At Glenbrook we’ve been talking, thinking, and writing for some time about two related issues. One is the problems retail banks have with their economic model: in a nutshell, that consumers expect “free checking,” and that too much of the bank’s revenue comes from either customer-invisible (interchange, NII) or customer-antagonistic (overdraft fee) sources. The other is the growth of the open-loop prepaid card industry, and the potential for these “banks on a card” to serve not only the unbanked, but the unhappily banked as well.
The first logical intersection of these two issues is to predict continued growth for prepaid cards as they exist today – issued by non-bank companies with a shadow “network bank” as a supplier. But Green Dot’s plans go in a different, and potentially much more interesting, direction. Simply put, a prepaid, open-loop card from “Green Dot Bank” could be not just an alternative to a bank account, but a new type of bank account – one with a completely different economic model from current retail banks, but with some of the positive attributes (trust, security, etc.) that consumers associate with banks.
What appeals to me is the potential to get away from this trap of consumer-invisible or consumer-antagonistic revenue sources. These cards are, after all, paid for by consumers – at least in their current incarnation. The skeptic in me, of course, says that over time, these new prepaid cards will simply become “normal” retail bank accounts- with the bank living off of overdraft fees, interchange and NII. We’ll have to wait and see!