J.P. Morgan Chase & Co. (JPM) said it will start selling prepaid debit cards in its 5,541 branches this summer, accelerating the banking industry's push to generate revenue with new fee-based consumer products.
The move by the nation's biggest bank by assets comes six months after several big banks abruptly retreated from plans to impose monthly fees on traditional debit cards that are linked to checking accounts. Those plans collapsed after consumers and lawmakers assailed the fees and some rival banks decided not to join the strategy.
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Recent efforts to introduce fee-based products are a reaction by the banking industry to new rules that cap transaction fees for more traditional cards.
J.P. Morgan's Chase (CCF) retail unit is the largest big bank so far to pitch prepaid monthly debit cards, which typically target consumers who can't afford fees that are being tacked onto regular checking accounts.
It is a departure for Chase, which began selling the cards in 200 branches late last month and has lately been focused on pitching credit cards to affluent consumers.
Prepaid debit cards differ from regular debit cards because they aren't linked to a checking account. Customers load money onto the cards for a monthly fee and then can use them to pay for purchases just like regular credit or debit cards.
They also can have paychecks deposited directly onto prepaid cards and use the plastic to pay bills.
The new Chase "Liquid" card has a $4.95 monthly fee and carries the Visa logo. The bank doesn't charge customers to load money onto the card or to withdraw cash from Chase ATMs or tellers.
That means a customer could pay less for the prepaid card than for a basic Chase checking account, which charges customers $12 a month if they can't meet minimum balance rules or other criteria that result in waived fees.
U.S. Bancorp (USB) BB&T Corp. (BBT) and Regions Financial Corp. (RF) are among other banks that also sell prepaid debit cards. Even American Express Co. (AXP), which built a reputation on providing plastic to well-heeled consumers, rolled out a prepaid card last summer.
The banks are exploring new products like prepaid debit cards in an attempt to offset more than $15 billion in annual industry revenue that has been wiped out from new regulations on traditional debit cards, credit cards and overdraft fees.
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Chase has said that about two-thirds of its customers with less than $100,000 in deposits and investments will be unprofitable to the bank as a result of new regulations. Customers who keep low balances are typically unprofitable because the banks must still pay employees to maintain the accounts and serve the customers.
"What we did is design a product for customers who want a low-cost alternative to traditional checking accounts and banking accounts, and for people really looking for the control and flexibility of the design that we put in place," said Ryan McInerney, Chase's chief executive of consumer banking.
Banks are attracted to prepaid debit cards, in part, because they essentially are exempt from the so-called Durbin amendment, a federal law that roughly halved the amount that banks can charge merchants for accepting debit transactions. That means merchants must pay the banks more when a customer uses a prepaid card instead of a debit card.
The banks are stepping on the turf of non-traditional financial companies like Green Dot Corp. (GDOT), Netspend Holdings Inc. (NTSP) and Western Union Co. (WU), which sell prepaid debit cards in pharmacies, supermarkets, check cashers and other retail locations, as well as online. Some of those cards have been criticized by consumer advocates for high fees and inadequate fee disclosures.
Still, customers who don't have a relationship with a bank may find it easier to just pick up a prepaid card in the drugstore checkout line than to walk into an unfamiliar branch.
Wells Fargo & Co. (WFC) last year stopped selling prepaid cards in a handful of branches. The San Francisco bank now only sells the cards through its website.
At BB&T, though, sales of prepaid cards in its branches have "exceeded our expectations without a doubt," says Scott Qualls, senior vice president at the Winston-Salem, N.C., bank.
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"We hopefully will attract a set of new clients to the bank," Mr. McInerney said.
Mr. McInerney said the bank will analyze how customers use the new card to determine if it is "still the best fit for them" or if they should be offered another Chase product.
It is unclear whether traditional banks' entrance into the prepaid-card market may pull back customers who may have opted for an alternative provider. The move may put pressure on existing players, particularly on the fee front, experts said.
"We are happy to see banks offering prepaid cards as long as that's not a substitute to their duty to serve the entire community with their traditional bank accounts," said Lauren Saunders, managing attorney for the National Consumer Law Center's Washington office.
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