Do Prepaid Programs Need to Include Bill Payment Services?

by Mercator Advisory Group 0

An article in the Prepaid Press states that prepaid card programs need to become more like bank accounts by offering automated bill payments and electronic transfers, but recent regulatory changes may present challenges in making this a reality. The article says:

Recent regulatory changes – most notably the Durbin Amendment – are pushing prepaid issuers to include banking features, including automated bill pay. The Durbin Amendment limits the amount of money banks and other credit card issuers can earn on transactions (otherwise known as swipe fees). Even so, the amendment largely protects independent prepaid providers.

This interpretation is an interesting one, since the final rules implementing Durbin Amendment (§ 235.5(c)) says that prepaid cards that offer features that allow the underlying funds to be accessed “by check, ACH, or wire transfer” are functionally the same as a debit card and would not qualify for a prepaid exemption to the amendment. We have heard legislators say this was not part of their intent, but it remains to be seen whether these rules will be changed.

Find the text of the Durbin Amendment at Section 235.5 for the relevant passages:http://www.federalreserve.gov/aboutthefed/boardmeetings/20110629_REG_II_FR_NOTICE.FINA@����������<����11.pdf

Additionally, some prepaid providers are pulling back their bill payment offerings. It may be that they are using the Durbin Amendment as an opportunity to close down a part of their business that has less business than they want, but the cause may also be they have not found a way to offer these services effectively under the new regulatory environment.

The future of bill payment and other services has yet to be determined, but it is likely to change form as the programs conform to the new regulations and additional players enter the market. It is likely that card-based payments, where prepaid is used like any other debit or credit card, will become the majority of the market.

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