Following the resounding success of its prepaid Synovus Connections Card in the trial markets, Synovus Bank, a unit of Synovus Financial Corporation (SNV), announced the launch of the card at all its branches. This card is an alternative to a checking account for convenient payments.
The card will be particularly appealing to customers paying check-cashing fees if they do not have a checking account. Also, the bank will not charge for reloading this card.
This prepaid card also offers other supplementary benefits like enabling the customers to make purchases from stores where Visa Inc. (V) cards are accepted and obtain cash back during such purchases. Further, customers can withdraw money from ATMs as well as use it for online or phone purchases.
Mainstream banks have been hit hard by the current sluggish economic environment coupled with new regulations. Thus, they are looking for alternatives in an effort to improve their financials.
With the implementation of the Durbin Amendment, the prepaid cards have become a beneficial entity for banks. This amendment compelled the banks to charge merchants with lower fees when their customers pay through debit cards. However, this is not applicable on prepaid cards, thus allowing banks to impose comparatively higher fees on merchants if payments are made through these cards.
Synovus has recorded lower non-interest income compared with the prior quarter, mainly due to various financial regulations. Hence, we can conclude the aforementioned measures were taken by the company to augment its non-interest income and to gain market share in the rapidly growing market for prepaid cards.
Synovus currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Also, considering the fundamentals, we maintain our long-term Neutral recommendation on the stock.
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