Suze Orman today announced her new Approved Card, because in her words (and inflection), "You. Can. Always. Bank. On. Me." The card is the latest in a long line of prepaid cards, a relatively new financial instrument that functions basically like a checkless checking account, needn't be marketed by a bank, offers tremendous value to the un- and underbanked and is often maligned for an abundance and excess of fees.
The Approved Card, like others, offers the advantage of being accepted anywhere Visa or MasterCard are accepted without the ability to spend more than you have, as do both credit cards and debit cards with overdraft protection (and fees). To the 60 million underbanked in the U.S., prepaid cards offer a powerful alternative to traditional checking accounts and check cashers. In Suze's hands, the instrument could gain popularity also amongst the fully banked, but those (mostly women, I imagine) who need and want additional support of better money management.
Recent history is littered with terrible prepaid cards endorsed by celebrities - notably Lil Wayne, Russell Simmons and the vapid Kardashian sisters. Sadly, it's these celebrity cards that can be counted on to lead the way of high fees and poor disclosures, which represent a minority of cards in the market, but cause a majority of bad press about what is basically an important and positive financial innovation. Suze Orman's card is a pleasant departure from this trend.
For starters, it is a genuinely low fee card. For $3 per month, you're in business - compared with $4-10 amongst scale players. ATM fees apply, but are modest. The Fees page is prominent and abundant with FREE things (although it does include some ugly big prices for things like expedited bill pay - $9.95 - which can readily be accessed for half that price). I'd love to see the monthly fees waved for direct depositors, as iBankUp, AccountNow and others offer (disclosure: we have invested in both). Still, it's an admirably low fee product.
Functionality wise, the card is pretty straight forward and basic. The two features of note are an emergency savings fund and credit/identity monitoring. The former is basically a separate place meant to be used to store money, not spend it. It would be awesome if it were interest bearing, like Mango and Netspend's 5 percent APY savings accounts, and make it hard to withdraw funds (to really help people save). Suze negotiated some favorable pricing with TransUnion for their FACO (or fake FICO) score and identity monitoring. You can use it free with no limits. This is arguably the most unique and coolest feature of the card.
Suze has clearly been dreaming of a digital cash world, one where you can only spend the cash you have, but without being tethered to the obvious limitations of physical cash. This is a powerful vision, really, especially prescient given the current financial crisis. But this digital cash mecca lacks access to one ingredient essential to modern American life: the credit report and credit score. They are not just used for accessing almost any form of credit, but now also used for employment, rental agreements and insurance.
Even the formidable Suze Orman was not able to cajole TransUnion, Equifax, Experian or FICO into letting her report digital cash (or prepaid) data, let alone have the data be contemplated in a credit score. Instead, we're invited to her Credit Project, in which she will deliver anonymous transaction data from her card users to TransUnion for them to, "help us understand whether including this data in your credit report would impact your access to credit products." I happen to believe that Suze really wants to do the right thing here, although this solution smacks to me of a PR concession made by a credit bureau looking for pre-IPO good press.
As with almost everything in this Approved Card, it's a step in the right direction. I approve!
Arjan Schütte is a managing partner with Core Innovation Capital and serves as senior advisor to the Center for Financial Services Innovation. He is a recognized industry expert with a background in private equity-funded technology companies.