It’s been very common to say that prepaid cards resemble checking accounts more and more. From issuing checks to setting up bill pay, there’s little difference between these cards and checking accounts.
Now, prepaid cards can offer savings accounts, too.
CorePro was introduced today. The product from Social Money, a startup that offers various white-labeled banking products, is an API-driven savings account that is FDIC-insured and costs the issuer — meaning the company issuing the account — $0.39 a month per account. The account features goals and goal management similar to those in Social Money’s SmartyPig product.
The product will remain in closed beta for three months and will be available to the public in Q1 2014.
The knock against savings accounts has been that they are difficult to set up, subject to regulatory complexity, and expensive to maintain, not to mention that with interest rates so low, they don’t earn consumers much money. CorePro looks to solve the first three of these problems for prepaid companies, PFM solutions, payroll companies, startups and merchants with clear and simple pricing. Merchants could employ the product for wishlist functions, as well as layaway programs.
Any company that wishes (and that passes Social Money’s vetting process) can now offer a savings account relatively cheaply and easily.
Jim Shanahan, managing director at Market Platform Dynamics, sees little value in a savings account for prepaid customers. “The opportunity for that [CorePro] will be in checking replacement products,” he said. “The FDIC data shows a minority of prepaid customers have savings because they have no money to save. As interest rates rise and the prepaid market expands beyond the underserved, it may see more adoption. People have other saving options, and prepaid accounts make it relatively easy to move money around, so a hardwired feature just doesn’t have that much attraction.”
To help solve the complexity issue, Social Money says there are seven relationships that it will manage for its customers: bank affiliation, core processing (including ACH), interest accrual and payments, electronic submission of 1099’s to the IRS, and all customer account opening procedures. In terms of expenses, the product’s press release says it will cost just 25% of what other savings solution cost per customer.
For the product to work, CorePro will need to get the word out to its potential customers. There are challenges to marketing an API-only solution. How do you make a block of code cute or sexy? CorePro wants to be thought of like Stripe, so it will follow Stripe’s approach. “We’ll be using a different marketing strategy than we used with SmartyPig,” said Social Money founder Mike Ferrari. “We don’t have the social and viral tools that we used.” Instead, the product will be targeted at developers and the fintech community, which means doing things like meetups and participating in hackathons.
“It’s always exciting with an API, to see what people build on and say to them, ‘Now go be creative!'” Ferrari said.
Good luck to CorePro. We need more financial services players with good APIs to foster creativity.
This said, this is not new. The Netspend, UPside, Emerald (H&R Block) and Mango prepaid cards have offered savings accounts to prepaid cardholders for a few years. Disclosure: my company operates the UPside card and powers the Emerald Online service for H&R Block.
In the case of the UPside card, the savings account is implicit and automatically opened to anyone who gets the card; it is called the “Rainy Day Reserve”.
An API to access the savings account of the UPside card has been available for a few years and is posted on our website.
Third parties like SaveUp.com and D2D Fund have been able to access this API to add services to the savings feature of the UPside card. In the case of SaveUp, customers are rewarded with free sweepstakes in an amount proportional to their savings.
An excellent research paper was published by D2D Fund about the behavior of prepaid cardholders who save: http://www.d2dfund.org/files/publications/D2D_Paving%20the%20Way%20Forward_Savings%20on%20Prepaid%20Cards.pdf
Point of information, in addition to pioneering the concept of using a prepaid debit card from NetSpend as a Virtual Bank Account — in 2001 — the US check cashing industry also pioneered linking an FDIC-insured Savings Account to the card in 2004. To this day, the account carries a 5% APY. H&R Block followed roughly a year later with both a prepaid card and a savings account.
Savings is a critically-important, yet overlooked capability for far too long. Nowhere is it more conspicuous by its absence than on all of the federal and state government cards.
Thanks, Jim and Patrice, great information and sentiments. While this piece focuses on prepaid cards, the CorePro product has many potential applications outside that space.