February 11, 2009

Prepaid debit cards represent a competitive threat to banks' checking account relationships, according to a new report from Aite Group, Boston. But the research firm suggests ways banks may take advantage of the trend towards prepaid debit cards.

For years, banks in the United States have viewed unbanked and under-banked consumers as a promising segment they could address through traditional checking account relationships. Few banks have realized that new technology and financial products may actually render the checking account relationship less attractive to this customer segment. In fact, at least 14 percent of checking account holders would be better off switching to a prepaid debit card.

"This is not just doom and gloom for banks," says Gwenn Bzard, research director with Aite Group and author of this report. "The most sophisticated among them could profit on the appeal of prepaid debit cards. For example, banks could rapidly gain market share by striking co-brand deals with leading prepaid debit card marketers that have a head-start in this race."

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