GPR Savings Features Could Benefit Lower-Income Cardholders (Sept. 9, 2015)
GPR cards with savings features could help lower-income cardholders set money aside for unexpected costs and learn better overall financial habits, a new Boston Fed report suggests. Saving for a sudden financial shock is especially important for lower-income consumers, who have less of a financial cushion to fall back on—and may not have access to a traditional bank savings account at all. An earlier Boston Fed study found that 49 percent of consumers with annual household income below $25,000 owned a GPR prepaid card, making GPR an effective vehicle for offering savings to that demographic.
In late 2011, nonprofit financial services provider Doorways to Dreams (D2D) teamed with financial services technology company Banking Up to pilot a free, noninterest- bearing saving account on Banking Up’s Upside Visa prepaid card. After nearly four years, the results of the pilot show that 16.5 percent of cardholders used the so-called “Rainy Day Reserve” feature, with a total of $14 million saved. Several existing prepaid programs—including NetSpend’s platform and American Express’s Serve and Bluebird—also offer savings functions.
“[W]hen financially vulnerable consumers are offered a product that meets their needs—easy to access, simple to use, framed for a specific use like emergency savings—they will save more,” said Timothy Flacke, executive director, D2D. “For those without traditional savings accounts, having the opportunity and ability to securely set aside funds allows them to better manage unexpected expenses.”
The next step is to leverage mobile functionality to help encourage healthy saving and spending habit, according to the Boston Fed, which has partnered with D2D, the Center for Financial Services Innovation, and several private-sector entities to producing additional research on GPR-linked savings. For instance, mobile messaging at the POS could help a cardholder decide against making an unbudgeted purchase or remind him to deposit extra funds into the saving purse, the Fed noted.