My wife and I were blessed with six children. The youngest is a senior in high school and two are in college. We received an advertisement from Bluebird for prepaid debit cards for college students. That led to questions in my mind about my credit union's debit cards and prepaid cards.
Our debit card is attached to traditional checking accounts. As such, if there is money in your account, you can use your debit card. We also offer overdraft protection to allow you to overdraw your checking account with your debit card if you "opt in" to that service. The problem with our account is that if you do not qualify for a checking account you cannot have the debit card.
We offer a couple of alternatives. Our VISA Gift Card can be purchased for a $2.50 fee and is loaded at the branch. Once the funds are spent, it does not allow the cardholder to reload funds. We also offer the VISA Travel Card for a $4 fee. This card is reloadable over the Internet. Both cards allow cardholders to do many of their day-to-day banking transactions. The problem with these two options is that they are both "one and done." Our members or branch guests purchase the cards and leave, perhaps never to do business with us again.
So I pondered how our debit or gift cards compare to Bluebird and other well-known prepaid cards.
On Oct. 8, 2012 the world's largest retailer teamed up with the world's fourth-largest credit card issuer to create a new account called Bluebird. Walmart and American Express offer Bluebird as a checking and debit alternative to traditional banking. The Bluebird account accepts direct deposits, allows online bill pay, and you can even add checks with the Bluebird Mobile app. With Sub-Accounts you can manage family spending. Accounts are opened quickly and easily without credit reviews.
Funds deposited into Bluebird are deposited into a custodial account maintained for the benefit of Bluebird members at FDIC insured banks (Wells Fargo Bank, N.A. and American Express Centurion Bank). The Bluebird website indicates noncommittally that the funds "should be insured by the FDIC" up to the $250,000 max. Bluebird member funds are not insured until they are deposited into the FDIC insured accounts. Funds are deposited into the custodial account not later than one business day after the funds are credited to the Bluebird account. Funds are not protected from the insolvency of American Express Bluebird.
You must have a working e-mail address to sign up for a Bluebird account. You can set up direct deposits from employer paychecks and from government benefit payments including Federal tax refunds and Social Security. The account and routing numbers used for direct deposits cannot be used for other purposes such as paying bills. The initial deposit is delayed one or two days but thereafter the direct deposits are made on the normal pay date.
Bluebird will allow members to attach their bank accounts to their Bluebird account. Bluebird teamed up with Yodlee to offer instant account verification. This only requires the member's bank user name and password. Bluebird offers the standard account verification which takes three to four business days using micro deposits to verify the member's account. Funds transferred from a bank account are generally available for use within five business days after the request is submitted.
For immediate availability, members can deposit funds from their debit cards or cash at Walmart cash registers. Since members can deposit cash and checks at Walmart, Walmart performs many of the functions of a traditional bank. Bluebird members have access to 22,000 free ATMs nationwide through the Money Pass Network.
Members with smartphones can also use the Bluebird Mobile App to deposit checks into their Bluebird account without going to Walmart. The member simply takes photos of the front and back of the check using the smartphone and waits for confirmation of deposit. Check deposits via the app are limited to $2,000 at this time. Members save a trip to Walmart but it may take up to six business days for funds to be available.
For checks that are over the $2,000 limit, the member may mail these in. In fact, any check may be mailed in as long as it does not cause the member's account to exceed the overall balance limit of $100,000 or exceed the total annual account load. The funds availability on mailed check deposits begins when the check is received. Funds from checks of $5,000 or under are generally available on the fifth business day. Over $5,000 leads to the checks being available on the seventh business day.
At the moment it appears that Bluebird is unregulated. Walmart does not have a banking license but has offered financial services for some time. The Consumer Financial Protection Bureau should have the authority to issue rules to regulate services such as Bluebird.
There are other cards in the deck. It is common for credit unions and banks to offer prepaid cards. There are other non-financial institution companies in the business of prepaid cards including PayPal. Major competitors in the field include Green Dot and Chase Liquid.
Green Dot was founded in 1999 and offers prepaid Mastercard and VISA cards in the United States. Green Dot cards can be purchased at over 60,000 retail locations nationwide including Walmart, Walgreens, CVS, Radio Shack, K-Mart, and Kroeger.
A commonly expressed dissatisfaction with Green Dot is that the fees are excessive. If you buy a card in the store it costs as much as $4.95 but you can get one for free online. Like Bluebird, you can get your Green Dot card without a credit check. There is no monthly charge if you load at least $1,000 or have 30 purchases post during the month. Should you not meet those minimums you will be charged $5.95. You can direct deposit your paycheck or government check to the card at no cost. There is a $4.95 charge to upload funds at a participating retailer. Green Dot offers free withdrawals and balance inquiries at MoneyPass ATMs, the same nationwide network used by Bluebird. If you use a non-MoneyPass ATM or go to a bank teller, they will charge you $2.50 for the transaction.
Green Dot does not offer smartphone photos of checks to make deposits. However, you can take your payroll check or government check to Walmart to upload funds. The problem is that Walmart check cashing fees will apply and then Green Dot adds their $3.74 service fee.
You can also reload your card with a transfer from your financial institution account if they allow electronic transfers to outside institutions. Green Dot does not charge for these transfers. VISA's Zero Liability Policy ensures you do not lose money if your card is lost or stolen.
You can use your Green Dot account to set up free online bill pay.
JP Morgan Chase Liquid
The Chase Liquid card is not available at retail outlets like Green Dot and Bluebird. You will need to go into your local Chase branch. There are no fees to open or activate the card and you can begin with a reasonably low $25 initial deposit. You just need to take two forms of ID with you, because, unlike Green Dot and Bluebird, Chase conducts a credit check on you. You leave with your fully activated PIN-enabled card. However, your card is a temporary card and a permanent will be mailed. Chase Liquid can be used at any merchant that accepts VISA for in-store or online purchases.
Chase Liquid does not charge for subsequent deposits whether done at ATMs, mobile app, direct deposit, or bank transfer. Chase has 10,500 "deposit friendly" ATMs that accept checks and cash deposits. These deposits can be made to the Chase Liquid card account balance. Like the Green Dot and Bluebird, you can have your payroll check or government check direct deposited onto your card. You can use your smartphone camera to take photos of the front and bank of your checks to make deposits at your convenience. You can set up online and mobile banking to track your balances.
Chase Liquid is not completely free. There is a flat monthly fee of $4.95 for having the card. The charge for non-Chase ATM withdrawals is $2 and the replacement card fee is $5.
Chase is a bank so funds are FDIC insured and regulated. Like Green Dot, VISA's Zero Liability Policy ensures you do not lose money if your card is lost or stolen. Money from unauthorized purchases or withdrawals is back in your account by the end of the next business day.
Time To Stop 'One and Done'
The spectrum of debit cards and gift cards provides a great deal of diversity. Reloadable gift cards, prepaid debit cards, and checking account debit cards share many of the same features. Financial institutions face competition from nonbanks for their share of this growing market. My conclusion is that we need to stop selling the "one and done" variety of debit/gift cards and sell one that is tied to a credit union account following the Chase Liquid model. Alternatively, we need to offer a debit card only account catering to those who cannot or do not want to open checking accounts. This will enable us to foster mutually beneficial long-term relationships with the purchasers and grow the credit union.
David Tagart is CFO at Liberty First Credit Union in Lincoln, Neb.