Debit Versus Prepaid: What Account Structure Makes More Sense for Providers?
For many years, debit cards and prepaid cards were viewed as two distinct products for two separate types of customers. Debit cards were the transactional tool attached to a checking account that enabled in-store purchases, online shopping, and ATM withdrawals. The checking account behind the debit card was the anchor of a financial institution’s relationship with the account holder, and it provided a place to receive deposits and store money safely.
Prepaid cards were the kid brother of debit cards. They provided a place to receive money and enabled purchases and ATM withdrawals, but they were a tool for people who were not quite ready for a bank account. They also did the jobs that were too small for checking accounts to bother with, such as delivering benefits or incentives.
Over time, changes in technology and the growth of smartphone ownership meant that new tools could be added to prepaid cards that did not require being attached to the infrastructure of a bank. In the United States, attitudes toward prepaid cards changed as consumers saw them a viable and perhaps preferable alternative to banks, which had arcane fee structures and a reputation for being bad for the little guy. Then regulators made changes to the rules governing both checking accounts and prepaid cards that made them more similar in their operations.
Now, a customer looking for a financial services product to hold money and make transactions can get essentially the same features and functions from a prepaid card and a debit card.
Regulations do complicate this picture a little for issuers with more than $10 billion in assets, as will be explained in more detail in the regulations section. Nonetheless, from a consumer perspective, the products offer nearly identical options from the perspective of providing deposit and transaction capabilities.
Financial services providers that want to offer a deposit product with a transactional tool have a choice between debit and prepaid cards. The two card types offer similar value propositions for customers, but the value can be very different for the provider. The report, A Rose by Any Other Name: What’s the Difference Between Debit and Prepaid?, is designed to help financial services providers determine which type of account structure makes the most sense for their deposit product objectives.