2009 Prepaid Card Analysis
According to an economic study released today, consumers who opt to use a network branded prepaid card could pay as much as 35-70% less in fees less compared to low balance checking and debit accounts, making prepaid cards a far more cost-effective, valuable financial tool for many. The comparative economic analysis was conducted by economist Michael Flores of Bretton Woods, Inc, an expert on financial institutions.
09 Payment Systems Evolution and Branded Prepaid Card Analysis © OCTOBER 2009 © All text, graphics, and analyses are Copyright, 2009 by Bretton Woods, Inc. ALL RIGHTS RESERVED. Any use of materials, including reproduction, modi cation, distribution or republication, without the prior written consent of Bretton Woods, Inc., is strictly prohibited. 09 Payment Systems Evolution and Branded Prepaid Card Analysis Page 2 Table of Contents ABOUT BRETTON WOODS, INC. ABOUT THE AUTHOR 3 3 OVERVIEW EXECUTIVE SUMMARY FEE STRUCTURES COSTS CONVENIENCE SECURITY DISCLOSURES CONCLUSION 4 5 5 6 7 8 9 9 PAYMENT SYSTEMS COMPARATIVE COSTS ANALYSIS BANK SURVEY CHECK AND CASH SERVICES BRANDED PREPAID CARD SURVEY - NO DIRECT DEPOSIT BRANDED PREPAID CARD SURVEY - DIRECT DEPOSIT 10 12 14 14 15 15 SUPPLEMENTAL DATA EXHIBIT 1 – THE NILSON REPORT PAYMENTS TRENDS CHART EXHIBIT 2 – BANK CONCENTRATION OF DEPOSITS EXHIBIT 3 – BANK PRICING COMPARISON EXHIBIT 4 – BRANDED RELOADABLE PREPAID CARD PRICES EXHIBIT 5 – FEE COMPONENTS OF SELECT PROGRAMS 16 16 16 17 18 19 09 Payment Systems Evolution and Branded Prepaid Card Analysis Page 3 About Bretton Woods, Inc. Bretton Woods, Inc. is a management advisory firm specializing in financial institutions. Since 1988, Bretton Woods, Inc. has provided value-added services to its clients by applying business, technology, core deposit, payments and earnings improvement strategies. The firm has worked with clients on payment strategies, unbanked and underbanked issues, trends from cash and checks to card and electronic transactions. The work with insufficient fund and overdraft fees in banks and credit unions includes credit advances on debit cards. About the Author G. Michael Flores, CEO of Bretton Woods, has more than 30 years of financial institution experience through his employment in banking as well as consulting. Flores’ consulting work focuses on the areas of strategic planning, strategic technology planning, fee income strategies, payment systems, process improvement and reengineering through enabling technologies. Flores has spoken to industry groups and has authored several articles for industry publications. He has been a faculty member with the Pacific Coast Banking School in Seattle, Washington and the Graduate School of Banking in Madison, Wisconsin where he taught Technology’s Role in Community Banking curriculum for bankers in the graduate school. Flores received a BBA in Accounting and Management from the University of Notre Dame in 1973 and in 1974 attended the Commercial Lending School at Georgia State University. He is a Certified Mediator with the Center for Dispute Resolution, Boulder, Colorado and also with the American Arbitration Association in Atlanta, Georgia. 09 Payment Systems Evolution and Branded Prepaid Card Analysis Page 4 Payment Systems Evolution and Branded Prepaid Card Analysis Overview “Change is the law of life. And those who look only to the past or present are certain to miss the future.” John F. Kennedy (1917-1963) Thirty-fifth President of the USA From the time of barter to today’s emerging electronic payments, individuals “pay” for value received. Just how they pay is the point of this review. The discussion includes: » Methods » Costs » Convenience » Security » Innovation Much has been written recently about prepaid cards – positively from the innovation and value to consumers, businesses and government and negatively from fees to lack of consumer protections. It is the intent of this report to objectively analyze the payments options available to consumers, the relative costs and benefits and what the future portends. Extensive research has been conducted on the evolution of the payments system, in general, and branded prepaid cards, specifically. Bretton Woods read and analyzed multiple reports that have been generated in the last five years and attempted to ascertain the objectiveness of the authors and only use those reports that are not biased in one direction or another. Additionally, we worked with one of the largest processors of prepaid cards in the United States to obtain data on representative retail and payroll branded prepaid card programs. The data are from