To become a part of the rapidly growing prepaid card business and recoup fee revenue losses (to an extent) due to various financial regulations, JPMorgan Chase & Co. (JPM) 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 Visa Inc. (V) 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 (AXP) started issuing prepaid cards. Similarly, Capital One Financial Corp. (COF) and Wells Fargo & Company (WFC) 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 the stock.
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