Suze Orman got into some hot water for her exchanges with bloggers on Twitter. Suze Orman launched a prepaid debit card. Bloggers correctly pointed out it’s not good. Suze defended herself by calling a blogger idiot. She later had to apologize. If you haven’t heard abut this saga, you can get a recap from A Sorry Suze Roundup at JoeTaxpayer.
I think bloggers are too worried about the success of Suze Orman’s The Approved Card. If Suze markets this card to the mainstream, who have access to free debit cards from their bank accounts, she won’t be successful. People are not that gullible. Well if people are, that’s a different problem.
Of course Suze Orman’s prepaid debit card isn’t a good product for most people. It’s too obvious a prepaid debit card doesn’t come close to what you get from a bank account. Some may use it occasionally for gifting but that’s about it. People are not going to replace their bank accounts with Suze Orman’s The Approved Card no matter how hard she pushes it.
There are primarily three markets for prepaid debit cards: (1) rebates and rewards; (2) gifting; and (3) the unbanked and underbanked.
Companies issue prepaid debit cards as rebates and rewards because they can get breakage and swipe fees. See More Hurdles and Breakage in Rebate Prepaid Debit Card. Suze Orman isn’t in this market.
People buy prepaid debit cards as a gift because a card looks nicer than cash or a check. They are OK with the purchase fee. Some use prepaid cards for kids’ allowance. Instead of giving a kid cash, parents put money on the kid’s prepaid debit card. Suze Orman’s The Approved Card has some appeal in this market, but she isn’t targeting it specifically. "Teach your teens financial responsibility" is last on her list of 9 reasons for choosing this card.
The real market for prepaid debit cards is the unbanked and underbanked.
Who are the unbanked and underbanked? I dug out from my bookmarks this report from the Federal Reserve Bank of Kansas:
It’s a 15-page report. There’s also a shorter 3-page executive summary but you should really read the full report. It’ll be an eye-opener. According to the report,
"[U]nbanked individuals are individuals who do not have a checking or savings account. Underbanked individuals have a checking or savings account at a bank or credit union, but use nonbanks for financial services such as check cashing, money orders, bill payment, remittances or borrowing."
There are 30 million such unbanked and underbanked households. It’s not a small fringe. They make up 25% of all households nationally.
Why don’t they have a checking or savings account? Why do they have an account but not use it as much? What do they do when they don’t have a bank account or don’t use it as the rest of us? It’s a world that we aren’t familiar with.
They don’t have a bank account because they don’t have enough money left at the end of the week to make it worthwhile to keep a bank account. When your balance fluctuates near the zero line, you will be hit hard by overdraft fees. New laws made some changes to debit card overdraft, but checks and ACH can still create overdraft as they did before.
They don’t use banks because they find retailers more convenient for cashing checks and paying bills. If you read the report, you will see the unbanked and underbanked actually have a very sophisticated system for dealing with what they’ve got. That system works much better for them than using a bank account. We don’t use that system because we are not dealing with the same situation.
A prepaid debit card is not for you and me to replace our bank accounts. Besides gifting or giving money to kids, a prepaid debit card is for those who don’t have or use a bank account — the unbanked and underbanked. I don’t suppose they read personal finance blogs. So bloggers really don’t have to worry about readers being suckered into a prepaid debit card.
Will Suze Orman be successful in the unbanked and underbanked market? Maybe. It will depend on how her product appeals to that market. She already has some established competitors like the retail giant Walmart. If she doesn’t win by delivering value to the market, the card will just die. We don’t have to worry about it.