competitive programs and as such, we have avoided identifying the corporate entities but retained the actual data in order to accurately report usage and cost trends.1 1 See Exhibit 5 of this report 09 Payment Systems Evolution and Branded Prepaid Card Analysis Page 5 Executive Summary The direct comparison of like transaction patterns for users of basic FDIC insured checking accounts and the users of branded prepaid cards indicate that prepaid card users pay less for similar services. Additionally, the consumer pays less than using check cashing services and buying money orders to meet their monthly obligations. Fee Structures Predatory pricing is a term some use in association with branded prepaid cards. The following section on comparative costs should settle some of the misconceptions about branded prepaid card prices. The various fees mentioned include: » Activation » Monthly maintenance » ATM » Declined transaction » Balance inquiries » Customer service » Dormant » Overdraft Of the two payroll card and two general purpose reloadable card programs studied by Bretton Woods, the fees in these categories compare quite favorably to cost associated with basic checking accounts.2 The inactivity/dormant fees are primarily associated with closed loop/non reloadable cards. Typically, for reloadable cards, after twelve months of inactivity, a maintenance fee is assessed since there are operational costs to maintain these accounts on computer systems. There is another point to consider on inactivity fees. Escheatment laws on abandoned property are, at best, unclear as to the treatment of unused funds on prepaid cards. Banks also struggle with this issues and have applied inactivity fees to accounts that have no activity for a certain period of time. Overdrafts with prepaid cards are the exception, not the rule. Most reloadable prepaid cards do not allow overdrafts. For those that offer this option, it is an affirmative “opt in” service and the fees tend to be less than bank overdraft fees. A more important fee for service, in the author’s estimation, is the credit advance product. This is a relatively new addition that has yet to proliferate in the industry. These advances are solely in the control of the consumer and the cost of these advances is typically less than the payday loan alternative and far less than overdrafts. Fee simplification is another issue raised in the media. Rather than requiring common pricing schemes, suppliers who offer unique pricing options benefit consumers. When one considers the pricing options offered by cell phone providers, packaged pricing or per usage pricing, the consumer can choose the best program to fit their needs. The same applies to branded prepaid cards. 2 See Exhibit 5 of this report 09 Payment Systems Evolution and Branded Prepaid Card Analysis Page 6 Yes, there are prepaid card providers that charge higher/unique rates just as there are any other sellers of goods or services that attempt to differentiate themselves with various marketing/pricing options. It should be the consumer’s choice to determine the best program for them including alternate prices for unique/exclusive/prestige services. Bretton Woods, Inc. is a proponent of clear, concise and prominently displayed disclosures. With appropriate fee disclosures, the consumer can make an informed decision based on their circumstances. Finally, major users of branded prepaid cards include: » State and federal governments for benefits, tax refunds, low income subsidies, disaster relief, etc. » Corporations for payroll purposes, insurance claims, employee benefits such as healthcare funds etc. These entities have the ability, the purchasing power and, indeed, the responsibility to negotiate the best pricing scenario for their constituents. Costs Prepaid Card Prepaid Card with Direct Deposit Basic Bank Checking Account Cash $$50.00 $167.00 $100.00 $214.68 $320.15 $108.35 $207.35 High Low $204.00 $353.40 $312.60 $250.00 $300.00 $350.00 $400.00 $150.00 $200.00 In general, bank customers pay from $200 to just over $350 annually for a basic checking account with common usage patterns as branded prepaid cards. The prices of these basic bank services are derived from an analysis of the top four banking companies which represent 31% of the deposit market share in the United States3. It should be noted that these costs include six overdrafts per year, which is conservative. Bretton Woods’ 2008 study of overdrafts 3 See Exhibit 3 of this report 09 Payment Systems Evolution and Branded Prepaid Card Analysis Page 7 indicates that active household users of overdrafts incur close