PerkStreet, a prepaid card distinguished by its rewards program, has run out of capital and will shut down near the end of next month.
What follows for customers depends in part upon when they originally signed up for a PerkStreet Card. Prior to March 2013, Provident Bank issued the cards. After March, Bancorp issued the cards. Provident cards will cease to function, but Bancorp cards will still work albeit without a rewards program. In both cases, consumers will not be able to redeem existing Perk balances.
PerkStreet stood out from most other cards by its powerful rewards program. Rewards have never been a part of mainstream prepaid. In fact, rewards are pretty much contained to credit cards for prime consumers and/or to those with the right spending and
repayment profiles. Credit cards generate far more interchange for issuing banks that do debit cards. For many banks, the interchange from a high-spend balance-maintaining account holder is so great that giving back airline miles, some cash back, or some other kind of redemption is merely a cost of doing business. An airline mile is worth approximately 8/10ths of one cent, but interchange usually falls near two percent.
PerkStreet paid PERK dollars to its cardholders when they used the card to buy things. For some cardholders with unusually high balances, the rewards were as high as two percentage points.
A reader emailed me about this last week:
"I thought you would find it interesting the email I received this morning from Perkstreet Financial. It was a warning that they are closing down as of Sept. 26, 2013, and that I should move my money out of their bank ASAP. I contacted PerkStreet customer service to confirm, and was told it is indeed true. Also was informed that the $146.00 in ‘PERK’ dollars I had earned though using their debit card were, as of today, no longer redeemable."
Seeing this, I imagine that PerkStreet is losing a good customer. If he had maintained a $5,000 balance, then he had to have spent approximately $7,300 to accumulate that balance. But without a doubt, this customer is losing much of the value that brought him to PerkStreet in the first place. His $146 in Perks is worth $120 in statement credits ($20 in credits can be had for $22) and another $14 in gift card redemptions with partner retailers.
Future with Bancorp cards
Going forward, the Bancorp cards will still have an optional overdraft feature. For those that sign up, they will agree to a $32 fee for each overdraft or NSF. Customers have to opt-out from overdrafts generated by overages from online bill pay and ACH transactions.
As a perk to keep with Bancorp ex-Perk, Bancorp is going to pay 1 percent interest on the first $1,000 in account balances. This promotion expires on February 15th, 2014.
The ex-PerkStreet card will be one of the most costly cards on the market. The terms and conditions list fees that fall far outside the standard range within the industry.
PerkStreet's demise does not have to be the event that closes the door for rewards programs on prepaid cards. PerkStreet says it went under because it ran out of capital. Maybe the company was offering too much. It would be interesting to see how a rewards card translated into "stickiness" when appended to the platform of one of the national program managers.
But at the same time, prepaid does challenge some of the paradigms implicit in rewards. Rewards are very opaque and their benefits are realized only after some time. Two of the reasons that people like prepaid are for its clarity and immediacy. People like to know exactly how much their card will cost and they like to know exactly how much money they have to spend at the moment of sale.
The question remains open in my opinion. Rewards on prepaid could be a feature that draws from a base outside of the traditional market segment drawn to these cards. People with demand deposit accounts are lucky to have any kind of meaningful reward opportunity. I have a debit card offers a complicated and somewhat worthless points program good for spending at a finite set of retailers, but I have to go to their web site and sign up for the service. Unfortunately, I don't want a reward for five percent off at the Popcorn Factory or eight percent off at Richart Chocolates. Moreover, rewards probably are not going to be categorically constant. Airline miles seem overly optimistic. But discounts at Exxon or Target could be a great fit.