Why Is This Prepaid Worth $5 A Month?

A Texas credit union uses its prepaid debit card to provide lower-income members with access to affordable, multi-channel service.

University Federal Credit Union ($1.8B, Austin, TX) offers a card product that prevents overdraft fees and provides access to online and mobile banking, bill pay, and more than 300 fee-free ATMs around Austin and Galveston, TX.

Nothing unusual there, but this is a prepaid card, and UFCU designed the card to function differently from traditional prepaids. It’s neither targeted to teenagers nor a way to play keep-away from check cashers and payday lenders.

Rather, the ABILITY Prepaid Debit Card is both a valuable source of non-interest income as well as a tool to prove the credit union’s worth to SEGs that might have otherwise pursued pre-paid card programs.

ABILITY is one important part of a comprehensive strategy that has allowed UFCU to consistently beat out comparable credit unions with $1 billion and more in assets. For example, UFCU posted annual non-interest income growth of 4.06% in fourth quarter 2014; the other 228 institutions in that peer group posted a 1.78% average decline.

Member growth was also higher for that quarter 9.21% for UFCU compared to 4.96% for its peer group.

Here are more details on the ABILITY Card from Chad Holz, UFCU’s manager of intrapreneurship and innovation.

Can you share some details about the success and performance of ABILITY?

Chad Holz:UFCU launched the ABILITY Card on Jan. 1, 2013. Since then, it’s grown 5% to 6% each month. We’ve issued slightly more than 4,000 cards, representing approximately 3% of our checking portfolio.

Fidel Gonzalez
Chad Holz
Manager of Intrapreneurship and Innovation at University FCU

ABILITY carries a $5 monthly fee, instead of the typical re-loading fee, and the program generates approximately $160 per card per year in fees and interchange income.

All in all, the entire relationship yields about $281 in total income per person, a bit lower than our average debit card, but that’s not really a surprise. The ABILITY cards have a lower spend than our debit cards, but that’s because the people using them typically have smaller disposable incomes.

Who are its major users?

CH: Cardholders include service workers at the University of Texas and participants in back-to-work programs at Goodwill Industries of Central Texas.

We found out at our SEG lunch-and-learns that there were a lot of employees with tarnished credit histories, and we didn’t have a product for them. We stood to lose the entire relationship if we didn’t offer a product that could fit the needs of our marketplace.

Why did you decide to go with a $5 monthly fee rather than a reload fee?

CH: A prepaid product isn’t sticky, and the customer lifecycle is short. We viewed prepaid a little differently. Relationships are all there is, so we want these cards to have a longer lifecycle, to have an opportunity to capture other products and services we might offer. We have an 81% retention rate. That’s mostly attributed to capturing that ACH funding source, but I imagine the friendly reload policy doesn’t hurt either.

How have members received that fee?


data as of 12.31.14

  • HQ: Austin, TX
  • ASSETS: $1.8B
  • MEMBERS: 188, 455
  • BRANCHES: 19
  • 12-MO SHARE GROWTH: 5.07%
  • 12-MO LOAN GROWTH: 16.85%
  • ROA: 0.83%
  • Credit Card Processor: FIS
  • Credit Card Processor (3rd Party Managed): FIS
  • Debit Card Signature Processor: Visa DPS
  • Debit Card PIN Processor: Visa DPS

CH: We’ve found that people are more willing to pay a predetermined fee they’ve agreed to, rather than be assessed a fee for an amount or a reason they don’t understand. We’re generous with the $5 fee in that we don’t take people negative on the account because of that fee and we don’t try to back-collect it if the account is reloaded after we tried to assess the fee at the end of the month. Our SEG partners have told us that other cards that do this hurt their employees’ livelihood, with $20 or $30 in fees being collected as soon as their direct deposits hit. We didn’t want to replicate that model. Fee income is not our priority here.

How much are each of the channels (branch, mobile, etc.) used to reload the card?

CH: ACH direct deposits make up 58% of card reloads. Branches and depository ATMs make up 13% and 12%, respectively. Mobile accounts for about 2%. The remaining 15% is primarily made up of transfers from other accounts within the institution using a variety of channels.

How much are members using the ABILITY Card?

CH: This product averages the same number of point-of-sale transactions as our debit card 27 to 28 per month. However, the ABILITY Card has a lower average ticket $30 versus $33. We expected that, given the demographic typically has a lower disposable income. We do see higher ATM withdraw usage with the ABILITY Card.

Do the user demographics match what you anticipated when you created the product?

CH: Most of the portfolio is as we expected: A fee-driven profile with incomes less than $50,000 a year and an average age of between 18 and 44. We forecasted a 5% monthly growth rate, excluding account cancellations, so our forecasts are currently on target.

Do you market the product as an everyday replacement for checking accounts for unbanked or underbanked people?

CH: The checking account is still our core product, but we do employ a needs-based selling approach with our front-line staff. They do an excellent job interviewing and listening to the member to present the appropriate product. Most people attracted to the product are looking for stress-free access to a trusted financial institution. If we’re unable to offer our checking account product due to risk policies or because the potential member feels stressed when it comes to balancing and making ends meet, the ABILITY Card is our go-to product.

Find something to fill the niche of your market, rather than being just like all the options consumers can find hanging in a store display.

Do you try to convert prepaid cardholders to a regular checking account?

CH: We don’t currently run campaigns to convert members from an ABILITY Card to a checking account. We’re happy to satisfy a member’s request if they meet the risk requirements and would like a checking account, but we don’t actively try to convert members.

What advice would you give to others looking to launch a prepaid card program like this?

CH: Prepaid, like checking, is pretty commoditized and prepaid users are generally less loyal. Find something to fill the niche of your market, rather than being just like all the options consumers can find hanging in a store display.It’s also important toavoid treating these members any differently. I attribute part of our success to the fact that we’ve set it up so we’re serving our members and every interaction they have is with us. Never outsource your core competency service.

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