About a decade ago, tax preparation company H&R Block began offering its clients their IRS refunds on debit cards, which they could then spend anywhere that accepted Mastercard. Now, the reloadable H&R-branded Emerald Card is actually serving as a defacto year-around checking account for many, with more than 2 million clients depositing about $9 billion onto the cards in 2018, using them on a regular basis for groceries, clothing, utility bills, ATM withdrawals and other expenses.
“H&R Block aims to give our clients greater financial flexibility throughout the year,” said Margaret Ostrowski, the company’s vice president for financial products and partnerships. H&R Block is just one of a growing number of service-providers and retailers that are now involved in providing banking services to customers and clients through reloadable prepaid cards. In most cases, these companies are partnering with banks to offer the cards, rather than obtaining their own national banking licenses, which can be an arduous process. But, to many consumers, it can seem like every store now also wants to be your bank.
The reloadable prepaid card market was robust even before many retailers joined it, as higher bank fees and minimum checking account balances in the wake of the Great Recession left more than 7 percent of the American population without a bank-issued debit or credit card, according to IBISWorld. At the same time, the growth in online shopping and other digital transactions also fueled demand for cards. In 2018, reloadable cards brought in revenue of $10.9 billion in the United States, and the sector is growing about 2.6 percent a year, according to IBISWorld.
“Reloadable cards are basically meeting an unmet consumer need,” said Tiffani Montez, a retail banking senior analyst at Aite Group, who has also studied the trend. But the features of many of these prepaid cards have also caught up to, and sometimes surpassed, those offered by checking accounts, with generous rewards programs, options for direct deposits of paychecks, automated savings schemes and online spending trackers.
“Prepaid continues to be a platform of choice for innovation, allowing partners in multiple sectors to thrive,” said Laura MacKenzie, Senior Vice President in Prepaid at Mastercard.
These features are part of what has brought brands like Walmart, Starbucks and the grocery chain Kroger, which often play up the rewards and budgeting angles, to offer such cards. Budgeting is the number one reason people use such cards, according to a study by InComm, which manages American Express’s prepaid products, including its Bluebird account, offered through Walmart.
But for retailers, the cards are also a valuable marketing tool, Montez said, adding that they don’t make money directly from the cards. “This is really about building loyalty, a way to keep people coming back to the store,” she said.
Some retailers said that branded cards offer more opportunity to engage with customers.
“We want our clients to love their experience with H&R Block,” Ostrowski said, and the card is another way to encourage that.