New prepaid providers’ opportunity: Face-to-face customer service
By Christina Tetreault on Tuesday, April 1st, 2014
Companies like T-Mobile have the physical infrastructure to provide consumers in person help with their prepaid cards, but will they do it?
In 2012 and 2013, the big news in prepaid involved banks and retailers. Chase started issuing its prepaid card, Bluebird. Walmart and American Express launched Liquid. Walgreens started its financial services program, including its Balance Prepaid MasterCard. This year, the big news in prepaid is wireless companies offering prepaid cards such as T-Mobile’s Visa Prepaid card.
Why is the entry of wireless companies into prepaid a big deal? After all, non-banks, such as RushCard, have been part of prepaid cards from the start. Some of the benefit is likely to be that increased competition will help consumers. We’ve been watching the prepaid space since 2003, and we’ve documented that fees are down and features are up as competition in prepaid has increased. This means consumers have some very good prepaid card choices. (For more, you can see our prepaid card ratings from July 2013.) More competition in prepaid may mean even better choices with lower fees for consumers.
Right now, it looks like the prepaid cards offered by the wireless companies and to a lesser extent Walgreens, will emphasize online and telephone customer service. For example, Sprint’s Money Express Visa requires that consumers download an app in order to use it. For some consumers, having a physical payment card tied to an app may be a stepping stone to mobile payments. (Consumers have been hesitant to jump into mobile pay. Even Google Wallet has taken a step back and introduced a physical prepaid card.) The human touch is probably not what these consumers are looking for.
But there’s another aspect to the entry of companies like Walgreens and T-Mobile in the prepaid market. These companies can compete head-to-head with banks in terms of on-the-ground customer service. Just like a bank customer can go see a teller if there’s an issue with her bank account, this is an opportunity for Walgreens and wireless companies to provide in-person customer service. This could give underserved consumers in particular – some of whom cite “do not like to deal with banks” as one of the top reasons for not having a bank account – a reason to choose these companies as financial service providers, positioning Walgreens and wireless stores as competition to alternative financial service providers like check-cashers.
Why is in-person service a big deal? As Lisa Servon’s work in alternative financial services shows, there are some underserved consumers who are eager for a personal relationship with their financial service provider. These consumers are choosing financial services not from banks – whose products, as Michael Barr’s work shows, do not meet low and moderate income consumers’ needs – but at check cashers and pay day loan stores. Wireless companies and places like Walgreens have stores in all kinds of locations – urban, suburban and rural. These stores therefore may be better positioned to meet their consumers where they are, in a way that banks or big even box retailers can’t or won’t. But these companies may not do that. It’s time consuming and expensive to train staff, and companies may decide that it doesn’t make sense for them to put resources into getting employees up-to speed on the various issues that can arise when consumers can easily be directed online, to an 800 number or to an in-store kiosk for service.
That would be a shame. There is a clear need for consumer-focused, customer-friendly, person-to-person financial services. For some consumers, a great mobile app will suffice. But for others, mobile is not the answer. Some consumers are a long way from mobile banking. For example, two reasons California consumers are not adopting mobile banking are security concerns and lack of access to smart phones, according to a 2013 survey by the National Council of La Raza.
Prepaid cards that meet consumers where they are – even if that is not online – while providing great service – are persuading consumers to switch from high-cost services such as check cashers to prepaid cards. Imagine the possibilities if the consumers who wanted to could get face-to-face help with their prepaid card from well –trained, helpful staff at a neighborhood wireless or drug store without having to use a kiosk or call an 800 number.
It remains to be seen where the prepaid card market is going. Some consumers may find prepaid cards a step to mobile banking and payments, while others use prepaid cards as an arrow in their payment quiver, right there with debit and credit cards. Moreover, in a few months, the Consumer Financial Protection Bureau (CFPB) is expected to issue proposed rules for prepaid cards. (Right now, prepaid cards lack the mandatory federal consumer protections that come with debit and credit cards. In our reports and our comments to the CFPB, we have asked that this gap be closed.) The CFPB’s proposed rules will likely lead to changes in the marketplace.
We’ll be keeping an eye on developments in this space and will be sure to keep you posted. In the meantime, we’d love to hear from you.
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