Four years after the financial crisis, more than a dozen of the country's largest banks have jumped into the once-niche market of prepaid debit cards, courting the millions of Americans on the margins of the banking system.
The banks, including JPMorgan Chase, Wells Fargo and PNC Bank, are tapping into the pools of consumers who don't qualify for a traditional banking account or can't afford one. They are cheaper to serve and offer a simple way to recoup the billions the industry has lost to tighter financial regulations.
These efforts offer potential legitimacy to an industry that has existed in the shadows for decades with less government oversight and a reputation for high fees. Some regulators see the market shift as an opportunity to address the growing population of consumers who have no access to the banking system.
But the industry's explosive growth, and large banks' push into the market, has left some consumer advocates worried that low-income consumers will be trapped outside the banking system without the protections inherit in traditional checking and savings accounts.
The industry needs more oversight to ensure that players in the market aren't simply profiting from low-income consumers by charging exorbitant fees, advocates say.
"Electronic cards are a good way to get people into the banking system, if they are low cost and operate similar to other accounts banks offer," said Mark Pearce, director of the division of consumer protection at the Federal Deposit Insurance Corp. "Historically, prepaid cards haven't measured up to that standard, but it has been an evolving marketplace."
Mercator, a consulting firm, predicts that Americans will put $202 billion on reloadable cards this year - a giant leap from $28.6 billion in 2009.
Demand soared as nearly 1 million households exited the banking system between 2009 and 2011, bringing the number of "unbanked" households to 17 million. Almost 18 percent of those households used prepaid cards in 2011, compared with just over 12 percent two years earlier, according to the FDIC.
Most prepaid-card holders earn less than $30,000 a year and are under the age of 35, according to Aite Group, a financial services consulting firm. They are able to add money to the cards, typically electronically, and use them as debit or credit cards.
Until recently, banks discounted the industry's potential, noting its low profit margins and high customer turnover. Prepaid customers often kept their cards active for only a few months before switching to another provider.
That changed after the 2010 Dodd-Frank reform law and other new regulations restricted the amount banks could earn from debit- and credit-card fees. Those restrictions are expected to cost banks $7 billion a year, according to Standard & Poor's, prompting some to hunt for new revenue sources.
And Dodd-Frank left a loophole. Banks could still impose high fees on merchants when consumers pay for goods with a prepaid card.
Over the next few years, banks leapt into the prepaid business - and several others - they once shunned. In 2011, U.S. Bank, the country's fifth-largest bank, began offering payday loans, while Regions Financial moved into the check-cashing business.
The biggest push was into prepaid cards. JPMorgan, the country's largest bank, entered the market last year, followed closely by PNC. BB&T, Fifth Third and Commerce Bank all recently began offering such cards.
The $57 billion prepaid industry is expected to grow at a rate of 42 percent a year from 2010 to 2014, according to Mercator.
The market is still dominated by established players, including GreenDot and Net Spend. But the large banks are gaining market share by leveraging their existing customer base, according to Aite Group.
And at a fraction of the cost.
It costs JPMorgan 40 percent less to serve its Chase Liquid prepaid-card customers than clients with a checking account, since the majority of transactions are electronic, said Ryan McInerney, the company's head of consumer banking.