Not so long ago, MasterCard would require its member banks to obtain an official opinion letter from a third party if you claimed funds held in prepaid accounts were FDIC insured. I learned this as a result of checking the little box next to the question 'Will funds be held in individually insured customer accounts?' in MasterCard's Special Issuers Application.
During the wild, wild west days of pooled accounts and easy MSP registration, to claim FDIC coverage was significant. It was a way to set yourself apart from majority of products in the marketplace. Thinking back, it did make sense to seek an opinion because of how prepaid accounts exist outside of the bank's core DDA system. In prepaid or 'Stored Value', a Third Party Processor holds individual accounts and coordinates the aggregate balances with a single DDA at the issuing bank.
On November 13th the FDIC published their official position on coverage for prepaid. Ed Kountz of Jupiter Research writes on the Positive News in Prepaid. This marks an important time for prepaid fanatics as the gray areas responsible for both innovation and failure sharpen up. On the flip side of positive, it will be interesting to see how product innovation is affected as prepaid starts to walk and talk like a DDA. Hopefully we don't lose too many bells and whistles. Do your duty - hug a regulator.
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