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New regs could see banks follow JP Morgan out of US pre-paid market - Fitch

14 February 2014  |  5976 views  |  1 Woman shopping with credit card

US banks could follow JP Morgan's lead and get out of the pre-paid card business if proposed new regulatory oversight materialises, leaving the way open for the likes of American Express and Green Dot, predicts Fitch Ratings.

There has been a massive surge in the popularity of pre-paid cards in the US over the last few years, according to Federal Reserve figures.

Between 2009 and 2012, the number of transactions on them grew by an annual rate of 33.5%, far outstripping other types of non-cash payment. The total number of payments reached 3.1 billion in 2012, 1.8 billion more than 2009.

Fitch says that this dramatic growth has been driven by the popularity of gift cards and a desire amongst Americans to keep a tighter rein on their money in the wake of the financial crisis.

The firm also cites the Durbin Amendment to the Dodd-Frank Act which slashed interchange fees, prompting banks to reinstitute current account fees in a bid to claw back revenues.

This in turn has seen customers look elsewhere, providing an opportunity for the likes of American Express and Walmart, who teamed up on their Bluebird card in late 2012.

However, the pre-paid industry is now coming under regulatory scrutiny itself, with the Consumer Financial Protection Bureau (CFPB), targeting May for proposed new rules covering issues such as fees on prepaid cards.

Meanwhile, Senator Mark Warner has recently introduced a bill that would require new disclosures for pre-paid cards, including clearer fee tables.

Although JP Morgan exited the pre-paid business last month due to concerns over risks following a data breach, Fitch argues that the tightening regulatory regime may also have been a factor and that other banks could follow suit.

"In this scenario, Fitch believes there are benefits for nonbank players such as American Express, Green Dot and NetSpend," says the firm.

Comments: (1)

Jim Wells
Jim Wells - Wellspring Consulting International - Fort Lauderdale | 17 February, 2014, 14:01

Fantastic news for the US prepaid card market as big banks like Chase don't understand the potential power of the product or the needs, wants and behaviors of users.  Jim Wells

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