If we look to the past of prepaid cards, we see titans like Green Dot, NetSpend, Walmart, and Western Union leading the charge with revenue coming from cardholder fees. They all established revenue models for their cards, based on fees (high fees), with NetSpend reporting 75% of its revenue as having come from cardholder fees. Yet, with an increasing number of people who need help managing their money without the cost of high fees, new players like Kaiku Finance are offering the KAIKU® Visa® Prepaid Card with fewer fees and more features. As described accurately by the COO of Kaiku Finance, Joel Sherwin, “Our [business model] is profitable and still allows us to serve our clients’ best interests by saving them money. It is a win-win situation.”
Looking at the past – New technology and new laws have played a part in a company like Kaiku Finance finally being able to offer consumers more card for less money. If we look at the traditional companies that offer prepaid cards, we can see that they had a well-designed model for charging higher fees across more categories. They did this because they could, but the new players, such as Kaiku Finance are monetizing their prepaid card differently. Instead of charging for transactions or account closures, revenue comes from interchange, strategic partnerships, and information.
The law – The Durbin Amendment to the Dodd-Frank bill made the prepaid debit card market dramatically change. It put a ceiling on debit interchange fees (the payments merchants make to banks and card networks) at about fifty percent of their previous level. Albeit, prepaid debit cards were an exception in the amendment, and with other factors also contributing, the financial industry was starting to understand that the reloadable prepaid cards might finally get the large unbanked population (about 30 million under or unbanked) banking. Not only can these solutions undercut the existing high cost prepaid cards, but they can monetize the industry for newcomer companies like Kaiku Finance that can offer levels of reliability and security, that squash the unknown and often shady element of the existing payday loans and pawnshops.