May 14, 2012 / 5:46 PM / 7 years ago

TEXT-Fitch: U.S. banks answer Durbin with prepaid cards

(The following statement was released by the rating agency)

May 14 - Fitch Ratings notes an increase in the offering of prepaid cards, as U.S. banks look to offset revenue reduction resulting from implementation of the Durbin Amendment. We believe Durbin could, on average, cut potential fees on debit card transactions by one-half. The impact on card fee generation by Durbin has prompted many banks to impose new fees on ancillary products, including the reinstatement of fees on many checking accounts, leading some customers to close accounts altogether. As a result, we believe the marketing of prepaid cards or reloadable cards is likely to increase materially, given that under-banked consumers now have fewer payment options available to them. In addition, many issuers have begun to market reloadable cards to students as an alternative to credit cards, given limitations imposed by the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009. American Express introduced a new prepaid card accompanied by reduced fees in summer of 2011 and most recently JPMorgan unveiled a $4.95 a month prepaid card, which amounts to less than one-half the price of its monthly personal checking fee ($12 for those who fail to meet no-fee checking requirements that include a minimum monthly balance). However, Chase customers can acquire the card free if it is linked to a JPMorgan checking account. Prepaid card issuers benefit from card fees, interchange fees, and float provided by debit balances on the card. According to The Nilson Report, prepaid cards were the method of payment for 2.2% of U.S. consumption expenditures in 2010, up from 0.6% in 2000, accounting for $172.4 billion of payment volume. We expect growth to continue over the next decade. Card legislation has been significant in recent years and further pressure is expected due to oversight by the Consumer Financial Protection Bureau (CFPB). (Reporting By Hilary Russ)

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