Prepaid Cards Get a Savings Account

It’s been very common to say that prepaid cards resemble checking accounts more and more. From issuing checks to setting up bill pay, there’s little difference between these cards and checking accounts.

Now, prepaid cards can offer savings accounts, too.

CorePro was introduced today. The product from Social Money, a startup that offers various white-labeled banking products, is an API-driven savings account that is FDIC-insured and costs the issuer — meaning the company issuing the account — $0.39 a month per account. The account features goals and goal management similar to those in Social Money’s SmartyPig product.

The product will remain in closed beta for three months and will be available to the public in Q1 2014.

The knock against savings accounts has been that they are difficult to set up, subject to regulatory complexity, and expensive to maintain, not to mention that with interest rates so low, they don’t earn consumers much money. CorePro looks to solve the first three of these problems for prepaid companies, PFM solutions, payroll companies, startups and merchants with clear and simple pricing.  Merchants could employ the product for wishlist functions, as well as layaway programs.

Any company that wishes (and that passes Social Money’s vetting process) can now offer a savings account relatively cheaply and easily.

Jim Shanahan, managing director at Market Platform Dynamics, sees little value in a savings account for prepaid customers. “The opportunity for that [CorePro] will be in checking replacement products,” he said. “The FDIC data shows a minority of prepaid customers have savings because they have no money to save. As interest rates rise and the prepaid market expands beyond the underserved, it may see more adoption. People have other saving options, and prepaid accounts make it relatively easy to move money around, so a hardwired feature just doesn’t have that much attraction.”

To help solve the complexity issue, Social Money says there are seven relationships that it will manage for its customers: bank affiliation, core processing (including ACH), interest accrual and payments, electronic submission of 1099’s to the IRS, and all customer account opening procedures. In terms of expenses, the product’s press release says it will cost just 25% of what other savings solution cost per customer.

For the product to work, CorePro will need to get the word out to its potential customers. There are challenges to marketing an API-only solution. How do you make a block of code cute or sexy? CorePro wants to be thought of like Stripe, so it will follow Stripe’s approach. “We’ll be using a different marketing strategy than we used with SmartyPig,” said Social Money founder Mike Ferrari. “We don’t have the social and viral tools that we used.” Instead, the product will be targeted at developers and the fintech community, which means doing things like meetups and participating in hackathons.

“It’s always exciting with an API, to see what people build on and say to them, ‘Now go be creative!'” Ferrari said.