Revitalizing Reloads

By Loraine DeBonis, Editor-in-Chief

Options are exploding for prepaid cardholders with swipe, no-cost and mobile reloads making it easier than ever to spin cash into digital gold.

Turning cash into an electronic form of payment is undergoing a bit of a renewal. With mobile deposit, unprecedented partnerships, free options and new uses for reload networks—from paying bills to paying rent—reload providers are finding new ways to help consumers spin cash into digital gold. In this special section, we examine expanding reload capabilities and their effects on cardholders and the bottom line.

“Prepaid cards can help bridge the gap [for underserved consumers] by offering access to the benefits of electronic payments,” says Steve Parento, senior business leader, global prepaid product development, MasterCard Worldwide. “The ability to add cash is fundamental to unlocking these capabilities.”

“Getting money on the card is not something we want our customers to have to think about,” adds NetSpend President Chuck Harris. “The easier we can make [reload], the more we can get them focused on taking advantage of all the benefits our cards offer.”

For NetSpend, which has nearly 50 percent penetration of direct deposit among cardholders, cash reloading remains an important part of its business and overall strategy. Harris says “a good portion” of those direct deposit customers also reload with cash at NetSpend’s more than 130,000 locations.

“Secure, convenient and cost-effective reloading capabilities are critical to the long term success of prepaid,” says Stacy Pourfallah, vice president of prepaid platforms, Visa Inc. We need to provide load options to meet cardholders where they are—in retail, at an ATM or on their phones.”

The Compelling Case for Swipe

Networks like Visa ReadyLink were built on swipe capabilities, but many other reload networks started as Green Dot did with reload packs. Recently several networks have begun promoting swipe reloads as a simpler solution for consumers. Consumers swipe their cards and hand the cashier the cash, plus any reload fee, instead of buying a reload pack or chit. Although the integration is more complex for the retailer—reload packs are just another SKU—swipe reloads have benefits. For cardholders, the cost and load limits are comparable to reload packs, but cardholders typically have faster access to their funds (no need to call or go online to activate). For retailers, there’s no inventory, and adding swipe often boosts overall reload volume.

In March, Green Dot, which built a massive reload network on its MoneyPak system, announced its plan to roll out Reload @ the Register nationwide. The rebranded swipe reload service itself isn’t new, however; the push to further penetrate Green Dot’s 90,000+ locations is. “At Green Dot Network locations with our Swipe Interface Technology deployed, we see a shifting [consumer] preference to the convenience of our one-step reload via a swipe at the register terminal,” says Kostas Sgoutas, Green Dot’s chief revenue officer.

The 2014 Paybefore Award-winning Walmart Rapid Reload service, which went live in November 2012, offers swipe cash reloads and also enables cardholders to cash and load government and payroll checks. Rapid Reload is made possible by a first of-its-kind partnership among multiple networks—Green Dot, InComm and Money Network.)

Don’t expect retailers to abandon reload packs altogether though. One thing packs offer over swipe is the ability to load funds without the card present. Think parents loading funds to a college student’s card, explains Anu Shultes, general manager, financial services at Blackhawk Network. Blackhawk’s Reloadit Network includes Reloadit Packs its retail partners sell typically for $3.95. (Some partners offer Reloadit Packs at a lower price point.)

Harnessing the Network

A twist Blackhawk added to its Reloadit Network in April 2014 is Reloadit Safe. The digital account enables consumers to load funds at retail locations and then direct the funds to multiple places—different GPR cards, to pay a bill, etc. —or to store them for later use. Consumers set up a user ID and password online or via their mobile phones. When consumers buy a Reloadit Pack at the store, they typically activate the funds online or by phone. With Reloadit Safe, Shultes says, consumers have more options about where their money goes but only have to make a single retail transaction with one fee.

“At the end of the day, we’re enabling consumers to take cash and convert it to digital currency—why can’t it be to pay a biller?” she continues. In addition to building out its retail footprint for reloads, now at 15,000+ locations, Blackhawk is partnering with billers and bill pay aggregators, such as PreCash, to expand Reloadit Safe’s utility.

InComm also has been busy harnessing the power of its reload network for more than GPR card reloads. Vanilla Network, which launched in 2012, is the backbone of InComm’s Cashtie API, which links retail cash payments via an existing POS system to software applications. With Cashtie, cash payments can be enabled at retail for anything from bills to online purchases.

More than a year ago InComm began working on its connectivity strategy, focusing first on prepaid processors as the hubs that would enable InComm to add just about any GPR card to its reload network. “Connectivity is the hard part,” says Jeff Lewis, vice president and general manager of financial services, InComm. “Once connected, it’s easy to sign contracts and expand in terms of who can connect with us and the different things we can enable consumers to do with cash.”

