Remember the days when merchants were more likely to take checks than credit cards? These days, plastic is pervasive. Until recently, the Apple Store didn’t even take cash for some of its products. But not all consumers are so keen to flash the plastic, and some are simply not able to do so. Credit unions are well positioned to offer members who are, by choice or by circumstances, off the credit grid the convenience and security of credit cards with share-secured credit cards and prepaid debit cards.

Prepaid debit cards have many potential markets—travelers, students and teens, the underserved and those with very poor credit. Prepaid and share-secured cards both allow members the convenience of a credit card without the worry of overspending looming over their heads. Share-secured cards, which are guaranteed by a share savings account, are reported to credit bureaus, helping members establish or rebuild credit. Both types of cards give credit unions an opportunity to offer products to members who might not otherwise qualify for a credit card. Costs are low for both the credit union and the member.

Prepaid, Reloadable Cards

Prepaid Visa cards are a new option at $115 million/24,000-member Premier Federal Credit Union in Greensboro, N.C., which also offers share-secured cards. Premier FCU started offering the prepaid cards this spring, focusing primarily on the teen and young adult markets, says LaKeisha Ramseur, VP/business development.

“We use it to teach money management skills, especially if the child is getting a first card,” Ramseur says.

The prepaid card is a good choice for college students, too. Prepaid cards help students learn to budget and help prevent them from piling up credit card debt on top of student loans. Premier FCU’s prepaid cards can be reloaded in person at the credit union, over the phone or on line, and parents can reload their kids’ cards, too.

The security of prepaid branded cards is a benefit to a diversity of members. Travelers and online shoppers can have the convenience of a widely accepted credit card without having to expose their regular credit or debit accounts to theft or hacking.

But for the underserved, the prepaid cards may be so much more, says Rachel Schneider, special projects director at the Center for Financial Services Innovation.

“A grantee of ours did focus groups with Latino day laborers about prepaid cards and why they might want to use them. And the biggest thing they came up with was physical safety for their money, not having cash on their body,” Schneider notes.

Prepaid cards also eliminate the inconvenience of going to a check casher and the huge service fees incurred at them, says Jeff Falk, director of product development at CUES Supplier member The Members Group. Prepaid cards may also benefit small and midsize business members by potentially reducing paper check costs related to payroll, Falk adds.

“The most successful reloadable card pro-grams are able to create stickiness, hooking the card in as a direct deposit instrument,” he notes. “You’ve got a card that looks like anyone else’s and you can use those funds directly on pay day.”

Credit unions operate from a position of trust in the community, Schneider says, so they are in a good place to reach out to the underserved market.

“Many underbanked people are underbanked by choice because they have had negative experiences in the past. The opportunity to get out of the cash economy and have an electronic payment card in their wallet is hugely beneficial. Having the ability to buy things on line, rent a car, conduct transactions that the rest of us really take for granted—they will have huge loyalty to the entity that’s provided them with that ability,” Schneider believes. “Prepaid cards can be a terrific entry point for credit unions who want to reach out to the underbanked.”

Falk agrees. “There is an opportunity for community outreach. You’re bringing people who aren’t exposed to the U.S. system into the system,” he says. “I think it continues to provide the message that the credit union is innovative and that they’re focused on the retail or cardholder experience.”

In addition to the goodwill created through community outreach and the new members they may bring in, prepaid cards benefit the credit union with additional revenue through cardholder fees and interchange.

Costs to the credit union vary by program and vendor. Falk says with most programs The Members Group offers, return on investment usually begins in the first 12 to 18 months.

“We have a generic price point that’s usually around $2,500 for implementation and a per-card fee associated with that, based on revenue-sharing on interchange and cardholder fees” for reloadable and payroll cards, Falk explains.

Ramseur says that at Premier FCU, implementing the prepaid cards was easy. Premier FCU partnered with CUES Supplier Member MAP, Tukwila, Wash., for its prepaid card program.

“Training time was very minimal with staff. It’s a very user-friendly program, not hectic at all,” Ramseur notes.

