Prepaid debit cards and banking intention

Abstract

PurposeThis study examines the relationship between prepaid debit card use and the intention to open a bank account within twelve months. The Transtheoretical Model (TTM) of Behavior Change helped to conceptualize one's stage in the process of changing from unbanked status if desired. The Theory of Planned Behavior (TPB) provided a framework to examine factors that influence banking intention. Prepaid debit card use is considered a social norm as it is a popular alternative to banking, and these accounts have increasingly mimicked bank account features in recent years.Design/methodology/approachThree in-depth focus group interviews with low-income respondents were first conducted in 2012, which revealed a prolific use of prepaid debit cards. Most participants had previous banking history, and despite negative experiences, some requested information about banking terms and “free” banking. These themes and previous studies informed a TPB-based biprobit model, which was estimated using data of an unbanked sample from 2013, 2015 and 2017 waves of the US Survey of Unbanked and Underbanked Households.FindingsThough there was banking interest in the focus groups, no significant empirical association was found between recent prepaid debit card use and banking intention. Going deeper with another sample, we found that current cardholders were equally likely to have become recently banked or to be long-term unbanked but less likely to be long-term banked. Also, factors such as a more recent relationship with banks, use of other alternative financial services for transactions and credit, smartphone ownership, and trust increase banking intention.Research limitations/implicationsThe main limitation of the study is the cross-section quantitative data. Future research may track banking status over time, particularly as financial technology (fintech) evolves with alternatives that may influence banks and customers to adapt.Practical implicationsTo compete with “leapfrog” fintech banking alternatives, bank managers should consider utilizing customer segmentation to target “at-risk” customers and former customers with products and terms tailored to meet their banking needs. Banks can also tailor digital products to capture markets in banking desserts through mobile phones.Originality/valueThis mixed-methods study is unique in that it builds on insights from earlier in-depth interviews with real unbanked groups to examine a trend in prepaid debit card use and the impact on banking interest.