Chase is introducing a branded reloadable bankcard, Chase Liquid, that may give the nation's largest prepaid providers a run for the money. The financial industry giant announced yesterday it is piloting the card at 200 Chase branches, and will roll it out this summer to the bank's entire U.S. footprint of 5,500 branches and 17,500 ATMs.

Benefits to Chase

Chase Liquid could serve several purposes for the FI. First, it could help move unprofitable low-balance accountholders to a product that is less service intensive than a traditional checking account.

Second, the program could attract a segment of the nation's un- and underbanked population, which the Center for Financial Services Innovation numbers at around 60 million — 18 percent of whom are already using prepaid cards, according to a recent Javelin study.

Third and finally, Chase Liquid could help the bank make up some of the $600 million in losses it sustained after the Dodd-Frank Financial Reform Act was signed into law last July. The act exempts prepaid cards from the transaction fee limits imposed, and opens up the opportunity for banks who enter the prepaid market to work around those limits.

"It is not surprising that Chase is creating a presence in the prepaid card arena," said Odysseas Papadimitriou, founder and CEO of Card Hub, a website that allows consumers to search for, compare and apply for major credit and prepaid cards.

"As a result of the Durbin Amendment banks have lost a lot of money," he said. "Practices such as cutting debit card rewards programs, raising checking account fees, and launching new prepaid card offers were excluded from the Durbin Amendment, and these are now some of the steps that banks have taken to recoup lost revenue."

A challenge to non-bank prepaids

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Chase is not the first U.S. bank to offer a branded reloadable card, but as the nation's No. 1 financial institution with a customer base of 50 million and $2.3 trillion in assets, it will be the largest to do so.

Chase's size and nationwide presence position it competitively against financial brands such as American Express and the larger non-bank prepaids such as Green Dot. Though Green Dot's overall ATM count is higher — 22,000 surcharge-free ATMs available through MoneyPass — Chase's network may have an advantage on free reload locations, with a total of 16,000, including 10,500 deposit-enabled ATMs and 5,500 branches.

For instance the two company's websites show that in Tulsa, Okla., Chase has 14 branches and two deposit-enabled ATMs, compared to just four MoneyPass ATMs, none of which is deposit enabled.

For customers, this can result in lower fees with Chase, which does not charge for reload at its branches and deposit ATMs. In the Tulsa scenario, a Chase cardholder has 16 locations for free reload, but none for free Green Dot.

The Green Dot cardholder must go to a merchant such as Walgreen's, of which there are dozens in the metro area, and pay a fee of up to $4.95 to have the card reloaded. However, this can be avoided, along with the card's $4.95 monthly fee, if the user has funds added by direct deposit.

Benefits to the un- and underbanked

With Chase Liquid there's no way around the $4.95 monthly maintenance fee. But the bank's scale and infrastructure enable a number of cardholder perks not offered with typical reloadable prepaid cards. These give Chase Liquid the attributes of a bona fides checking account, just without checks — or the fees.

Free features of Chase Liquid include:

• No cost for card opening ($25 deposit to card required);
• Transfer of funds to a Chase Liquid card from Chase accounts at Chase.com or at Chase ATMs;
• Check cashing at any Chase location;
• Zero liability protection;
• Online or paper statements;
• Lost card replacement;
• Account alerts via text or email, balance check via text;
• 24/7 customer service with access to English- and Spanish-speaking customer representatives.

"We are working hard to deliver great service to all of our customers, and to create a wider range of products that meet many different needs," said Todd Maclin, CEO of Chase Consumer and Business Banking. "Chase Liquid will be a terrific option for customers who want a prepaid card and also want the security and convenience of Chase. Chase Liquid's affordability and transparency will set a new industry standard for prepaid products."

Papadimitriou agreed — to a point. "All-in-all, Chase Liquid is a decent offer," he said. "When the consumer looks at its simplified fee disclosure, they will see that the card doesn’t have a lot of the fees that have become associated with prepaid cards over the years. However, the GreenDot Prepaid Card is likely to be a better option for someone who wants to replace a traditional checking account since it can be free to use if you load $1,000 or more per month." 

Implications for the Industry

Chase's program offers a feature-rich prepaid without many of the fees that come with non-bank cards. And where Chase goes, competitors follow. As Ken Edwards, vice president of Federal Affairs, said in a CNBC report, “The fee structure is definitely something those in the industry will take note of.” He declined to guess how many other banks might follow suit. 

In a presentation to the UBS Global Financial Services Conference on May 8, Maclin estimated annual user fees for Chase Liquid at $59 compared with a range of $150–$250 for other industry-leading cards.

If other new bank programs can match the feature-rich yet relatively inexpensive Chase Liquid, the industry may see a migration of unbanked prepaid users to established bank brands — and their branded ATM networks.

By the same token, an influx of Chase imitators could draw current cash-preferred customer into the system, generating new sources of interchange and foreign fee revenues. With American consumers expected to load a record high $160 billion onto prepaids in 2014, there could be revenue in it for all.

For more on this topic, visit our trends/statistics research center.