Focus Group Findings on Prepaid Debit Cards
This fact sheet focuses on the lessons learned from consumers who purchase and use prepaid debit cards.
More infoRecommendations
OVERCOMING BARRIERS TO BANKING
- Employers and government agencies can offer direct deposit to workers and recipients of public assistance.
Direct deposit can alleviate the burden of monthly fees and minimum opening balance requirements, making checking accounts more affordable to open and maintain. Employers, beginning with state and local governments, can increase the use of direct deposit as a way of encouraging low-income workers to open and maintain bank accounts. Government offices providing public benefits payments should do the same for recipients of public assistance. prepaid payroll and benefit cards, while a convenient transaction tool, do not offer the same opportunities to build savings and credit as direct deposit to a bank account does. - Government workforce placement programs can introduce bank accounts to the newly employed.
Economic circumstances and employment are the most important factors in determining a person’s “bankability.” Half of the Newly Unbanked in our survey are also newly unemployed, and many more of the Unbanked are not making enough money to maintain a bank account. The linkage between neighborhood employment rates and success in opening new bank accounts affirms the recommendation that new bank accounts should be introduced as people become employed. government workforce placement programs and private employers can both play a role here. - Policy makers and the banking sector can use public–private collaborations to reach the unbanked and to set safe terms for starter accounts.
Local governments and the banking sector should reduce barriers to entry through collaborations that make low-cost bank accounts available and that actively market them. These accounts should have a low minimum balance requirement and include a fair and transparent fee structure. Banks should couple these accounts with an offering of the other financial products sought by the low-income population, including remittances and money orders. Federal policies, local government practices, and partnerships that include local civic leaders and banks can encourage banks to maintain branch offices in low-income communities, hire staff fluent in prominent local languages and actively participate in the relationships necessary to build community comfort with the mainstream financial system. city leaders can offer their vigorous and sustained support for these campaigns. - Banks and efforts to bank the unbanked can engage in marketing and outreach in locally spoken languages.
Active marketing and community outreach, as well as financial education, are essential to reach a community often lacking comfort or familiarity with the banking system. Additionally, Bank on LA and similar publicly supported efforts can be clearly branded to help ensure that people get into the specifically designed Bank on LA starter accounts. To effectively market safer banking opportunities and reach out to the target population, all of these activities can be carried out in languages spoken by the target population.
HELPING FAMILIES STAY BANKED
- Policy makers can require, and banks should implement, fair and transparent fees.
Policy makers should require banks to provide information about checking account terms, conditions and fees in a concise, easy-to-read format, similar to the Schumer box for credit cards.28 Failing to do so can lead to unexpected fees that our data shows can trigger low-income customers to drop out of the banking system. Given the high rate of overdraft transactions revealed in our survey, combined with the frequency at which the Newly Unbanked express deep dissatisfaction with unexpected fees, banks should review overdraft penalty fees and implement strategies to reduce their size and frequency. Moreover, they should provide full and transparent disclosure of customer options with respect to overdraft plans (such as overdraft transfer or line of credit) as well as the choice to opt in or out of overdraft programs at any time. - Banks and banking regulators can end deposit delay and require depository institutions to post deposits and withdrawals in a fully disclosed, objective and neutral manner, such as chronological order, that does not maximize overdraft fees.
Our survey indicates that low-income customers are particularly concerned about liquidity and timing of their deposits and payments. Banks should post deposits and withdrawals in a fully disclosed, objective and neutral manner that does not maximize overdraft fees.29 Banks should seek to make funds available as quickly as possible. - Banks can increase their presence, including ATM networks, in low-income areas.
The use of out-of-network ATMs and accompanying fees reported in our survey likely reflects poor ATM infrastructure in the places where low-income customers live and work. Banks and credit unions can reduce fees associated with banking by optimizing their ATM networks for these low-income areas. Policy makers, including local governments, can take actions to encourage such improvements.
ENCOURAGING THE BUILDING OF SAVINGS AND CREDIT
- Banks can provide a comprehensive suite of products, including money orders, remittances, check cashing, bill pay services and personal loans.
Banks can leverage their strengths in location and customer service to effectively compete in the market for financial services utilized by low-income households. By offering a cheaper alternative to AFS, banks can present their customers a significant opportunity to save money even as banks capture this market for revenue-generating products and services. To do so, banks can provide at competitive and transparent prices products used by working poor and foreign-born populations, including money orders, remittances, check cashing, bill pay services and personal loans. - Community organizations, local governments, efforts to bank the Unbanked, like the Bank On programs, and depository institutions can provide financial education to help new customers manage costs and build up assets.
Financial education and asset-building strategies are necessary to connect customers, particularly those who are unfamiliar with the banking system, with banking products that fit their financial needs. Financial education can complement full-disclosure policies and transparent fee structures at banks. Given the high rates of out-of-network ATM usage by low-income customers, education programs should specifically address ATM networks. - Banks, policy makers and community organizations can capitalize on household aspirations to build family financial security.
Individuals who remain banked tend to actively save, including for long-term goals, such as paying for a college education. Banks that provide low-cost and easy-to-understand opportunities for savings and asset-building enable families to build economic security within the financial mainstream. Developing household assets and banking relationships allows families to save and plan. banks can be active partners in fostering these opportunities.
