He’s only 18, which would mean he wouldn’t be able to gain approval for a credit card. Since he’s Justin Bieber, it’s safe to say he has the financial means to repay any credit card debt (which is one of the exceptions in the new credit card laws). Regardless of his age, it looks as though Bieber is following other celebrity-like icons down a dark, unpredictable and bumpy ride. And like those before him, including Suze Orman and the Kardashian sisters, it’s not likely this prepaid card is going to turn heads anyway.
It’s true the prepaid debit card is exploding; it holds as much as $1.7 billion in profits and fees, after all. It’s giving banks and credit card companies a bit of a headache, too – or rather, it was giving them a bit of a headache. Many big banks and credit card companies are introducing their own versions of prepaid cards. It’s a tough go for any celebrity to enter into the financial market, especially considering from the outside, most believe they live extravagant lives that include any number of material possessions. Now that they’re going up against the heavy hitters, including American Express, which just unveiled its own version of a prepaid debit card, these celebrities are going to face some mighty big challenges. With Bieber’s card, though, it might be doomed before it even takes off.
First, it’s important to understand that these prepaid financial products aren’t held to the same restrictions as their cousins, the traditional credit card. It’s those restrictions that are making it difficult for banks to roll in the kind of profits they saw prior to the new financial laws. Not only that, but as more Americans are still under or unbanked, it’s a natural transition for these consumers to turn to prepaid products.
Bieber on Board
So which company managed to get the Bieber on board? Actually, it was BillMyParents, and the card, of course, will include Bieber hawking the cards on the premise that it can help parents as they seek to build strong financial habits in their teens. Chief Executive Officer of Bill My Parents, Michael McCoy, insists there’s plenty of opportunities for the ‘smaller players’ in this particular market, despite the bigger players like American Express. There’s another consideration for McCoy these days: the nation’s fifth largest lender, US Bancorp, announced it too was entering into the prepaid market. It is in the process of acquiring FSV Payment Systems, a prepaid card program manager and processor.
Most prepaid cards work as a replacement to the traditional checking account. Consumers must make cash deposits in order to use the card and if there are no funds available on the card, their transactions won’t be approved. Many also use prepaid cards to have their payroll or other payments deposited onto the card. Of course, prepaid cards allow for cash withdrawals at ATMs as well.
Market is Thriving
Here’s where it gets interesting – many believed this surge in prepaid cards would be short lived once the economy began to improve. Instead, it only continues to grow in leaps and bounds. In fact, it’s believed that consumers will increase purchases using prepaid debit cards by 5.3 percent every year, eventually reaching $139.4 billion by 2017.
There could be changes, though, despite the fact prepaid cards act under a different set of compliance rules than credit cards. The Consumer Financial Protection Bureau is currently considering drawing up new rules for how these cards are marketed and the fee structures that are pushed onto the consumers who use them. Many may recall the government agency began seeking public comments this past summer. It will use the information to determine what, if anything, it should be doing to ensure consumers aren’t trampled on via high fees. Remember, prepaid cards have no limitations on swipe fees, so it’s easy for predatory companies to pass on unreasonable fee structures to consumers.
Bieber the Ambassador?
McCoy is referring to Bieber as his “brand ambassador” and we can expect to see YouTube video targeting teens with Bieber plugging the debit card. Interesting word choice McCoy used when explaining the card,
We didn’t dumb down the card or increase the fees to do a deal in the celebrity space.
Many others in the know say McCoy’s efforts avoided “pulling a Kardashian”, referring to the outrageous fee structures associated with the very short lived Kardashian Kard. For Bieber’s part, he’ll earn advances, monthly incentive compensations, royalties for every new account opened and he may also purchase at least two million shares in the company if he chooses to do so.
McCoy, before coming aboard with BillMyParents, served as president of credit cards at San Francisco-based Wells Fargo & Co.
Despite McCoy’s insistence that he didn’t want to “dumb” the card down or increase fees, you should know there are quite a few fees associated with this card, which isn’t available yet. The monthly fee is $3.95, which equates to about $47 annually. Withdrawals at ATMs are $1.50 and if you simply want to check your balance at an ATM, get ready to divvy up another 50 cents. Let your card go dormant for three months or more and you’ll be hit with a $3 fee each month. Lose your debit card? It’s going to cost another $7.95. In comparison with other similar cards, these fees are actually quite high. In fact, American Express’s version of a prepaid card, it’s BlueBird has significantly fewer fees and because it’s partnered with Wal Mart, it’s proven to be a very successful venture for both conglomerates; after all, you can’t help but walk into Wal Mart and see these prepaid debit cards ready for purchase everywhere. Bieber’s cards likely won’t be that easily accessed.
So what are your predictions for the Bieber backed prepaid debit card? Should he stick to his efforts of becoming a better performer or does he have a future in finance? Let us know on our Facebook walls or in our comments.