to 4 overdraft per month, or 48 per year.4 These numbers are consistent with the 2008 FDIC of Overdraft Programs.5 Branded prepaid card users’ pay from $108 to $320 annually. This is based on the pricing scenarios of major branded prepaid programs6 and a representative monthly usage pattern from the Consumer Union report on prepaid cards7. The review of two active general purpose reloadable prepaid card and two payroll card programs indicate the average annual costs range from $29 to $117. Check and cash users pay from $165 to over $300 annually. The data from the two reloadable card programs dated from July, 2006 through July, 2009 resulted in a weighted average annual cost to the consumer of $117 and $106. One payroll card programs was studied from July 2006 through July, 2009 and it showed a weighted average annual cost to the consumer of $29. The other payroll card program data from July, 2007 through July, 2009 calculated an annual cost of $48.8 These costs are basic to cover recurring monthly expenses and cash needs. As shown in the fee comparison, there are a multitude of other services a consumer could use that would increase costs for both bank and prepaid card accounts. Bretton Woods believes that many of the ancillary services are discretionary and costs can be avoided with appropriate disclosures by the providers of the services. Convenience Branded prepaid cards provide the convenience of ATM access and point-of-sale purchases, many with cash back features at no cost, bill payment capabilities and free account inquiries, all of which compare favorably to bank checking accounts. Convenience of prepaid cards must also be compared to cash usage. Prepaid cards are vastly superior to cash. It has been reported that prepaid cards are second tier products that provide a shadow banking system. In the author’s opinion, prepaid cards are an alternative for cash (coin and currency) that provide security and convenience, not available when using cash. http://bretton-woods.com/452/18901.html http://www.fdic.gov/bank/analytical/overdraft/ 6 See Exhibit 4 of this report 7 http://www.consumersunion.org/pub/core_financial_services/014300.html 8 See Exhibit 5 of this report 4 5 09 Payment Systems Evolution and Branded Prepaid Card Analysis Page 8 Consider the positive impacts for consumers of prepaid cards as a cash substitute: » Reloading branded prepaid cards is more convenient and less expensive than going to a check casher » The cards enable safety from carrying cash, bill payment without buying money orders and assurance that is a card is lost or stolen, the consumer will not lose the value of the card » Enable the unbanked to enter into the financial mainstream and have a product offering that allows them the convenience to purchase online, bill pay, etc. » Coin and currency are not “green” when you consider the natural resources required to mint coin and print currency and the costs associated with transportation of coin and currency From a public policy perspective, a key benefit of prepaid cards is the audit trails of transactions. Security There are calls to amend the Electronic Funds Transfer Act (EFTA) to include prepaid cards to allow the same level of protection as bank debit cards. Branded prepaid cards offer similar safety and convenience as FDIC insured checking accounts. For example, the majority of branded prepaid card suppliers offer protections from lost and stolen cards and unauthorized purchases, similar to checking account debit cards. From a consumer’s perspective, while banks provide many protections by regulation, branded prepaid card providers, who abide by industry best practices and the Visa and MasterCard Zero Liability policy, offer similar protections. FDIC does cover branded prepaid reloadable cards if the card holder can be identified within the “pooled or custodial” account. For non-reloadable prepaid cards, the FDIC covers the pooled account, not the individual accounts. FDIC’s General Counsel’s Opinion Number 8 dated November 13, 2008 clarifies the issue.9 As a matter of public policy, moving consumers from a cash basis to bank accounts or branded prepaid debit cards is advisable. While the focus of this report is the impact to the consumer, a potential concern for branded prepaid card programs is the claim that such products can be misused for money laundering and even for terrorist financing.10 However, it is not clear that prepaid cards are any more risky that other card products such as credit and debit cards. The industry has pointed out that unlike cash and checks, prepaid card transactions are traceable and trackable (with date, place, time and amount of each transaction recorded - the same as with credit and debit card transactions). Moreover, like credit and debit cards, prepaid cards can be cancelled and the funds frozen at any time - even without possession of the card. http://www.fdic.gov/news/news/financial/2008/fil08129.html http://marketplace.publicradio.org/display/web/2009/03/25/pm_value_cards/ - American Public Media program, “Drug Cartels Cash in with Value Cards”, March 25, 2009 9 10 09 Payment Systems Evolution and Branded Prepaid Card Analysis Page 9 While bank issuers of network branded prepaid cards have long had Bank Secrecy Act obligations with respect to their cards, the Department of Treasury has been instructed to issue final regulations on non-bank stored value issuers, sellers and redeemers by mid February 2010. This may increase prepaid card anti-money laundering (AML) reporting requirements and may formalize the requirement for customer identification programs (CIP) with respect to reloadable, cash-accessible cards - especially those that are usable globally. Even without the addition of new AML regulations, in order to address these concerns, the industry has already adopted a number of best practices. For example, anonymous network branded prepaid cards are not available for sale to the public in amounts over $1000, nor can such anonymous cards be reloaded or used at ATMs to obtain cash. In addition, virtually every reloadable prepaid card with cash access is subjected to full and verified customer identification requirements. Also, all bank issuers are subject to AML/BSA requirements and file SARS and CTR’s. Moreover providers manage these issues with third parties by providing training and oversight.11 As new payment technologies arise such as Radio-Frequency Identification (RFID) and Near Field Communication (NFC) for contactless payments with or without the plastic card, appropriate controls and, in some cases, regulations for customer identification, transaction record keeping and reporting will be developed but will typically trail the technology. It is the best interest of the industry to be proactive in self-regulation as new technologies are implemented. Disclosures Bretton Woods supports clear, concise and prominently displayed disclosures with branded prepaid cards. Consumers who buy branded prepaid cards from retail sources or receive them from government or commercial enterprises do benefit from these disclosures. Conclusion It is Bretton Woods’ opinion that both bank checking accounts and branded prepaid cards fulfill “banking/money” needs of various market segments. As cash augments traditional checking account customers, branded prepaid cards can serve as the cash alternative for the banked and unbanked. The early users of branded prepaid cards tended to be the underbanked. Today, more mainstream banking consumers are adopting branded prepaid cards for unique purposes, whether for budgeting purposes to control spending, funding the spending needs of children/students or receiving rebates from vendors as incentives to purchase products. The cost, convenience and security of the branded prepaid card are far superior to cash. 11 http://www.nbpca.com/docs/AML-BP-Summary.pdf 09 Payment Systems Evolution and Branded Prepaid Card Analysis Page 10 Payment Systems Let us first examine the payments premise. That is, the function of a “value exchange” either between businesses (B2B), Consumers (P2P) and Businesses and Consumers (B2C). Our focus is B2C – how have consumers paid for goods and services, how has that system evolved, what are the costs and associated values. The ACH Network had its start in the early 1970’s when a group of California bankers formed the Special Committee on Paperless Entries (SCOPE) in direct response to the rapid escalation of check volume in the United States. The Committee set out to explore the technical, operational, and legal framework necessary for an automated payments system, leading to the formation of the first ACH association in 1972.12 An early prognostication from SCOPE was the “cashless/checkless society” by 1980. Obviously a bit optimistic, the movement from cash and checks to electronic forms of commerce has advanced tremendously in the early part of the 21st century. This evolution is not only about efficiencies and cost savings for financial institutions and convenience for consumers – it is also good public policy. Particularly since September 11, 2001, it is increasingly important for the Federal government to eliminate the “underground cash economy” and provide the unbanked and underbanked