The Kardashians aren’t merely icons of public humiliation. They have vilified a great–if fledging–financial innovation, the prepaid account, at tremendous cost to millions of unbanked and underbanked Americans. Not just was their “Kardashian Kard” incredibly expensive, but their foray has further stigmatized a new financial tool that could single handedly fix many people’s problems with bank accounts, credit cards and check cashing.
We have seen headlines from USA Today to The New York Times to endless blogs maligning prepaid cards for their high fees. Yes, there are some outliers, the Kardashian Kard amongst them, but these high-fee cards represent but a speck of all prepaid cards issued. Really, it’s a tiny minority.
What’s so cool about these prepaid accounts? Well, for starters, they can be had in millions of locations where the increasing number of us who don’t or can’t do business with banks do business: Walmarts, check cashers, the Internet. If there are no banks in your zip-code (don’t laugh, it’s common), or they close before your shift is up, or they take three precious days to “clear” your deposited checks, or they charge $35 overdraft one too many times–a normal checking account is not so attractive. Over 60 million Americans don’t have or barely use their bank account. Most prepaid accounts don’t require credit checks (although they do verify that you are who you say you are). Most carry a Visa or Mastercard logo and can be used anywhere in the world, just like your debit card. Most prepaid accounts can’t be over drawn–good bye hateful overdraft fees. You can direct deposit your paycheck onto most prepaid accounts. They’re basically check-less checking accounts.
For the millions of working American unbanked and underbanked people, prepaid accounts represent all what’s good about a bank account, without the garbage. Are there fees? You bet, but let’s look at a typical use case, instead of simply obsessing on the high fees of one or two Kard programs. The annual cost for check cashing is $810, a checking account is $330, and a prepaid account is $150.
Prepaid companies like Green Dot, NetSpend, Account Now, Plastyc, and Ready Financial are boldly going where no Kardashian has gone before: serving America’s mass underbanked market with great value. We need to elevate this innovation from a checking “alternative” to a premium financial account, and let banks try to keep up with the Kardashians, instead.
Arjan Schütte is the Managing Partner of Core Innovation Capital and serves as Senior Advisor to the Center for Financial Services Innovation; both focus on financial services for the un- and underbanked.