Hard to imagine this will be lucrative earn relative to credit cards, or that people who use prepaid card as a financial tool (rather than strictly for mileage earning purposes) will find it wise to make product decisions based on United miles.
Still, the prepaid space is growing in importance and has extra runway under a Trump administration and with questions about the future and status of the Consumer Financial Protection Bureau.
Mileage-earning debit cards are mostly a thing of the past because the Durbin Amendment capped interchange rates for debit cards, it no longer makes sense to pay consumers to incentivize debit transactions. Indeed, debit cards are no longer a profit center so banks no longer compete for deposit accounts in order to get consumer debit card business. That’s a key reason why there are more hurdles to getting a fee-free checking account than there used to be.
However these limits do not apply to prepaid products and while there may not be huge crossover between the unbanked Americans and frequent flyers, travel remains aspirational and motivating of consumer behavior. And the prepaid space is ripe for increasing investment in rewards. So it’s not entirely surprising to see.
What may even seem like a good business on paper doesn’t always translate in practice, American Express’ Bluebird product should have revolutionized finance for a huge swath of people. It didn’t turn out to be nearly as successful as it should have been, using interchange on prepaid cards to fund what was effectively a bank account for people without access to traditional banking services.
Nonetheless, United is behind in new co-brand credit card member acquisition. And there are risks to the lucrative co-brand business as technology competes down interchange. It’s wise to experiment with new markets.