The Free Question

When it comes to reload pricing, it’s not surprising Walmart led the way on cutting fees. In 2009 the retailer rolled out its Walmart MoneyCard fee plan of $3 for purchase, reload or monthly service. Since then, the industry has seen more compression on purchase and monthly fees than on reloads, largely because the retailer sets the reload fee, not the program manager or issuer.

More recently, however, providers, including American Express and newcomer T-Mobile, began offering free reloads at participating locations. Since T-Mobile has its own retail stores, offering free reloads there is part of a larger strategy to enhance value, drive traffic and increase stickiness for its wireless customers, according to Shultes. Blackhawk is the program manager for the T-Mobile Visa Prepaid Card.

For American Express Serve, the 2014 Paybefore Consumer Champion Best-in-Category winner, free cash reloads at 14,000 locations, including select CVS/pharmacy and 7-Eleven stores, were rolled out with several other value-added features. In April, the company announced free reloads for Serve cardholders at Walmart’s 4,100 U.S. stores as well. Walmart also offers free reloads through its Rapid Reload service to Walmart Preferred MoneyCard, GoBank and Bluebird cardholders.

Many experts see free reloads as a perk for VIP customers or an acquisition strategy, but they don’t expect reload fees to hit zero across the board. “At the end of the day, there’s a price for moving cash and getting immediate access to your funds,” says InComm’s Lewis. “There’s a cost to the retailer to manage cash, and that will never go away.”

Most program managers can’t afford to subsidize the reload fee, but some are choosing to cover the cost to cardholders. Harris says many of NetSpend’s partners offer free reloads every day or as a promotion. However, “our philosophy is that the value of the underlying product will drive customers to reload it more than the price of the reload.”

Mobile Momentum

While free reloads may not be a trend every program manager adopts, mobile deposit capture (MDC) is on its way to becoming a must-have feature for GPR programs. Although banks have been using the technology for years for checking account customers, prepaid brought a new challenge—same-day funds availability, a must for a paycheck-to-paycheck audience. Many initially feared immediate funds availability would open the industry to considerable fraud. But MDC got a big boost in September 2013 when Ingo Money announced its pilot with Visa prepaid cards was rolling out nationwide.

“One of the challenges with most MDC solutions today is that consumers still have to wait several days to get access to the full amount of their deposits,” explains Visa’s Pourfallah. “We partnered with Ingo because it was one of the first in market to give consumers the option to select ‘instant availability’ [for a fee]. This option is really attractive to prepaid cardholders who need immediate access to their funds to meet their day-to-day financial needs.

“Though we’re still at the beginning of this trend, we think mobile deposit capture will continue to grow in importance as a reload option and become a core feature for prepaid,” she continues. “With high usage rates of smartphones in the U.S., MDC delivers the convenience, security and flexibility prepaid cardholders want.”

There are several ways program managers can enroll with Ingo (most prepaid issuers have approved Ingo as a provider). One is to enable the Ingo Network, which essentially is informing Ingo to enroll their BINs, testing to verify transaction flows and then marketing the service. A program manager also could integrate the network into its mobile banking app, using a software development kit (SDK). The third option is the enterprise solution, which would include a large-scale implementation by an institution with the independent regulatory authority to support check clearing and settlement, check cashing and money transfer services.

Ingo also offers a direct-to-consumer app and through its Website refers consumers to all prepaid providers they can use to access the MDC service.

Early numbers on usage are promising and suggest offering MDC is increasing stickiness. “Most programs are still in the early stages of marketing,” notes Ingo founder and CEO Drew Edwards. “However, one program alone hasmore than 30,000 users and it’s adding hundreds more every day. It’s still early, but we’re seeing that even very small programs can use [MDC] as an effective way to acquire new customers and keep them longer,” he says. In total, about 100,000 consumers have begun using the Ingo Network.

Helping cardholders load check payments more easily is important for cardholder retention, according to Lisa McFarland, executive vice president and chief marketing officer at Ingo. “The leading cause of attrition of direct deposit customers is the loss of a job. One real benefit [MDC] brings to a prepaid program is enabling cardholders to continue adding some sort of funds, unemployment checks or funds from family,” says McFarland, who formerly oversaw consumer prepaid at Visa.

Managing a ‘Risky Business

One reason it’s taken prepaid providers longer than traditional banks to adopt MDC is the added risk that comes with instant funds availability. “Fraudulent attempts and duplicate presentment are very real,” Edwards says. A significant percentage of first-time attempted transactions are fraudulent, but he says Ingo is adept at stopping them because of the company’s technology developed over the past 13 years. “We can insulate our clients from that noise while enabling them to offer this service to all their customers rather than trying to limit availability to a select subset,” he adds.

