Mercator Blog

How a Bank Merger in Chicago Could Cause Ripples in the Prepaid Industry
Date: July 2, 2014
Research Team

The Federal Reserve Board of Governors approved the application of Chicago-based MB Financial Inc. to acquire the Taylor Capital Group Inc., of Rosemont, Ill., on June 30. While this is big news for the banking scene, it will also affect MB’s prepaid business.

MB Payments solutions offer to serve as an issuer, program manager, BIN sponsor, or agent bank for GPR cards, payroll cards, gift cards, and other prepaid products. Before the deal, it had about $9.6 billion in assets. Once the deal is complete, it will have consolidated assets of about $15. 3 billion, which puts it above the $10 billion threshold for exemption from the Durbin Amendment rules on debit and prepaid interchange.

This means that in order to avoid restrictions on the interchange that it can collect from its prepaid programs, the cards must meet a number of requirements. These include:

  • The cards cannot be labeled or marketed as “gifts.”
  • The card programs cannot charge overdraft fees. 
  • The cards must provide at least one free in-network ATM withdrawal each month.
  • The cards must be reloadable.
  • The cards must be backed by a pooled account.
  • The cards must be open-loop.
  • The cards must be the only method of accessing the funds loaded. 

MB Financial will be able to manage this for its own prepaid cards, but it may need to do more careful negotiations with program managers and other financial institutions who want it to serve as an issuer of BIN sponsor for prepaid programs.

Unfortunately, this won’t help its debit programs. The bank will need to consider how it measures and manages its basic checking relationships once the debit source of revenue drops. The checking account will need to become a central point for developing a larger customer relationship that includes multiple products to make up for the changes in the revenue streams. As a bank that has been near the $10 billion threshold for some time, it is likely that MB Financial has a plan in place and has already been transitioning its internal strategy to prepare.

An interesting side story to this is that Cole Taylor Bank, the bank subsidiary of Taylor Capital, was hit with a cease and desist order and civil money penalty on June 26 for its involvement with campus card programs run by High One, Inc. Cole Taylor has served as the depository institution for a portion of High One’s customer accounts since 2012. Crain’s Chicago Business reports that Cole Taylor ended the arrangement with High One in February 2013. Clearing up this action was necessary for the deal to go through.