The prepaid banking card has as many uses as you can think of, and, very likely, some you haven't. One that especially appeals to community banker Terri Koelsch is the prepaid payroll card, which employers can issue to workers as a means of having their direct-deposited earnings available instantly. They needn't wait in lines, pay check cashing fees if they don't have a bank relationship, or worry about carrying around too much currency.
Koelsch, chief operations officer at St. John National Bank, believes many business customers-and their employees-in her bank's market can benefit from prepaid payroll card service.
I am beyond excited about this product," says Koelsch, about prepaid cards in general.
The banker explained that her institution, the first to launch under the ABA Community Bank Prepaid Card Program, sees great potential for prepaid cards in its corner of Kansas. St. John National, $64.3 million-assets, has been offering consumer reloadable cards since early March, and is branching into additional types of prepaids, such as the payroll variation.
Prior to joining the ABA program, the bank had little experience with prepaids, says Koelsch. It offered gift cards as an agent of another company.
“That fit for some customers,” says Koelsch, “but it’s not a huge income maker.” Also the cards weren’t brandable, so the bank, which consistently ranks among the state’s best-performing, wanted something with more identity.
The bank offered general purpose consumer reloadable cards under the ABA program first, replacing the other program. After a little more than a month, with no promotion as of yet, the bank has already sold 45 out of the 120 it stocked. Considering the town has 1,500 people, Koelsch considers that an encouraging start.
Several employers have already signed on for payroll card service, and are in the midst implementing the program. One is a company that operates a pair of health care facilities. Koelsch says the company’s many hourly employees represent an ideal group to have prepaid payroll cards.
“Right now the company isn’t even doing any direct deposit,” she says.
The bank will be approaching area colleges in an effort to provide student transaction cards.
One of the earliest programs implemented was for the Stafford County government’s Civic Involvement Program. Koelsch explains that the county has many residents who provide voluntary services, such as firefighters. While they typically serve at no pay, they need reimbursement for expenses incurred in the course of serving, and the country typically wound up issuing many small reimbursement checks.
Aside from the burden and expense of cutting those checks, the many small items became a reconciliation nuisance. Koelsch explains that volunteers would hold onto batches of the checks until they amounted to something, giving the county a trafficking headache.
So as a civic project, the bank itself offered the county a simple prepaid program. Volunteers receive cards, and don’t have to get to the bank to cash their expense checks and such. In keeping with the civic nature of the program, the bank structured the cards with no monthly fee to the holders. Only exception fees, such as for using an ATM, are charged.
Disclosing prepaid program fees to customers
As this article indicates, St. John National Bank offers several variations on the prepaid cards, and fee structures also vary. For a sampling of how the bank discloses those fees, download this PDF of card carriers provided courtesy of the bank.
(Disclaimer: Carriers are provided solely as an illustration of possible approaches and neither ABA Banking Journal nor St. John National Bank are providing legal advice.)
One of the features of the ABA program is flexibility in designing fee schedules. Koelsch says this is helpful to the bank, given its desire to tailor pricing to each of the different types of cards it plans to offer.
The fees applicable to a given card type are printed explicitly, with appropriate disclosures, on the card carrier provided to the holder along with the card.
Among the services the bank offers for free are signature and PIN point of sale transactions; cashback point of sale transactions; card-to-card transactions; and direct deposit loads.
One card type provides for no monthly maintenance fee, while two other card types assess a $3 monthly maintenance charge. Koelsch notes that she considers this $36 annual total quite reasonable, given that some institutions charge that for a single overdraft.
All accounts have a fee on ATM withdrawals, but the payroll card variation allows one free withdrawal and one free convenience check per pay period.
Koelsch says that bankers interested in the program should be aware that prepaid cards have appeal to segments beyond the corporate and public markets, and the unbanked and underbanked. For example, she sees appeal to farmers, in her bank’s heavily agricultural markets.
Koelsch notes that a farming couple who have a farm checking account recently adopted the prepaid card as a way to keep everyday expenses—a cup of coffee, a bottle of pop—out of the main farm checking account.
The main account is subject to wide fluctuations, as it is drawn down for major purchases, such as fuel and fertilizer. Frequently such accounts are used to deposit loan advances, in anticipation of major outlays, and farmers try to avoid drawdowns on credit until absolutely necessary. Keeping penny-ante out of the main account helps keep things clear, and avoids embarrassment.
With big balance fluctuations, Koelsch explains, “it’s hard to trust your debit card.”
She’s speaking from experience, because, actually, the farm family is her own.
Koelsch’s husband is a farmer, and she experimented with the card when the bank was first getting its feet wet with the ABA program.
All employees were asked to accept cards and try them out, to get a feel and a familiarity with them. How better to sell them to customers, Koelsch says the bank reasoned, than to speak from personal experience?
With the trial run now over, Koelsch says she and her husband continue to use the prepaids.
“We use it for the incidentals,” she says, “so we don’t have to run them through the checking account.”