One way Ingo protects clients is that the mobile check transaction is between the consumer and the Ingo service, rather than between the consumer and the issuing bank or program manager. Approved checks are cleared and settled by First Century Bank N.A, which converts the check into good funds, and initiates an irreversible credit transaction through the network, to deposit funds into the cardholder’s account. “From the card program manager or issuer’s perspective, we’ve taken MDC and made it look a lot like a retail cash reload,” Edwards says.

For Fiserv, which has vast experience launching MDC services for bank debit products, moving to prepaid and immediate funds availability requires some best practices to help keep fraud at bay and ensure a positive user experience. The technology provider recommends starting with an invitation program before rolling out the service more broadly. “It’s important to go out to the appropriate customer segment at the appropriate time,” says Gary Brand, director of Source Capture Solutions, Fiserv.

Rolling out MDC in a measured way can help program managers monitor frequency and usage trends and fine-tune the message and risk-prevention methods based on that data, Brand suggests. Creating risk profiles for customers goes a long way in mitigating risk as well as setting parameters, such as the number of deposits allowed in a day or a week, value limits, etc.

Through an agreement inked last year with check-guarantee firm VALID Systems, Fiserv began enabling prepaid card processors to provide “near real-time” verification and instant funding for client cardholders using its MDC service. Fiserv has a pipeline of prepaid providers lining up to offer its MDC solution and expects significant growth in 2014. Another advantage to working with technology providers that process large check volumes is having access to vast check-cashing data.

Big Database

“Oftentimes we can see if a check already has been presented elsewhere among our partner [VALID’s] client base and reject the deposit,” Brand continues. Fraudsters will try to find ways around it until there’s a global real-time database, which is why there are other mechanisms in place to stem fraud. Brand notes, however, that it would take only a few large entities working together to create such a database.

The problem right now is that there’s no business case on the retail banking side, according to Celent Senior Analyst Bob Meara. Despite an increase in the number of financial institutions experiencing fraud through consumer MDC, losses are still minimal. “The way banks are underwriting customers and putting limits on what they deposit and how often, as well as the automated deposit review mechanisms they can run in-house essentially for free, they generally can’t make the ROI for an additional subscription to a large database even if one did exist,” he explains.

With a focus on immediate funds availability, prepaid providers may be more willing to support an industry-wide database, especially if fraud rates rise. Ingo’s Edwards has been building such a database. “We’ve formed a coalition that includes a variety of big data processing players in the market, but the major focus in the industry right now has been on preventing fraud in other ways,” he says. “It’s likely Ingo soon will make check data available to help others avoid accepting a duplicate check.”

Cachet Financial Solutions, a remote deposit capture and mobile money management technology firm, helps clients establish risk-management programs based on industry best practices and technology. “Risk concerns are still a reality, but there also are more ways to monitor and mitigate risk today,” says Terri Ferrise, senior vice president, financial services, Cachet.

“For example, with Ingo Money, Cachet’s clients are protected from transactional risk under Ingo’s unique risk management, servicing and check guarantee structure,” Ferrise explains. “That means our clients are able to offer immediate good funds via remote deposit capture loads to all their cardholders.” For others, Cachet recommends a “know-your-customer” approach. “A typical best practice example would be to start with a pilot including your long-standing customers and set up conservative user parameters—average dollar amount of deposit, frequency of deposits, maximum deposit amount, etc.,” she continues. “When you roll out MDC to additional customers, you can modify the business rules based on key learnings from the pilot. MDC is a great vehicle for rewarding good behavior and increasing customer retention.”

Mobile Advantage

The mobile phone may seem to open you up to fraud, but it may also provide data to thwart fraud, according to Mike Strange, chief technology officer at Mitek Systems. “Our SDK provides a wealth of data that can be used for analytics. For instance, if you combine the location of the person conducting the transaction with what else you know about your customer, it takes a substantial amount of risk out of the equation,” he says.

“As with any emerging channel, fraud is ever-present and no program is immune,” adds Alpesh Shah, director of strategy at FIS. “Our integrated technology and strength in the check verification market not only helps clients to catch initial fraud but to detect fraud patterns as they develop.” FIS merged with check authorization and check cashing services provider Certegy in 2005, and it’s Certegy’s technology that provides a robust decision engine for FIS clients. In 2012 Certegy’s technology provided decisions on more than $42 billion in checks presented, with more than 39 million unique consumers enrolled. “The robust data and check-cashing histories are leveraged to provide extensive analytics for real-time approvals and fraud analysis in seconds,” says Shah. Since FIS launched MDC with American Express Bluebird in 2012, the rate of fraud attempts has moderated as more legitimate consumers adopt the service and overall volumes increase.

With advanced risk-management tools and growing data on how prepaid customers use MDC, the time has never been better for providers to take the plunge.

“Like the Nike tagline says, ‘Just do it!’” concludes Meara.