I suspect this is the start of their own implementation of "credit", and they're comfortable with losing some money at the beginning. In the long run, the traction they gain from the good customers could/should be worth more than the money they lose.
For the consumer, $3 on $500 is incredibly low interest.
If you could time it just right, so that your balance was $499 29 days of every month, and $0 the one day that it needs to be, the effective rate would be around 7%, a fair but not great consumer credit rate. But if your balance is often closer to zero, and you ever trigger the late fee, the effective rate becomes much, much higher.
It does compare favorably to foreign-ATM access fees.
on the late fee, you're right. but the answer there is to pay in time. not really an issue.
See also: http://www.cracked.com/blog/5-things-nobody-tells-you-about-...
More importantly, your premise is wrong:
The average credit score in the US is just below 700 (690ish iirc.) And the median is above 700. This comes from numbers from the CRAs and is supported by the stats reported by CreditKarma.com.
That is not bad credit.
How are you still getting that much?
My 2% for everything and 5% gas/groceries cards went away after Dodd-Frank. I've still got 3% Gas and dining and 2% travel with the occasional special but the rest, the majority, is only getting me 1%.
But if you have a couple cards with the normal 1% plus rotating categories deal, you can get near 2% on average.
Last I checked NASA FCU still has a 2% on everything card, and AARP has a great 5% on everything for an intro period.
FIA (nee Schwab) was my 2% on everything card but my account was sold to BofA, which changed the terms to 3% on gas, 2% on groceries, 1% on everything else. My usage dropped a lot with the sale, in part because my wife refuses to use anything BofA.
I do know that FIA (formerly MBNA) is owned by BofA, and that accounts were being switched to the BankAmericard. Not entirely sure how criteria was chosen?
For now I'm just enjoying it while it lasts.
The name is "instant".
How exactly is everyone missing the entire "instant" part of the feature.
Instant costs $3/mo, and includes the credit line feature.
But the fronting of cash isn't the ONLY feature in 'instant', and thus not the only thing you're being charged for!
I like the idea of instant transactions -- a lot. If I could use Dwolla instead of a debit card, you better believe I'd pay $3/mo to have all of my transactions post immediately.
And the instant feature would definitely be a bonus. I see it more like PayPal's instant transfer where PayPal fronts the money and then taps your bank account (which takes 2-3 days to complete). PayPal takes it a step further by covering a bounce with a credit card.
Of course, as someone else has commented, with good money management, you don't need this.