Using measures of deposit inflows, fees paid, and other variables, onto checking accounts, Bézard concluded that non-sufficient funds (NSF) and overdraft fees, create opportunities for prepaid cards to displace a substantial number of checking accounts.

Bézard examined three data sources to reach his conclusion: an analysis by Lightspeed Online Research Inc. covering twelve months of statements from 1,915 checking account holders; data from 8,140 prepaid card account holders over the same 12-month period supplied by a major prepaid card provider; and a November 2008 Federal Deposit Insurance Corp. analysis of bank overdraft practices.

According to the Aite, prepaid debit cards are not inherently cheaper than checking accounts as prepaid debit cards tend to pay a higher portion of their deposit inflows in fees than checking account holders do.  The median prepaid card holder pays 3.5% of his or her deposit inflows in fees, compared with only 0.4% for the median checking-account holder, and the average for a prepaid card holder is to pay 4.8% of deposit inflows in fees compared to 2.4% by the checking-account holder.

Bézard believes that it is in consumers' best interest to switch to prepaid cards.  Because prepaid card fees tend to be fixed-fee, the more value that is loaded onto them, the less expensive they become to use compared to checking accounts. Some 14% of checking-account holders pay 4% or more of their deposit inflows in fees.  Individuals in that group stand to gain substantially if they switch to using prepaid cards, with Aite estimating the average annual savings at $720.

If 14% of checking account holders switch to prepaid, the banking industry could lose in fee revenue up to $20.3 billion, Aite estimates. If banks themselves offered prepaid cards they would likely generate $11.9 billion in prepaid card revenues, leading to a net loss in revenues of about $8.7 billion, assuming equal deposit inflows and no fees beyond the typical prepaid card charges.

Effecting such a market change would not be easy, Bézard writes. The challenge is to get more people to use prepaid debit cards, and get consumers to adjust their behavior.

NetSpend Corp. and Green Dot Corp. claim to be making headway in convincing consumers to use prepaid cards, according to the Aite report. Banks could help serve the market better by not only boosting their prepaid card offerings, but also by offering cheaper alternatives to payday loans. Bézard notes that Wells Fargo & Co. launched its Direct Deposit Advance product in 1997, but very few banks offer anything similar.  The report estimates banks could earn $3.6 billion in fee income from payday-loan alternatives, based on 2009 market figures.