In an article for The Financial Brand, Kevin Tynan, the senior vice president for marketing at Liberty Bank for Savings in Chicago, argues that banks should create checkless checking accounts to reach the potential customers who would otherwise use prepaid cards.
Consumers don’t have to settle for a jerry-rigged, almost-good-enough, nearly-a-checking account. Why should they settle, when they can have the real thing, start the savings program they want and build their credit scores?
Tynan does not let facts get in the way of his screed against prepaid cards, as he asserts that prepaid cards do not have FDIC insurance. This is not true, as the FDIC has stated in General Counsel Opinion Number 8 that prepaid cardholders’ deposits are insured via pass through insurance. He also claims that prepaid cards have higher fees and cites the Kardashian Kard, which never had any cardholders and has been gone for more than four years, as an example.
While we are cherry picking, let’s note that some prepaid cards have associated savings accounts that pay 6% interest, but the APY on Liberty’s account is .01%. That’s not a typo (unless the bank’s site has it wrong); it is one one-hundredth a percent.
Cherry picking aside, banks need to do certain things to make any account aimed at low-income people work. First, they need to make sure that they have a process in place for helping customers with ChexSystems files or bad or no credit scores. Second, they need to make sure they have a marketing plan that engages these customers and speaks to their needs of security, liquidity, and future financial development. Third, they need to have a plan to help people move up the financial services ladder.
If a bank’s goal is just to run transactions and not to help people develop savings, plan for the future, and eventually become borrowers, then those customers will likely leave for other institutions when they do move into higher income brackets.
To read the full story, go to The Financial Brand.