National Gives Plastic New Twist

It’s not a credit card, a traditional debit card, a check or even cash. But a new prepaid debit card works like all of them with a few unique advantages.

National Financial Resource Group Inc. of Fayetteville is working to establish prepaid debit cards nationwide. Backing from the Bank of America and a $4.5 million financing agreement with BanX, a company formed to handle the card network, put the cards on the market in May.

A yearlong pilot marketing project in California helped establish confidence in the cards.

National Financial brought to the table its customer base and marketing experience, said Larry D. Shaffer, the firm’s chairman and CEO. National Financial was formed in 1990 to handle the processing of money orders, gift certificates, rebate checks, payroll checks, government checks and other mass quantities of financial transactions.

The new prepaid debit cards are a sort of solution to much of the paper generated by financial transactions. Also Greg P. Moldenhauer, the company’s president and chief operating officer, said they are a way to help “the unbanked” move away from constant check cashing and the habit of using cash for most transactions.

Shaffer declined to discuss the privately held company’s balance sheet.

But he said National Financial and BanX make their money on the prepaid debit cards with 55-cent fees for ATM transactions and 25-cent fees for debits. That’s still cheaper than most check-cashing fees and credit card fees, Shaffer said. It also can be cheaper than a checking account for some.

“It’s another step to get the 20 to 30 percent of people who are still unbanked and provide them the convenience of carrying a piece of plastic around,” Shaffer said.

Prepaid debit cards offer a variety of ways to reduce paper transactions. They not only offer convenience to the card owner, but also to employers, Moldenhauer said. Companies can establish a card in the name of each employee and handle payroll distribution by simply informing BanX of how much to credit each card. Employees without bank accounts aren’t forced to pay a check-cashing fee to convert their paychecks to cash, Moldenhauer said. National Financial is in the process of signing up several large employers but declined to name them until the contracts are in place.

“Banks don’t want their lobbies filled with hourly workers trying to cash their checks,” Shaffer said.

The cards provide more security than carrying around cash, Moldenhauer said, because they are useless without a PIN number.

The prepaid debit card also can be used like a credit card to pay bills, which will end some of the money order purchases for unbanked consumers. And bank customers who don’t use credit cards can use National Financial’s product for transactions that require plastic.

Moldenhauer said that money orders are frequently sent to relatives in other areas or even countries. But the associated lag time could be avoided by issuing two cards. That way relatives on either end of the transaction could transfer or receive money in the time it takes to swipe a card through a card reader.

Parents of college students are expected to be another strong market.

Swimming Up Mainstream

Educating the public about the card’s uses and security benefits is the biggest hurdle for mainstreaming the prepaid debit cards, Moldenhauer said.

“We’re seeing it as an alternative to Western Union,” Moldenhauer said. “It moves faster. It’s safer, and it fits a specific need.”

Hispanics who sometimes don’t have established checking accounts and frequently send money out of the country could really take advantage of the card’s benefits, he said. To help them understand how the card works, many of the initial cards issued since May also work like a phone card and include the price per minute on the back.

The rate is better than most phone cards and better than many regular long-distance services, Shaffer said. A BanX card offers non-cellular calls within the United States for 6.9 cents per minute.

“The card’s phone-card feature allows the holder to make calls domestically and internationally,” he said.

The cards are also a great answer for temporary employment agencies and other companies that don’t have their staffs working in the same building, Moldenhauer said. The company simply credits the card with the net pay due, and the employee can tap into it immediately without having to come in and pick up a check. The employer isn’t charged for loading the card, Moldenhauer said, calling the method the “preferred method of payroll.”

“The potential is really unlimited,” Shaffer explained. “It’s really only limited by your imagination.”

The card is also anonymous; like a phone card it doesn’t have the owner’s name printed on it, and it can be purchased at a convenience store. Shaffer explained that the anonymous card allows the owner to make purchases like a credit card but without getting on telemarketing lists.

Paperless Transactions

Shaffer and Moldenhauer believe the prepaid debit card is part of the wave of the future in paperless financial transactions.

“The check has not completely gone away, but its growth has about come to a standstill,” said Phil Porter, president of Arvest Bank Operations.

ATM and electronic transactions are growing, and that’s a trend banks like, Porter said. Arvest Bank Group’s processing center in Lowell handles an estimated average 2 million items each weeknight, according to Phil Porter, president of Arvest Bank Operations.

An analysis published in the August edition of the Federal Reserve Bulletin maintains that check use may have peaked in the mid-1990s. The article states that check use as a percentage of retail noncash payments — which includes credit card, debit card, automated clearinghouse payments and other electronic payments — declined from 85.7 percent in 1979 to 77.1 percent in 1995. By 2000, that number dipped to 59.5 percent.

In 1995, 49.5 billion checks were paid, which was up from the 32.8 billion paid in 1979, but only 42.5 billion checks valued at $39.3 trillion were paid in 2000, according to estimates from two Federal Reserve studies.

National Financial knows all about the moving of money with paper. It processes between $5 million and $8 million in paper transactions per month through four processing centers across the nation. Their magnetic ink character recognition processors capture the check images and process the transaction.

The company’s move into paperless transactions simply echoes the nationwide trend, Shaffer said.

The prepaid debit card is also a good idea for travelers, Moldenhauer said. The card is easily replaced if the owner knows the number of the card and the PIN, he explained. It’s also easy for retailers, restaurants and others to deal with. Shaffer pointed out that not only can the prepaid debit cards be used at any ATM, they’re also processed by any point-of-sale terminal for credit and debit cards. Business owners don’t like to have multiple terminals, he said.

“People just have to learn to trust it,” Shaffer said about the new cards. “It’s really tried and proven. The whole marketplace is going in that direction.”