Cards come in several styles and may be customizable. Nonpersonalized prepaid logo cards can be issued immediately at the branch, and personalized cards with the member’s name embossed are available for mail delivery, so they look just like a regular Visa credit card. The younger set likes the prestige of carrying a branded credit card, Falk says.

Costs to the member will vary with the program the credit union selects and how the member chooses to use the card. At Premier FCU, an instant-issue card costs $5, a personalized card is $10. Reloads cost $1.25 and ATM withdrawals cost $2.50. As a POS card, there is no fee. Ramseur says CU staff teach members how to keep fees down.

Schneider agrees that member education is essential with the prepaid card, particularly regarding fees, holds on funds, and reload options so members can plan appropriately. Hidden fees will backfire, she says, and offering overdraft protection negates the security of spending only available funds.

“Credit unions have a greater opportunity to market the card in a way that encompasses a fuller explanation of what it is and how it needs to be used to be beneficial,” Schneider says.

Some cards may be tied to a reload network so members can add funds to their cards in any location that offers that service, such as a convenience store. But when store clerks are inexperienced in the procedure, it can be very frustrating.

“If the card is connected to any of the major domestic reload networks, they’re going to be subject to whatever the customer service quality is of that network,” Schneider notes. “I assume a credit union offering a prepaid card would want to reload it at a branch so they would have some control over that.”

For a successful program, Falk recommends print and radio advertising to a niche market, along with statement inserts, Web banners, table pens and posters. He adds that fees need to be in line with others in the area.

“What makes a program successful? It’s certainly not a product that if you build it, they will come. You definitely have to let members know you have it and then talk up the benefits,” Falk says.

Share-Secured Cards

Like prepaid credit cards, share-secured cards offer the convenience of a credit card without the threat of wild overspending. Share-secured credit cards are a welcome product for members whose credit history is bumpy or nonexistent. The cards are tied to a member’s share savings account to ensure funds are available to pay the credit card bill and typically carry modest credit limits. If minimum payments are not met, the credit union takes the funds from the share account. Share-secured cards are underwritten and reported to credit bureaus, thereby allowing members to start repairing or building good credit. Although not usually marketed, share-secured cards are an option that might be sought if members knew they were available.

At $5.1 billion/220,000-member American Airlines Federal Credit Union in Fort Worth, Texas, the share-secured credit card is used as a counter-offer product for members who apply for regular credit cards but do not meet credit standards.

The card is a Visa platinum card. There is no application fee, no annual fee, and the card carries a 12.24 percent APR. It offers travel insurance and Visa’s Zero Fraud Liability applies. Members may put as little as $250 and as much as $5,000 into a premium, interest-bearing share savings account as a security deposit. Charges beyond the balance will be denied, so members cannot go over their credit limit. American Airlines FCU started offering the cards about two years ago.

“We have about 1,000 accounts today. It’s about 2 percent of our credit card portfolio,” said Séverine Williams, marketing analyst at American Airlines FCU. “That’s 1,000 members we didn’t have to turn down and don’t have to have a crazy rate.”

A similar program has been in place for several years at $28 million/3,200-member Olympia Credit Union  in Olympia, Wash. Olympia CU will pledge 120 percent of the member’s credit limit, says CEO Tammy Allender. Credit limits are usually $500 and seldom higher than $1,000. Interest and terms are the same as for the classic card. There is a $10 charge for a credit report. When a member does not qualify for other credit, the share-secured card may be offered.

“It’s a good product,” Allender says. “It gives us a chance to educate them about credit and leaving room for emergencies.”

Allender adds that members have responded well to the cards.

“Most of the time when they’re at that point where they want the convenience of a credit card and it’s share-secured anyway, they’re pretty good at making payments. It would be pretty hard to spend up above their limit because they won’t be approved,” Allender notes.

American Airlines FCU’s Williams concurs. The CU has not experienced any problems with the share-secured cards, and implementation was easy.

“Most everybody seems pretty happy to have something and build their credit,” Williams says. “We are glad for the satisfaction of our members and what it’s offering them. That’s what credit unions are here for.” 

Amy Knapp is a free-lance journalist based in Monona, Wis.