NetSpend Raises Interest Rate on Prepaid Card's Savings Plan
NetSpend recently increased the interest rate on its prepaid debit card's linked savings plan. The interest rate was boosted to 3% on October 1, 2006, in order to match mainstream savings accounts. NetSpend introduced the card last year with an annual percentage rate of 0.75%.
Compare Prepaid Credit CardsThe higher interest rate reflects how just as banks have been investigating ways to serve the under banked, businesses that already serve such consumers are providing new services to drive earnings and hold onto existing customers.
NetSpend Chief Executive Rick Savard explained that the idea was to encourage customers to "notice" the benefits and raise the interest rate to a "level that motivates customers to join the program."
As a marketer and processor of prepaid products, the company's revenue comes from interchange paid by merchants and the fees it charges cardholders.
NetSpend's prepaid card stems from a collaboration with the Financial Services Centers of America, a trade group representing check cashers and other money-services businesses. The cards are sold at over 6,000 money-services business locations and can be reloaded at those outlets or online. NetSpend prepaid cards have no minimum balance.
Inter National Bank, a division of INB Financial Corp., maintains the NetSpend savings accounts. NetSpend and the money-services businesses collect a fee for selling and reloading the cards.
According to Jennifer Tescher, director of the Center for Financial Services Innovation, a unit of Chicago's ShoreBank Corp. that advocates greater access to banks for underserved communities, this is the first program to offer interest rates on a savings plan for the under banked. She explained that customers benefit not just from the interest they can earn, but also from the credit history the program enables them to develop.
Since NetSpend introduced the program a year and a half ago, it has created more than 50,000 accounts, and in 2006 its customer base has been expanding by nearly 15% a month, Mr. Savard reported.
Savard noted that NetSpend sends a text message to cardholder's cell phones each time there is activity on the card, explaining that the simple delivery of information is very attractive for the under banked. Since NetSpend is not a bank, the company is not required to send monthly statements to account holders.
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