access to financial services.13 For a variety of reasons, not everyone can or wants to participate in the traditional banking system. Branded prepaid cards, some from alternative financial services providers, provide both a “stepping stone” for many consumers to move to mainstream banking relationships and a superior means of transacting than cash. These products will evolve as new technologies surface. From cash as the ubiquitous form of value exchange to checks to debit cards to the emerging digital cash technologies such as smart (proximity) chip, mobile phones (touch technology), SMS messaging with and without a bank partner and central billing of merchants charging for their goods and services to the consumer’s phone bill, the consumer ultimately benefits from innovation and a competitive market place. 12 13 NACHA http://www.fdic.gov/unbankedsurveys/ 09 Payment Systems Evolution and Branded Prepaid Card Analysis Page 11 The following graphs based on data from The Nilson Report14 depicts the various payments categories, paper, cards and electronic and the trends from 2002 and projected through 2012.15 Payments Trends - $ Billions $10,000 $8,000 $6,000 $4,000 $2,000 $0 3,459 1,899 369 3,368 3,361 848 4,885 2,675 1,562 TOTAL ELECTRONIC TOTAL CARDS TOTAL PAPER 2002 2007 2012 Payments Trends - Transactions (Billions) 200 150 100 50 0 80.67 36.64 3.33 71.69 62.45 7.58 84.49 60.76 13.28 TOTAL ELECTRONIC TOTAL CARDS TOTAL PAPER 2002 2007 2012 Payments Trends - Average Transaction 150 100 50 0 2002 2007 2012 111 52 43 112 54 47 118 58 44 TOTAL ELECTRONIC TOTAL CARDS TOTAL PAPER 14 15 The Nilson Report, Issue 915, November, 2008 See Exhibit 1 of this report 09 Payment Systems Evolution and Branded Prepaid Card Analysis Page 12 Within the Cards section of the analysis, this chart shows prepaid cards in relation to credit, debit and EBT cards.16 $ Billions Cards Credit Debit Prepaid EBT TOTAL CARDS 2002 1351 477 55 16 1899 2007 2026 1169 142 31 3368 2012 2688 1966 190 41 4885 Growth 99% 312% 245% 156% 157% 2002 20.66 13.37 1.99 0.62 36.64 Transactions (Billions) 2007 26.49 30.04 4.8 1.12 62.45 2012 31.6 46.13 5.28 1.48 84.49 Growth 53% 245% 165% 139% 131% 2002 65 36 28 26 52 Avg Amt 2007 76 39 30 28 54 2012 85 43 36 28 58 Growth 30% 19% 30% 7% 12% What conclusions can we surmise from this data? 1. 2. 3. 4. 5. 6. 7. 8. Paper based transactions are falling Electronic transactions are the fastest growing from a percentage increase Card transactions are leading growth from a dollar perspective Prepaid cards represent less 2% of total payments in 2007 and are projected to nominally grow to 2% in 2012 Cash transaction account for 20% of total payments in 2007 but are projected to fall to 15% in 2012 The average transaction amount for a prepaid card is projected to be $36 versus $85 for a credit card and $43 for a checking account based debit card Cash usage increased from 2002 to 2007 by $370 billion – it is forecasted to decrease by $142 billion in 2012 – the net forecasted change in this ten year period is an increase of $228 billion The net increase of prepaid card usage is $135 billion for the same period – one can surmise that, at least in part, the cash economy would be significantly higher without prepaid cards Comparative Costs Analysis To gain an appreciation of the costs to consumers using prepaid cards, Bretton Woods assembled the pricing of basic FDIC insured checking accounts from the top five banks in the United States based on deposit market share as of June, 2008 (the latest FDIC data available17) and the prices from largest providers of branded prepaid cards, primarily payroll and general purpose reloadable cards, in order to provide a basis of comparison of costs to consumers given similar usage patterns. These banks, Bank of America, JP Morgan Chase, Wells Fargo, Wachovia (now Wells Fargo) and Citigroup, represent 31% of the deposits in the United States. One can conclude that this is a significant sample and potentially affects a substantial number of consumers.18 The branded prepaid card providers include Green Dot Visa/MC, NetSpend Visa, AccountNow Visa and WalMart Green Dot Visa.19 The Nilson Report, Issue 915, November, 2008 See Exhibit 2 of this report 18 See Exhibit 3 of this report 19 See Exhibit 4 of this report 16 17 09 Payment Systems Evolution and Branded Prepaid Card Analysis Page 13 There have been studies that have developed a typical usage pattern for prepaid card users. These following studies were reviewed to ascertain a common usage pattern: » Office of the Comptroller of the Currency (OCC) dated June 200520, average monthly usage · 1 Opening deposit requirement · 1 Monthly fee · 2 ATM usage fee · 3 Money order fee » Consumer Union Report, August , 2009, sample transactions over a two month period indicated the average monthly usage as follows21: · 3 ATM withdrawals · 3 Bill Payments (Rent, Utilities, and Phone) · 8 Point of Sale Purchases (Groceries and Meals once a week) · 4 balance inquiries · 2 deposits Given the dated information from the OCC study, Bretton Woods decided to use the Consumers Union statistics. Additionally, Bretton Woods agrees that this transaction profile is appropriate to meet basic monthly needs. An important point in this analysis is the inclusion of overdraft fees for checking accounts. Basic or free checking is the vehicle to attract customers to the bank. The bank makes their revenue from overdraft fees. Bretton Woods published a report22 in January, 2009 analyzing overdraft fees and determined the average household with a checking account incurs one overdraft per month or twelve per year. The majority of fees are incurred by a minority of households who incur 4 overdraft per month or 48 per year. Since we are analyzing individual account/card holders rather than household usage, Bretton Woods reduced the number of annual overdrafts to six per year. 20 21 22 http://www.occ.treas.gov/cdd/payrollcards.pdf http://www.consumersunion.org/pub/core_financial_services/014300.html http://bretton-woods.com/452/18901.html 09 Payment Systems Evolution and Branded Prepaid Card Analysis Page 14 The following charts provide detail of the costs for basic checking accounts, a branded prepaid card with and without direct deposit and check and cash services. Bank Survey Activity Monthly Activation Fee - amortized over 12 months Minimum Opening Balance Balance to Avoid Fees Annualized 1 $ 25.00 $ 1,500.00 $ 25.00 Direct Deposit or 5 debit card transactions $ 100.00 $ 1,000.00 $ 100.00 $1,500 or make 2 monthly bill payments or direct deposit $ 60.00 $ 9.50 $ 114.00 Bank of America Price Cost JP Morgan Chase Price Cost Wells Fargo Price Cost Citigroup Price Cost Monthly Fee Fee if no activity ATM Non-Bank ATM Bill Payments/Money Orders Point of Sale Purchase Balance Inquiries - Online Email/SMS Alerts Deposits/Check Cashing Fee (Average $350) Declined Transaction Overdrafts - assume 6 per year 1 2 1 3 8 4 2 12 24 12 36 96 48 24 6 6 $ 8.95 $ 107.40 $ 5.00 $ 2.00 $ 24.00 $ 2.00 $ 24.00 $ 2.50 $ 6.95 $ 30.00 $ 83.40 $ 35.00 $ 210.00 $ 35.00 $ 210.00 $ 35.00 $ 210.00 $ 34.00 $ 204.00 TOTAL $ 341.40 $ 234.00 $ 383.40 $ 318.00 Check and Cash Services Activity Monthly Activation Fee - amortized over 12 months Minimum Opening Balance Balance to Avoid Fees Monthly Fee Fee if no activity ATM Non-Bank ATM Bill Payments/Money Orders Point of Sale Purchase Balance Inquiries - Online Email/SMS Alerts Deposits/Check Cashing Fee (Average $350) Declined Transaction Overdrafts - assume 6 per year 1 3 0 3 8 4 2 Annualized 1 Check Cashing Price Cost Check Cashing Price Cost 12 36 0 36 96 48 24 6 6 $ 1.10 $ 39.60 $ 1.10 $ 39.60 1.4% $ 127.40 3% $ 273.00 TOTAL $ 167.00 $ 312.60 09 Payment Systems Evolution and Branded Prepaid Card Analysis Page 15 Branded Prepaid Card Survey - No Direct Deposit No Direct Deposit Monthly Activation Fee - amortized over 12 months Minimum Opening Balance Balance to Avoid Fees Monthly Fee Fee if no activity ATM Non-Bank ATM Bill Payments/Money Orders Point of Sale Purchase Balance Inquiries - Online Email/SMS Alerts Deposits/Load/Check Cashing Fee (Average $350) Declined Transaction Overdrafts - assume 6 per year Annualized 1 Activity AccountNow Visa Price $ 9.95 Cost $ 9.95 Green Dot Visa/MC Price $ 9.95 Cost $ 9.95 NetSpend Visa Price $ 9.95 Cost $ 9.95 Wal-Mart Green Dot Visa Price $ 3.00 Cost $ 3.00 1 3 0 3 8 4 2 12 36 0 36 96 48 24 6 6 $ 9.95 $ 2.00 $ 119.40 $ 72.00 $ 4.95 $ 1.00 $ 59.40 $ 36.00 $ 9.95 $ 5.95 $ 2.00 $ 119.40 $ 72.00 $ 3.00 $ 2.00 $ 0.88 $ 36.00 $ 72.00 $ 31.68 $ 4.95 $ 118.80 $ 4.95 $ 0.50 $ 118.80 $ 3.00 $ 3.00 $ 1.00 $ 72.00 $ 6.00 $ 3.00 $ 72.00 TOTAL $ 320.15 $ 227.15 $ 279.35 $ 214.68 Branded Prepaid Card Survey - Direct Deposit Direct Deposit Monthly Activation Fee - amortized over 12 months Minimum Opening Balance Balance to Avoid Fees Monthly Fee Fee if no activity ATM Non-Bank ATM Bill Payments/Money Orders Point of Sale Purchase Balance Inquiries - Online Email/SMS Alerts Direct Deposit (Average $350) Declined Transaction Overdrafts - assume 6 per year Annualized 1 Activity AccountNow Visa Price $9.95 Cost $9.95 Green Dot Visa/MC Price $ 9.95 Cost $ 9.95 NetSpend Visa Price $ 9.95 Cost $ 9.95 Wal-Mart Green Dot Visa Price $ 3.00 Cost $ 3.00 1 3 0 3 8 4 2 12 36 0 36 96 48 24 6 6 $9.95 $2.00 $119.40 $72.00 $ 4.95 $ 1.00 $ 59.40 $ 36.00 $ 9.95 $ 5.95 $ 2.00 $ 119.40 $ 72.00 $ 3.00 $ 2.00 $ 0.88 $ 36.00 $ 72.00 $ 31.68 $ 6.00 $ 0.50 $ 3.00 $ 1.00 $ 6.00 TOTAL $ 201.35 $ 108.35 $ 207.35 $ 142.68 09 Payment Systems Evolution and Branded Prepaid Card Analysis Page 16 Supplemental Data Exhibit 1 – The Nilson Report Payments Trends Chart $ Billions Paper Checks Cash Money Orders Offical Checks Travelers Cheques Food Stamps TOTAL PAPERTOTAL CARDS 2002 2166 1175 81 23 11 3 3459 1351 477 55 16 1899 231 138 369 5727 2007 1699 1545 87 25 5 0 3361 2026 1169 142 31 3368 464 384 848 7577 2012 1173 1403 73 22 4 0 4885 2688 1966 190 41 4885 581 981 1562 9122 Growth -46% 19% -10% -4% -64% -100% -23% 99% 312% 245% 156% 157% 152% 611% 323% 59% 2002 28.17 51.23 0.86 0.13 0.17 0.11 80.67 20.66 13.37 1.99 0.62 36.64 2.06 1.27 3.33 120.64 Transactions (Billions) 2007 22.17 48.58 0.72 0.14 0.07 0.01 71.69 26.49 30.04 4.8 1.12 62.45 3.89 3.69 7.58 141.72 2012 16.66 43.35 0.58 0.13 0.04 0 60.76 31.6 46.13 5.28 1.48 84.49 4.69 8.59 13.28 158.53 Growth -41% -15% -33% 0% -76% -100% -25% 53% 245% 165% 139% 131% 128% 576% 299% 31% 2002 77 23 94 177 65 27 43 65 36 28 26 52 112 109 111 47 2007 77 32 121 179 71 0 47 76 39 30 28 54 119 104 112 53 Avg Amt 2012 70 32 126 169 100 44 85 43 36 28 58 124 114 118 58 Growth -8% 41% 34% -4% 55% 3% 30% 19% 30% 7% 12% 10% 5% 6% 21% Cards Credit Debit Prepaid EBT TOTAL CARDS Electronic Preauthorized Remote TOTAL ELECTRONIC TOTAL The Nilson Report, Issue 915, November, 2008 Exhibit 2 – Bank Concentration of Deposits Bank Holding Company Name Bank of America Corporation JPMogan Chase & CO. Wachovia Corporation Wells Fargo & Company Citi Group INC. TOTAL BANKS # 1 1 1 1 1 Banks Cumm # 1 2 3 4 5 8,440 % of Total 0.01% 0.02% 0.04% 0.05% 0.06% 100% Cumm % 0.01% 0.04% 0.07% 0.12% 0.18% # 6,146 3,195 3,363 3,378 1,079 99,160 Cumm # 6146 9341 12704 16082 17161 Offices % of Total 6% 3% 3% 3% 1% 100% Cumm % 6% 9% 13% 16% 17% Total Deposits (000’s) June 30, 2008 # 701,585,101 497,215,362 422,002,374 293,406,008 271,290,497 7,025,694,000 % of Total Cumm % 10% 10% 7% 17% 6% 23% 4% 27% 4% 31% 100% FDIC, June 2008, Summary of Deposits - http://www2.fdic.gov/sod/ 09 Payment Systems Evolution and Branded Prepaid Card Analysis Page 17 Exhibit 3 – Bank Pricing Comparison Checking Account Matrix 8/31/2009 General Information Title of Checking Account Minimum to Open Minimum Balance Interest Rate (Earned) My Access Checking $ 25.00 0% Chase Checking $ 25.00 0% Citibank EZ Checking $ 100.00 Not found 0% Free Checking $ 100.00 Not found 0% B of A JP Morgan/ Chase Citi Wells Fargo Additional Bank=-Related Fees Overdraft: Overdrawn $4.99 or less for day Note: No more than 10 per day Extended Overdrawn Balance Charge: account overdrawn for 5 or more consecutive days in any amount Overdraft NSF: Declined or returned unpaid $10 per transfer One $35 fee $10 per transfer $0.00 - CT, ID, NJ, NY, OR, WA $12.50 per AZ, LA, OK, TX, WV $25.00 per MI & FL $15.00 per all other $10 per transfer Not Found See Consumer Account Fee & Information Schedule See Consumer Account Fee & Information Schedule $35.00 $ 35.00 $34 per ID, Or, WA $25-$35 re: occurance $25 per ID, WA, OR $32 per - all others $6 per statement copy $25.00/hr (Research fee) 3% Exchange Rate Adjustment Fee Stop Payment Fee Check Enclosure Fee: returning cancel led checks in monthly statements Inquiry Fee: minimum charge is per hour From M. Flores email: did not find in this account info Debit Card: (outside US purchases and cash withdrawals in a foreign currency) Online Activity Account: e.g. check card or request for statement at ATM Rep helps with request that could be handled by automated service Online Bill Pay Fee: Wells Fargo Criteria First 2 months free to new customer, and Remains free with $5,000 combined min bal in quali fying accounts at all times : Personal checking, Personal savings, Money Market Access, Remittance Up to 25 payment Has online Bill Pay, but no info relayed Other Miscellaneous Fees May Apply Inactivity Fee Search Escheatment Search/Abandoned Property Dormancy Search Deposit/Load Balance Inquiry: Refer to ATM section Balance Needed to Avoid Service Charge Shared Features/Benefits 24 Hour Access Free eMail Alerts (Chase - personalized) Free Personalized Voice Alerts Balance Alerts - type not specified Free Wireless Alerts Free Account Alerts Free Mobile Banking Free Online Banking Free Online Bill Pay Free Check Images Free Online Statements $ 30.00 $ 3.00 $34.00 See below $34.00 Returned, Paid Against Insufficient, Unavailable, $30.00 $2.00 Return original checks in statement $25.00/hr (Research fee) $24 for first occurance in 12 months - $35 thereafter $34 first occurance in twelve months; $35 thereafter $29 per item Not Found $20/hr $20 - $25/hr $ 1.00 $ 2.00 $0. on Web page $4.95 Imposed each payment cycle if paying bills using a rep $ 6.95 No Results No Results No Results Not Found Not Found Not Found Has -no fee stated X 0 Results 0 Results 0 Results 0 Results 0 Results 0 Results Not Found $20 Not Found Not Found Not Found Not Found Has -no fee stated Not Found Not Found Not Found Not Found Not Found Not Found Has -no fee stated States 24/7 Secure Has no fee stated Not In Chart Has -no fee stated Has -no fee stated Has -no fee stated Source: Bretton Woods’ web site searches, August, 2009 09 Payment Systems Evolution and Branded Prepaid Card Analysis Page 18 Exhibit 4 – Branded Reloadable Prepaid Card Prices NETWORK Activity Direct deposit $ 6,000 Limit unclear, likely $2,500; Paychecks, but other deposits unclear $2,500 AccountNow Visa Green Dot Visa/MC NetSpend Visa Limits Limit unclear. Types of deposits unclear Varies Wal-mart Visa/ Green Dot Limit unclear but likely $3,000; Paychecks, but other deposits unclear $500 at purchase; $1,500 if cashing check at Wal-mart at purchase; $2,500 per day $3,000 $400 $3,000 Cash loading per day $950 Purchases using card per day Withdrawal limit per day Limit per Money Network check Total Card Value $2,500 $300 $10,000.00 $2,500 Activity Card activat ion Monthly fee, Primary card Free with Direct Deposit or $9.95 $9.95 $9.95 suggested retail price; cards expire, new fees apply $4.95 suggested retail price Fees $9.95 $9.95 monthly fee removes Signature and PIN purchase fees) $3; c ards expire $3.00 Add’l linked card Lost card replacement Account maintenance fee ATM Domestic *Other fees apply Allpoint Network 37,000 + surcharge free ATMS ATM Internat ional *Other fees apply Teller Cash Transaction Signature and PIN purchases Cash back with purchase Direct Deposit loading Cash loading fee Card-to-card money transfer Card to external bank account Money t ransfer Phone balance inquiry Online balance inquiry Automated Phone balance inquiry ATM balance inquiry Email /SMS account alerts ATM declined withdrawal Negative balance fee Online customer Svc Automated phone customer service Live customer service $10 Duplicate card fees apply; unclear $10 $3.00 Up to $9.95 $5.95 if no activity Up to $2.50 Yes $4.95 Set locally $1.00/2.00 FREE Free if $400 or more; $3.95 FREE Free transfers only with NetSpend Savings Account $3.00 $2.00 $2.50 No $3.00 $4.00 FREE FREE FREE $4.95 Not Available $2.00 No $2.00 $2.00 FREE FREE FREE $3.00 at Wal-mart; Varies at other locations Not Available $4.95 $4.95 FREE FREE FREE FREE over $400; Up tp $4.95 if under $400 Free with linked card FREE with recurring Direct Deposit (otherwise: up to $0.50) FREE FREE with recurring Direct Deposit (otherwise: up to $0.50) $1.00 3% of foreign transfers Up to $1 FREE Up to $1.00 $0.50 FREE $0.50 FREE Up to $0.50 Up to $0.50 Up to $1.00 2% of foreign transfers FREE FREE; FREE Wal-mart POS $1.00 FREE FREE FREE with recurring Direct Deposit (otherwise: up to $0.50) None FREE Research, special requests: $25/hour; free if related to billing error/ unauth. transaction English/Spanish English/Spanish $2.50 each FREE Yes Automated phone service only allows cardholders assistance Customer serv. languages Website languages Check writing Savings Account Electronic bill pay Automatic payment authorization Cardholder agreement on website Obtaining Add’l Info $5.00 each FREE Yes English/Spanish English/Spanish $5.95 each Yes; 5% interest FREE No Automated phone service only allows cardholders assistance Engl ish/Spanish Engl ish/Spanish ~$0.50 for $100 at Wal-mart $0.88 at Wal-mart Yes Yes Automated phone service only allows cardholders assistance Source: http://qvisory.org/prepaid/comparison; Web site surveys 09 Payment Systems Evolution and Branded Prepaid Card Analysis Page 19 Exhibit 5 – Fee Components of Select Programs Activity Average Annual Cost to Consumer FEE DISTRIBUTION Fee, General Subscription Fee Load Fees Account Maintenance ATM Network Fees Network Fees Commission Signature POS Fees PIN Based POS Fees Balance Inquiry Transaction Service Charge Inactivity Fee Other Program 1 – Retail Card $116.74 % 7% 5% 2% 18% 29% 15% 8% 4% 2% Program 2 – Retail Card $105.59 % Program 3 – Payroll Card $28.98 % Program 4 – Payroll Card $48.03 % 72% 49% 17% 7% 6% 2% 10% 90% 28% 7% 100% 10% 10% 100% 2% 100% TOTAL 100% Source: Bretton Woods’ primary research of four distinct branded prepaid card programs