Students Get a Break, But Prepaid Debit Card Fees Still an Aggravation

Atlanta, GAThe world of consumer credit finance has exploded in recent years with the advent of prepaid debit cards such as the Green Dot Visa—a market segment known as "the underbanked" that is being courted more and more. Amy Errett, a partner with the venture capital and private equity firm Maveron LLC, writes in the 5/5/10 issue of VentureBeat, "The notion of focusing on underbanked consumers through prepaid debit cards and college students as interesting demographics for massive growth is innovative. The idea didn't come from traditional bankers, but rather from entrepreneurs who identified massive consumer opportunities. There will be more of that and it will happen quickly."

The proof is already out there. Bank Freedom has announced that as of March 31 of this year the wholly owned subsidiary of Prepaid Card Holdings Inc. passed the $125 million processing milestone after only two years as a prepaid debit card company.

And in reference to the pending growth noted above, University Parent Media and StorValue Card Solutions LLC has launched a new prepaid card—complete with prepaid debit card fees—targeting university and college students. While some existing prepaid cards available to university students are limited for use within a certain geographical area surrounding their particular campus, the new Campus Dough DebitSmart prepaid card has no such restriction.

The card also has features that enable college students to improve personal money management while earning rewards that can go towards their education.

Cardholders earn reward points based on a percentage of the transaction that ranges from 3 percent to more than 40 percent, depending on the merchant, says StorValue CEO Tom Borzilleri, in comments to PaymentsSource and published May 7 in Cardine. Additionally, "about 8 percent to 10 percent of each transaction fee goes back to the cardholder's university to help pay for various programs."

Still, there are limitations. Only universities participating in the University Parent program are eligible to receive funding from transactions.

There are also fees for a card that requires no credit check, but are activated through either Western Union or Green Dot, either in person or online. There is no reference to the Campus Dough card on the Green Dot web site, but it is assumed that Green Dot has some kind of role in the process, as Green Dot is one of the prerequisites to activating a card. What's more, Borzilleri explains that StorValue will waive the first Green Dot charge of $4.99 when cardholders active their cards.

However, students will have to pay a subsequent $4.99 fee every time they reload their card—although the article did not identify to whom the reload fee is paid. It does suggest that cardholders can purchase individual Green Dot MoneyPaks from various merchants.

The pre-paid debit card industry has mushroomed thanks to the burgeoning market of the underbanked—consumers who do not have an ongoing relationship with a bank, or who do not qualify for traditional credit cards. Green Dot boasts on its web site that it has more then 10 million Green Dot customers.

Critics of the cards acknowledge their convenience but cite the various transaction and other fees as a poor and inefficient way to do one's banking, robbing people who can least afford to lose their hard-earned dollars.

Bill McCracken, chief executive of Synergistics Research Corporation based in Atlanta, notes that most students will already have a debit card tied to an existing checking account. Additionally, most regular debit cards do not have the additional fees the Campus Dough card has. "The Campus Dough card has a monthly transaction fee of $1.99 and also carries a fee for almost everything a cardholder uses it for," McCracken says.

Cardholders pay 50 cents for ATM withdrawals and to receive cash back at the point of sale, and 25 cents when using PINs to initiate purchases, McCracken says. "If a parent wants to transfer funds to the Campus Dough card, they get hit with a $1 fee," he says.

Prepaid debit card fees always seem to be going up. Bank Freedom, after logging $125 million worth of transactions in two years, raised their fees on May 1.