Yesterday, Chase announced its newest product: the Liquid prepaid debit card. It’s not like most prepaid cards out there on the market: there are no fees for activating or closing the card, getting a replacement, receiving paper statements or paying bills. And as long as you use Chase ATMs or bank branches, you can deposit checks or cash, withdraw money, and check your balance for free. The old guard of prepaids, on the other hand, charges for all of the above, as well as for customer service, bank transfers, declines and more.
But that’s not the real news. Low-cost, bank-issued prepaid cards like those from U.S. Bank, PNC and Regions already offered basic services for free, charging only a monthly maintenance and occasionally activation fee. There’s been a growing trend away from fee-heavy cards to cheap, debit-like offers. So why is the Chase Liquid so exciting? Because anyone, anywhere in the United States, can get it.
Liquid vs. the big names: no contest
When you compare the Liquid to established prepaid debit cards, there’s really no comparison. Here’s the annual cost of various cards to the typical user, as defined by Bretton Woods:
|Card Name||Annual Cost|
|Green Dot Card||$195|
|NetSpend Prepaid Premier
($500+ direct deposit)
|NetSpend Prepaid (FeeAdvantage)||$373|
|NetSpend Prepaid (Pay As You Go)||$457|
There are a number of reasons that the Liquid is so much cheaper. As Chase will be quick to tell you, they don’t charge for card activation, transactions, bill payments, paper statements or customer service, unlike most other prepaid cards. But the real kicker is what a physical bank can offer: free check and cash deposits, and free ATM withdrawals. Cards with no ATM networks, like NetSpend, incur two fees: the card’s own fee, and the surcharge levied by the ATM’s owner. Those two combined can bring the cost of a single ATM withdrawal up to $5 or more. And cash reloads through Green Dot or Western Union? Easily $3.95 plus. Consider the average price of services that the Liquid gives away for free:
- Activation: $8.95
- Card replacement: $6.32
- ATM withdrawal: $2.12
- Cash reload: $4.36
*NerdWallet average of cards charging the fee, from a pool of 53 cards
If you can treat your prepaid debit card like a regular debit card, but with a lower monthly fee, you’re going to see some pretty big savings.
Liquid vs. bank-issued prepaid cards: a chicken in every pot, a branch in every community
But as we said, that the Liquid is better than the old guard of prepaids isn’t exactly news. Other banks can – and do – offer the same. Here’s the annual cost to the typical consumer, as described above:
|Card Name||Annual Cost|
|U.S. Bank Convenient Cash||$39|
The difference is Chase’s ubiquity. Compared to other banks, there are far more places to reload and withdraw money for free, and such locations are available nationwide rather than confined to a single region. Regions and PNC are both, well, regional, but how accessible is the Liquid compared to the Convenient Cash, or even the seemingly ubiquitous Walmart?
|Deposit Locations||10,500 ATMs, 5,500 branches
($3 cash/$2 check fee)
|Free ATM withdrawal locations||17,500 ATMs||5,092 ATMs||None|
|States with branches/locations||50||25||50|
The proliferation of Chase branches and ATMs creates an exciting opportunity. Whereas other banks may be confined to certain regions or to more affluent areas, Chase’s reach extends further. This puts it in a position to reach the target audience of prepaid issuers: the un- and under-banked, who are disproportionately minority and low-income.
Can the Liquid help consumers as much as it helps Chase?
Bringing in the unbanked. Those who forgo checking accounts tend to be wary of overdraft fees, and the Liquid doesn’t allow cardholders to run a negative balance. Still, unlike most prepaid cards, it’s attached to a traditional bank and encourages cardholders to come into a branch to make deposits and withdrawals. Hopefully, such an arrangement will help draw the unbanked into the mainstream financial system and give them the means to save money, plan for retirement or college, and build up a credit history.
Extending credit. Currently, debit card use (prepaid or otherwise) isn’t factored into FICO scores. Someone who pays off his bills every month, but who does so from his checking account, will find himself unable to borrow despite his financial solidity. American Express plans to use its prepaid card to determine creditworthiness, offering select cardholders a charge card and eventually a credit card. Chase might well do the same, collecting data from the Liquid to extend lines of credit it would otherwise shy away from.
Influencing the market. Prepaid debit cards have a reputation – some say a well-deserved one – for carrying high and surprising fees. Take Russell Simmons’ Baby Phat card: $14.95 to activate, $9.95 monthly fee, $1 per PIN transaction and $2.50 per ATM withdrawal (we could go on). But a recent influx of new entrants like the Liquid, U.S. Bank’s Convenient Cash card and the American Express prepaid suite presents consumers with a new option. They can eschew checking accounts while still using affordable products, most of which offer FDIC insurance and some form of fraud protection.
It’s not all roses
Obviously, the card isn’t perfect, and many obstacles stand in the way of fulfilling its potential. To begin with, if you’re close to a U.S. Bank location, the Convenient Cash is cheaper – a lot cheaper. If you hold the card for just one year, you’ll save over $20; hold the card for five and you’ll save $114. It’s just simple math.
And for all the promise that low-cost prepaid cards offer, there are a number of complications. To begin with, Chase doesn’t have the best image out there (Jamie Dimon, you’re not helping). A consumer wary of overdraft fees and sick of hearing about big banks’ latest ploy to screw consumers may well be suspicious of a prepaid debit card offered by those same institutions. Chase hasn’t made any promises that it will factor prepaid use into lending decisions. And while Chase branches are more prolific than other banks’, they, like many other for-profit banks, are pulling out of low-income communities. Still, if they can overcome these hurdles, prepaid cards may transform from a fee-laden, second-tier banking product to a path to traditional financial system.
A few notes about the annual fee calculation
Bretton Woods, a prepaid industry expert, defines the typical consumer’s monthly use as:
- 2 ATM withdrawals
- 1 ATM decline
- 1 bill payment
- 8 point-of-sale purchases
- 3 call center inquiries
- 2 deposits/loads
Additionally, we at NerdWallet assume:
- All ATM transactions are made in network, if applicable
- All point-of-sale transactions are PIN transactions
- Bill payment is made online
- Card is loaded with cash
- Card is held for one year
- Criteria to waive the monthly fee (minimum load or direct deposit) is not met