James Militzer

Prepaid Protections: An interview with Cecilia Frew, Head of U.S. Prepaid at Visa

Prepaid debit cards are booming in the U.S., with consumers loading over $64 billion onto general purpose reloadable prepaid cards in 2012. But though they’re generally issued by banks and serve many of the same functions as a checking account debit card, they’re currently subject to fewer regulations. For instance, there’s no requirement that the cards disclose their fees and terms in a uniform way, which has led to criticism from consumer groups.

To help clear up some of this confusion, Visa announced over the summer that it was creating a special designation for cards that meet a set of consumer-friendly standards. “We did it because there’s a lot of confusion out there on prepaid cards,” said Cecilia Frew, Head of U.S. Prepaid at the company, in an interview conducted at the 2014 EMERGE conference. “Quite often people don’t understand the fees, there’s a lot of fees, and not all the same consumer protections. So what we’ve done is create a standard that really simplifies the fees and gives the consumer all the confidence of the consumer protections.”

When it’s operable, the designation will be marked on cards’ packaging, so consumers can quickly identify the cards that meet Visa’s criteria. To qualify, cards must cover basic activities like purchases and free in-network A.T.M. withdrawals and balance checks, and must have a flat monthly fee (which will vary depending on the financial services company that issues the card). Qualifying cards cannot charge fees for declined transactions, for contacting customer service, or for getting cash back along with a purchase. They can’t provide overdraft coverage or charge overdraft fees, and they must carry federal deposit insurance and other consumer protections.

Discussing the growing popularity of prepaid, Frew said, “I think the consumer was looking for a different alternative to what they traditionally had with a bank account. You’ve got a segment of people who are using a prepaid card as a substitute checking account. They’re getting their pay direct deposited, they’re paying bills, they’re making purchases with their card. And I think there’s another segment that’s really about spending control: so I put a certain amount of money on my card, and it helps control my spending – literally when the money runs out, I stop spending.”

However, she added, the cards aren’t just for the unbanked. “Pew Charitable Trust did research that basically said 60 percent of the people who use a prepaid card have a checking account.” This helps explain why so many financial services companies are offering the cards, she says. “This is [the banks’] customer, and the more research comes out, they’re learning more about their customer, and want to adapt to really serve them better.”

In the Q&A below, part 3 of our Domestic Financial Innovation series, we talk with Frew about how Visa developed the designation, and some new innovations on features and functionality that prepaid cards are offering.

You can view the other interviews in this series below:

A Q&A with Tim Ogden, managing director of NYU’s Financial Access Initiative

A Q&A with Margot Kane, Calvert Foundation VP of Strategic Initiatives

James Militzer is the editor of NextBillion Financial Innovation.

financial inclusion, interviews