Driver of Choice? The Cost of Financial Products for Unbanked Consumers

This paper examines whether some of the unbanked consumers' choice of general purpose reloadable (GPR) prepaid cards over checking accounts and alternative financial service (AFS) products can be explained by the cost incurred by those consumers. We compare the three types of products by constructing consumer models based on the actual behavior of GPR prepaid cardholders and applying those models to the fee schedules of actual products offered in the market. Overdrafts are a major factor affecting the cost rankings. For consumers who regularly or occasionally overdraw their accounts, checking accounts are more costly than GPR cards or AFS products. In contrast, for consumers who do not need overdraft capability and short-term credit, GPR cards are more costly than checking accounts. The cost difference across the products clearly explains the former type of consumers' choice of financial products, while it does not explain the latter type of consumers' choice