The new Amex (AXP) prepaid card is a huge improvement, from a consumer perspective, over any prepaid alternative. It’s free to buy, there’s no monthly fee, and there’s no fee for making purchases: Compare the competition, things like RushCard’s $9.95 per month, or Walmart MoneyCard’s (WMT) $3 per month, or BanXcard’s $2.95 per month. And that’s just the beginning of the charges you find with such cards — charges which are increasingly resulting in subpoenas and other attacks on opacity.
The Amex card is so attractive, indeed, that it’s even beginning to start being compared to checking accounts. A checking account is still a better bet than a prepaid card if you’re good at avoiding nasty fees, of course. But the Amex card is never going to surprise you with something nasty and unexpected in the way that checking accounts are prone to doing.
Amex isn’t doing this for love, of course — the idea is that it’ll be able to make enough money on interchange fees to make the product profitable. (For reasons which are a bit obscure, prepaid cards were exempted from the Durbin interchange-fee reduction.) But the fact is that no one has managed to come up with a product this attractive in the past, and none of the other prepaid-card merchants have been able to produce a card with no monthly fee. (Well, there’s the pay-as-you-go RushCard, but that costs $1 per transaction, plus $1.95 per ATM withdrawal.)
It can’t possibly be a coincidence that Amex is launching this product just as Durbin is slashing debit interchange fees. But there’s nothing in Durbin which makes this product any more profitable for Amex — the income that Amex gets will be the same now as it would have been if they launched this a year or two ago. So what’s going on here? Why is Amex launching this now?
My feeling is that Amex is looking at this as a game with an asymmetrical payoff. Amex has been pushing gift cards for a long time; this is basically a glorified reloadable gift card, and as it starts getting adopted by people who would never normally use an Amex card, it increases the pressure on merchants to accept Amex as payment. And there’s always a chance that this product could become hugely popular — if banks start making their current debit cards extremely unattractive in the wake of Durbin.
I don’t believe that banks will start charging for debit cards, or applying fees to debit-card transactions, or the various other horribles which they threatened during the big debate over debit interchange. But it’s possible. And if that happens, people with checking accounts are going to start looking for alternatives to their current debit card, and Amex will be right there waiting for them. The prepaid card is also safer than a debit card, in that it’s easier to contest fraudulent charges and have them refunded.
More generally, we’re entering a world where there’s going to be a lot of disruption in the payments space, with clearXchange going up against PayPal and many other dot-com startups, including Square. No one knows who’s going to win this war. It’s possible that no one will: payments might simply fracture into dozens of different systems with relatively small market share. Given the huge uncertainty in payments, it’s probably a good idea to have as many different products as possible and push them hard during this rare period of upheaval and change. You might not make a lot of money in the short term. But if you’re not aggressively in the game, you’ll never have a hope of winning.