Steve Streit conceived the prepaid debit card, he had
something very specific in mind: a way to let kids spend
money online without using a parentís credit card.
didnít imagine that 16 years later the cards would be
used by tens of millions of lower-income Americans to
manage their money ó or that a bevy of small rivals
would offer new products on top of the prepaid system he
much bigger than we thought it would be," said
Streit, the founder and chief executive of Pasadenaís
Green Dot Corp., one of the nationís top prepaid card
issuers. "And itís still very early on."
cards are targeting an assortment of niches ó as
varied as Uber drivers and business owners who want to
restrict employeesí corporate spending. Others have
broader business models and are trying to use prepaid
products to replace bank accounts, especially for
millennials who may have no tied to traditional banks.
unlike Green Dot, which boasts that it invented the
prepaid card industry, most new firms are going out of
their way to call themselves technology companies,
perhaps partly because of the stigma that comes along
with the prepaid industry.
cards have long been decried by consumer advocates who
argue they come with too many fees and too few consumer
month a new wrinkle arose when technical problems at
RushCard left thousands of customers without access to
their money for more than a week.
the market is too big and fast growing to ignore.
Mercator Advisory Group, which tracks the industry,
estimates that Americans will load $100 billion onto
prepaid cards this year, up from about $57 billion in
for entrepreneurs there is another attraction: Startups
can offer prepaid cards without becoming banks.
companies need only to build their websites, tools and
apps, and focus on marketing. The more complicated and
more regulated back-office functions of handling
customer deposits and payments are left to banks that
specialize in working with prepaid card issuers.
has created a platform that allows you to very quickly
test a new product and get it into the hands of
consumers," said Andrew DíSouza, founder of
Toronto start-up Clearbanc, which in October launched a
product built specifically for Uber drivers and other
workers in the gig economy.
example, drivers can link Clearbanc to their Uber
accounts and, for a $2 dao;u fee, get paid daily instead
of weekly. The company hopes to offer the service to
customers who work for Uber rival Lyft, delivery service
Instacart and others.
also offers to set aside money for income taxes ó
freelancers donít have employers to withhold taxes for
them ó and has budgeting tools that show how much more
they need to work to hit monthly income goals.
way other tools are set up, itís ĎHereís my
monthly income, whatís the best way to allocate it?í"
DíSouza said. "With Clearbanc, itís reversed:
ĎHere are my monthly bills, how much do I need to
other firms, both in San Francisco, are targeting their
prepaid products to businesses.
Labs, which was founded in 2013 and launched its product
Dash this year, gives business owners a single account
connected to several prepaid debit cards that different
employees can use to make purchases.
employee might get a monthly allowance ó for paying
for lunch with clients, for example,ó or one-time
balance transfers to cover particular expenses, such as
travel for a conference.
common feature for nearly all prepaid debit cards is
that, unlike with a debit card linked to a bank account,
itís impossible to overdraw. And unlike a corporate
credit card, employees can spend only as much as their
boss has put on their card.
a safety box of funds thatís separate from your other
accounts," said Karmic CEO Ryan Weidenmiller.
"Employees wonít have access to all the money in
your main bank account. Prepaid is perfect for
for Business, which also launched its product this year,
has a similar model, with a few twists. A business owner
can set daily, weekly or monthly spending limits for
each debit card, and can also limit the types of
businesses where cards can be used.
might restrict a delivery driver to making purchases at
gas stations, said Bento CEO Farhan Amhad.
startups are casting themselves as alternatives to
banks, especially for millennials ó 45 percent of whom
owned prepaid debit cards as of 2013, according to a
report cited by the Federal Reserve Bank of
an era when most checking account funds are accessed
through debit cards, they argue thereís little
difference between a prepaid account and a checking
account. Some prepaid companies even charge lower fees
a Portland, Ore., firm that was acquired last year by
Spanish bank BBVA, started out as a prepaid card meant
to replace checking accounts. It charges no fees, and it
offers customers savings, budgeting and money-tracking
tools online and through a mobile app.
contrast, Wells Fargo charges a $10 monthly service fee
for basic checking accounts unless customers make at
least 10 debit card purchases, maintain large balances
or have at least $500 in direct deposits going into each
account every month.
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L.A.ís Card.com, a bank alternative founded in 2012,
charges a monthly fee of $5.95, but thatís waived for
customers who make at least $800 in direct deposits a
month. Customers can deposit checks using their
smartphones, set up direct deposit and get cash at
thousands of ATMs.
Katz, the companyís founder, argues most people donít
need paper checks, tellers or branches.
banks donít make sense," he said. "Thereís
a reason we donít have Blockbuster Video everywhere
advocates remain wary of the industry.
Tetreault, a staff attorney with Consumers Union, notes
that prepaid cards often lack the deposit insurance and
fraud protection that are standard for bank accounts.
shouldnít be up to the consumer to hunt through the
fine print to find out if their funds are protected by
deposit insurance," Tetreault said.
startups may have even more fundamental business
SchŁtte, founder and managing partner of Core
Innovation Capital, a Hollywood venture capital firm
that invests in financial technology firms, said most
have had only limited success in tapping into the
markets they hope to serve.
looked at enough of these, Iím much more
bearish," he said. "Most startups arenít
doing it at any material scale. The ones Iíve seen are
all tiny and not getting a ton of traction."
part, thatís because he thinks the financial needs of
different customers are not so unique that they warrant
specific products. Put another way, Clearbanc might
offer nifty tools for Uber drivers, but those same
drivers can probably find some other way to manage their
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Dotís Streit agrees.
company is about to launch a new kind of account geared
toward small-business owners and independent
contractors, but it wonít be trying to offer narrowly
tailored services that Clearbanc and other firms
will be a business checking account ó Green Dot,
unlike other prepaid firms, also owns its own bank ó
that customers can sign up for online. The idea, he
said, is to serve not only the Uber driver but also the
Etsy seller or farmers market merchant who wants a
business account but doesnít need other traditional
account holders will get discounts at office supply
stores and other places where small-business owners
shop, Streit said, but donít expect features aimed at
freelancers who work for specific firms.
a start-up that experiments with niche offerings, Green
Dot wants to make products that appeal to big audiences.
Itís the only way that the company ó which brought
in more than $600 million in revenue last year ó can
find meaningful growth.
need a hit record," said Streit, a former radio
disc jockey. "You have to focus on things that can
move the needle. I canít take the time of 100
developers and compliance officers to develop a product
that can only sell three copies."