RBC looks to market prepaid benefits cards

Bank teams up with Edmonton firm to get governments to replace cheques with debit cards


TARA PERKINS
FINANCIAL SERVICES REPORTER
March 26, 2008


Royal Bank of Canada wants to cash in on the growing appetite for prepaid cards by marketing electronic benefit cards to governments across Canada, a development that could take a bite out of the cheque-cashing businesses. RBC, the country's biggest bank, has been working with a young Edmonton-based company, Pay Linx Financial Corp., to develop a card that allows government benefit payments to be doled out on prepaid cards rather than cheques.
The cards have been tested in a pilot project with the Alberta government, which has been experimenting with offering social assistance payments on them. Recipients who choose to receive their payments on a prepaid card can use them at any store or bank machine that accepts debit cards.


The cards will likely be offered province-wide this spring, said Dorothy Schreiber, a spokesperson for Alberta's ministry of employment and immigration. "Some people would take their cheques to cheque-cashing places and be charged a high fee," she said. "With the card, they get all of their cheque." Prepaid cards are a relatively new stomping ground for Canadian banks, and both RBC and Pay Linx are putting their creative talents to use to develop new ways of using them, such as insurance payments, corporate bonus programs, and travel cards.
"People have started to put their toe in the water in this space," said Anne Koski, head of card innovations at RBC. The total potential market for prepaid cards in Canada exceeds $100-billion while a more realistic figure is $35-billion to $50-billion, she said. The U.S. market is already about $157-billion, she said. "It's a different business," she said. "Like all things Royal Bank, we like to take a look at things a long, hard way before we decide to move forward."
RBC first took notice of Pay Linx in early 2006, when the Alberta pilot project was getting under way, and last year the bank bought 25 per cent of the TSX Venture Exchange-listed company. Yesterday, the companies announced a deal for RBC to provide the benefit cards, which it is now pitching to governments. "We're in the process of talking to pretty much all of the governments across Canada about this new capability that we'll be able to offer," Ms. Koski said.
Bank of Montreal recently launched a prepaid travel Mosaik MasterCard, a type of hybrid between a credit card and a traveller's cheque. A spokeswoman for Toronto-Dominion Bank said yesterday that prepaid cards are "a market we are interested in, but nothing to report at the moment." So-called "closed-loop" prepaid cards, such as those that are issued by retailers to be used in their own stores, have already taken off exponentially, Ms. Koski said. "But one of the other trends that's been happening primarily in the U.S., but also in other parts of the world as well, is the growth of what are called open-loop prepaid cards," she said.
While the cards are often branded Visa or MasterCard, in Canada they can also be done with Interac, a national payment network for debit cards. "That was where we've decided to focus our attention first," Ms. Koski said. While Ms. Koski's already dreaming up a myriad of uses for prepaid cards, the bank is focusing on this government offering for the moment.
"We're hoping with this card program that consumers will end up getting more of the funds that the government's allocating as opposed to paying fees to a cheque-cashing outlet," she said.
One of this country's largest cheque-cashing businesses, National Money Mart Co., charges a 2.99-per-cent fee plus a $2.99 item fee for cheque cashing, according to its website. Money Mart is owned by Nasdaq-listed Dollar Financial Corp. of Berwyn, Penn., and has more than 400 outlets in Canada. It could not be reached for comment yesterday. There are other savings with the cards. According to Ms. Schreiber it's been estimated that the average cost of issuing a cheque (including the salaries and administrative work involved) is $25 to $60, while the average cost of the prepaid cards is $16.62. Ian McNeill, Pay Linx founder and chief executive officer, said the firm is also working with High River, Alta.-based Western Financial Group on corporate programs, and will be announcing a relationship with another bank shortly