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Bank Reputations at Risk In Prepaid Partnerships

By Mercator Advisory Group
March 7, 2011
in Analysts Coverage
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Banks that want to offer prepaid cards need to consider the risks that come with selling a third party’s product. While prepaid cards can serve as a source of fee income, it is incumbent on banks to manage their third-party relationships in ways that minimize risks for their operations, their reputations, and their compliance with regulations. That issue is highlighted in this American Banker story that discusses these risks.

Many banks are planning to offer the reloadable cards as an alternative product for customers who do not qualify for traditional checking accounts or cannot afford them after banks add new fees. So, some banks are partnering with third-party companies that operate their own prepaid systems, such as NetSpend Holdings Inc. and Green Dot Corp.

These partnerships may help banks save time and money in establishing programs, but with consumer advocates pouncing on prepaid cards’ fees and partners of the third parties facing their own regulatory pressures, the onus is on banks to conduct due diligence, analysts say.

Read the full article here (registration required): http://www.americanbanker.com/issues/176_43/prepaid-partnerships-1033914-1.html


Many of these issues are discussed in Mercator’s report: BIN Sponsorship: New Revenue Opportunities for Financial Institutions in Prepaid, available at http://www.mercatoradvisorygroup.com.

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