To become a part of the rapidly growing prepaid card business
and recoup fee revenue losses (to an extent) due to various
JPMorgan Chase & Co.
) announced the launch of reloadable card - Chase Liquid.
Presently, this prepaid card will be available in about 200
branches of the company on a trial basis and would be launched
across its footprint by mid-2012.
Customers applying for JPMorgan's prepaid card will be required
to pay $4.95 as the monthly fee and there will be no other hidden
charges. Customers, who do not have JPMorgan's checking or savings
account, can also apply for this card.
Initially, the customers will have to load their prepaid card
with $25 or more. Thereafter, it will not be mandatory for them to
keep any minimum balance on the card. JPMorgan will not charge
anything for using the prepaid cards for making deposits or
withdrawals from the company's branches and ATMs.
This prepaid card also offers other supplementary benefits like
enabling the customers to make purchases using it, where
) cards are accepted. Further, the card balances are insured by the
Federal Deposit Insurance Corporation (FDIC).
Why Not Debit Cards are Substitutes?
Though both debit and prepaid cards are similar in a way as the
customers can refill these with their own money according to their
needs, there is a vital difference between the two. Unlike debit
cards, prepaid cards are not linked to any bank account.
The target customers for prepaid cards include those who have
poor or limited credit and those who do not qualify for normal
checking accounts. Additionally, as the customers cannot issue
checks and overdraw from their prepaid cards, the banks benefit
from lower processing costs.
Further, with the implementation of the Durbin Amendment, the
launch of prepaid card has become beneficial for the banks. The
Durbin Amendment limits the fees that the banks can collect from
the merchants when their customers pay through debit cards.
However, the law is not applicable for the prepaid cards, thereby
allowing the banks to charge higher fees from merchants when
customers pay through a prepaid card.
If compared with its normal checking accounts, JPMorgan's
prepaid card is more cost effective for the customers. Depending on
the checking account chosen, the monthly fee ranges from $6 to $35.
Hence, the customers applying for the prepaid card will definitely
get more benefits from it than the normal checking account.
JPMorgan is not the only financial institution that offers
prepaid cards. Last year,
American Express Company
) started issuing prepaid cards. Similarly,
Capital One Financial Corp.
Wells Fargo & Company
) also offer prepaid cards to their customers.
The banking industry is suffering heavily from the slow economic
recovery, thereby forcing the banks to look for alternatives to
improve their financials. Though JPMorgan is comfortably positioned
than many of its peers, the company's revenue growth has remained
muted as a result of various financial regulations. Hence, we can
see the launch of the prepaid card as a way to augment revenue and
improve market share in the new prepaid market segment.
JPMorgan currently retains a Zacks # 3 Rank, which translates
into a short-term 'Hold' rating. Also, considering the
fundamentals, we maintain our long-term "Neutral" recommendation on
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