a debit card, no checks and e-statements only. Advertise it as a 'prepaid check card.' Call attention to the fact that the account has no overdraft," he said..If a community bank created an account of this kind, it could provide the service at a very competitive price, Giltner said. Community banks could charge a fee as low as $5.95 a month with the competition charging a fee as high as $7.95 per month. How can the community bank charge such a low price? "If you don't partner with a vendor, you don't lose 66 percent of the revenue in vendor fees," Giltner said. "All the revenue stays in the bank.".A second significant opportunity for community banks in the near term is to deepen existing transaction account relationships, Giltner said. "The main indicator of customer ownership is: Do they swipe with your bank's card?" he said. "Banks have a lot of accounts that really do not belong to them," he said..In fact, on average, about 20 percent of a bank's total debit cardholders do not use one of their bank's debit cards at all. About 41 percent of checking account customers have accounts with two different banks. And, about 10 percent have checking accounts with three different banks, according to data collected by Velocity Solutions..These are the segments that offer the largest opportunity, according to Giltner. Data collected by Velocity Solutions suggests a customer brings about $33 in additional revenue to their bank when they begin using their bank's card. To take advantage of this, Giltner suggests banks offer a targeted incentive for customers who go from no swipes to at least five swipes. "If you do that and the customer sustains, the bank earns much more revenue. If those who do not use your card increase swipes to more than 20 swipes a month, revenue from the account increases by about $100."