Twin Cities banks are starting to target college students, among others, for a new product that looks and functions like a credit card.
But the cards come with no billing statements, no over-limit charges or late fees and no links to credit bureau reports.
University Bank and U.S. Bancorp are among many banks nationwide marketing new “stored value cards” to people who traditionally do not or cannot use banks.
Customers purchase the cards at cash value and can reload dollars to them for a small fee, usually around $5. The cards can be used at automated teller machines, online shopping outlets and anywhere credit cards are accepted.
The banks see the cards attracting a new potential niche customer base. Their primary demographic includes immigrants, Web shoppers and debt-ridden college students.
Some students remain ambivalent about the new product.
Lindsey Miller, an anthropology sophomore, said she probably would not use it because she is happy with her checking account of several years.
“But if I came from a smaller town with an obscure bank, it would really make a lot more sense,” Miller said.
The stored value card can also be set up for direct deposit of paychecks and tax refunds. Once the card’s value is spent, it cannot be used again until it is reloaded.
The typical limit is $250 in Minnesota, although larger limits are being tested in other markets and require more personal information.
“We’re going after an unbanked market Ö and there’s not a lot of money to be made on the fees,” said University Bank President David Reiling.
“The idea is to get them to the next stage, like a checking or savings account Ö but you have to start somewhere and go from there,” he said.
While a fairly new idea for the personal banking industry, the stored value card concept is not unique.
U.S. Bancorp, which recently launched its own Visa gift card, offers similar cards for child support payment programs.
The bank is also one of many offering the cards for unemployment benefits and corporate payrolls.
The stored value cards come with an account number, personal identification number and routing account number. There is no lag time between spending money and a withdrawal being reported to the bank.
Paul Cleveland, chief executive officer of California-based eDebitPay, which sells and distributes stored value cards, said customers cannot use the cards to evade credit card companies and bill collectors.
“The credit card company can get the money if they want,” Cleveland said. “You can’t hide money. That just doesn’t happen anymore.”
University Bank’s card also targets parents, who can program the gift cards to restrict alcohol purchases and receive notification if their children attempt to use their card at an off-limits business.
Nevertheless, stored value cards have not achieved critical mass in the U.S. market.
Stored value card companies need to convince consumers of the cards’ advantages over existing payment methods and merchants of their security.
The stored value card’s main competition comes from check cashing businesses such as The Money Tree. Reiling said fees for reloading University Bank cards are slightly lower than most check cashing rates.
According to student loan provider Nellie Mae, the average credit card debt is $2,200 for undergraduates and $5,800 for graduate students.
College students’ rising credit card debt has become a concern for state legislators, economists and health officials in recent years.
A 2001 Boynton Health Service student survey found a link between excessive credit card debt and students who are “high risk” alcohol and tobacco users.
“I think (a stored value card) sounds pretty cool and can’t see any harm in it,” said David Golden, community program specialist at Boynton Health Service. “It seems like a nice service as there’s no temptation to miss a payment or even be late, so that could save students a lot in the long run.”
