Yesterday, American Express announced the rollout of a fee-free prepaid debit card that could have huge benefits for a broad range of consumers, and even serve as a checking account replacement for some current bank customers.
Fee-wise, the new card beats a lot of conventional debit cards offered by major banks. American Express pledges no maintenance fees and no fees for purchasing the card online, balance inquiries, alerts, card replacement, foreign currency conversion and loading funds onto the card. There will be a $2 fee for ATM withdrawals beyond the one free withdrawal users will get per month, but unlike many conventional checking accounts, there are no $35 courtesy overdrafts -- if you run out of money, the purchase is simply declined -- and no direct deposit requirements.
I've long thought prepaid cards had a lot of potential to serve the 7.7 percent of U.S. households classified as "unbanked" by the FDIC. The idea of a reloadable debit card for those who had run afoul of ChexSystems or simply didn't want the hassle of a conventional checking account was really attractive. But up to this point, prepaid debit cards had fees that, when added up, were just too high to make great financial sense.
The AmEx card could be the prepaid debit card that finally offers a reasonably priced alternative to a checking account. I'll echo Reuters blogger Felix Salmon and suggest the new AmEx will not only put pressure on other prepaid debit providers to lower fees, it will also provide an alternative in case banks decide to get cute with checking and debit card terms. Banks have been making a lot of noise lately about how new debit swipe fee limits will result in draconian debit card terms, such as $50 limits for debit purchases and point-of-sale fees for every debit card transaction.
Here's Salmon of Reuters:
AmEx has been pushing gift cards for a long time; this is basically a glorified reloadable gift card, and as it starts getting adopted by people who would never normally use an AmEx card, it increases the pressure on merchants to accept AmEx as payment. And there’s always a chance that this product could become hugely popular -- if banks start making their current debit cards extremely unattractive in the wake of Durbin.
I don't believe that banks will start charging for debit cards, or applying fees to debit-card transactions, or the various other horribles which they threatened during the big debate over debit interchange. But it's possible. And if that happens, people with checking accounts are going to start looking for alternatives to their current debit card, and AmEx will be right there waiting for them. The prepaid card is also safer than a debit card, in that it’s easier to contest fraudulent charges and have them refunded.
Salmon also points out the AmEx will benefit from prepaid cards' exemption from the new debit swipe fee limits.
What do you think? Would you ever drop a checking account for a prepaid debit card? Is the new AmEx prepaid card a game changer?