Substituting Debit with Prepaid

If you subscribe to the Vantage Viewpoint blog, you know that The Wall Street Journal article this week “Banks Pin Revenue Hopes on Prepaid Cards” confirms the prediction put forth in our analysis of the Durbin Interchange amendment back in June of this year.

As reported in the WSJ, mega banks are “exploring prepaid cards as a way to make up revenue that will likely be lost from federal restrictions on debt cards.” In our blog post under the section “Exemptions for government administered cards & reloadable prepaid cards” we envisioned the compromise exempting reloadable prepaid debit cards from Interchange regulation under the Dodd-Frank financial-overhaul bill would result in “banks moving more and more consumers to exempt prepaid card accounts.”

With banks pursuing alternative revenue sources and looking at substituting traditional debit cards for exempt prepaid debit cards, will bank customers know or care?  Will consumers recognize the difference if issued a prepaid debit card verses a traditional debit card when both are accepted and function largely the same?  When a cardholder goes to make a purchase, what’s the difference between the available checking account balance and an available prepaid account balance besides the terminology?

And finally we should see some of the first NFC mobile banking apps being used under the prepaid banner. One big feature of prepaid is “instant issue” where plastic is a burden.  Moving prepaid to mobile NFC enabled smart phone devices will become even more appealing.

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