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New competition for the unbanked

Kmart shoppers can avoid a $3.95 activation fee when they sign up online for the retailer’s new reloadable, prepaid MasterCard, but those who do so will need to remain vigilant to avoid other fees.

Kmart’s new card is offered under the Halogen brand, and it offers unbanked individuals some advantages. For example, cardholders will have access to free ATM withdrawals at a nationwide network of more than 20,000 ATMs. That’s 2,000 more than Bank of America promotes on its website. In addition, there is no monthly maintenance fee as long as certain requirements are met and cardholders can have their paycheck, a tax refund or government benefit check directly deposited on the card at no cost.

“Kmart's Halogen Reloadable Prepaid MasterCard is a great money management solution for customers seeking an alternative to cash, credit or checking accounts,” said Jai Holtz, vp of financial services for Sears Holdings, parent company of Kmart. “With the introduction of the Halogen Card, we’re giving our customers a smart, convenient and safe way to manage their money and gain control over their personal finances.”

Prepaid cards are a viable financial solution for individuals who, for whatever reason, don’t use services offered by traditional banks or credit unions. However, such products typically contain a range of fees that kick in under certain circumstances and can add up over time if cardholders aren’t careful.

For example, Kmart touts a zero activation fee for online sign up, but loading funds onto the card requires a visit to a store where a $3.95 is incurred. Conversely, it costs $3.95 to purchase the card in the store, but there is no charge for the initial loading of funds. The fee for the subsequent reloading of funds in store is $3.95, whereas direct deposit is free.
In addition to the reload fee, cardholders who don’t load at least $1,000 a month on the card or complete at least 30 qualified debit transactions incur a monthly account service fee of $5.95. Cardholders also face the prospect of a $2.50 ATM fee if they stray from the extensive MoneyPass network of ATMs.

For cardholders who meet the deposit or usage requirements and stick with network ATMs the Halogen card is a low cost and viable alternative to a traditional bank. Fees add up more quickly for those of limited means who don’t meet the $1,000 minimum deposit threshold or use the card sparingly and occasionally tap an out of network ATM.
For example, an individual who loads the card weekly but not with enough money to hit the $1,000 fee avoidance threshold or who uses the card sparingly would be looking at a total of $21.75 in fees to load the card four times. If they access an out of network ATM to check their balance (50 cents) and then used the same ATM to withdraw funds ($2.50)  twice a month they would be looking at $6 in ATMs fees on top of the $21.75 in account fees for a total of $27.75. Over the course of the year an individual who used the Halogen card in the manner described would spend $333 in fees, whereas the card is virtually fee-free to those who pay close attention to the fine print.

“This program is another way Kmart is providing its shoppers with increased value,” said Ron Hynes, group executive, global prepaid, MasterCard. “The flexibility to load money - from their job or benefits - combined with the immediate access to use those funds in-store or online, delivers greater convenience over cash and checks.”

The Halogen card was developed with Green Dot Corp., MasterCard and Synovus Bank. The card is issued by Synovus Bank and serviced by Green Dot.