Callahan & Associates' Blog
Off The CUFFRSS
Jan 10, 2012
Here are six reasons reloadable cards are going mainstream.
By Aaron Pugh
More By Aaron Pugh
It’s no secret that third-party prepaid cards can be a more costly option than cards linked to traditional checking accounts. Yet consumers continue to use them, citing convenience, autonomy, transparency, security, and the aspect of self-control as their main advantages.
Prepaid card use in the next few years will continue to be shaped by a number of outside variables including legal developments and moves by third party retail leviathans into the card space.
Understanding some of these factors is critical for co-operatives looking to compete through alternatives like secured cards or non-predatory prepaid options.
Prepaid users are beginning to see some types of rewards traditionally associated with credit or debit cards like points or cash back.
A growing network of partnerships between card companies, issuers, and other businesses means retail discounts and other benefits will extend from credit cards holders to the prepaid space.
Prepaids are an increasingly tempting option for youth. Updates to The Card Act in 2010 require credit card applicants under 21 to demonstrate significant income or have a co-signer, and prepaid cards are helping to fill this gap.
Prepaids provide additional security for cash reliant segments like the unbanked and recent immigrants, but habitual use can continue even as these individuals assimilate into the financial system.
A recent study by the National Council of La Raza found that more than 80% of prepaid users made fewer than $25,000 dollars a year, a common situation for recent immigrants of many cultural backgrounds. Nearly 35% percent of the prepaid cards users the group surveyed were Hispanic, and of that group, 75% also had banks accounts they used in tandem.
Look for future prepaid growth to be “driven by banked consumers" who want to divide up and budget their spending, said MasterCard’s Chief Product Officer in an interview with MarketWatch. As the cards continue to be marketed in major retail stores and carry recognizable financial names like Mastercard and AmEx, the stigma that prepaid is for poorer segments of the population will likely fade.
Newer options even include services like online banking and text alerts to appeal to more tech savvy consumers.
Individuals receiving government benefits for unemployment, Social Security, Supplemental Security, welfare, and tax refunds will increasingly receive their money in prepaid card form for cost savings.
Payroll cards are an increasing part of the business landscape as well, and these products may appear more frequently as small business owners and employees become increasingly familiar with their use.
Some prepaid cards claimed to help build credit, yet report only to agencies like Payment Reporting Builds Credit (PBRC), says Bankrate.com. This means the activity is unlikely to be helpful or meaningful in securing a future loan with most lenders.
Newer generations have begun to report payments to Experian and TransUnion, says the site, but as installments, not revolving account usage. Unless consumers are fully educated to the way this process works, they may continue to be drawn to prepaid offerings when credit union solutions could provide a better match for their needs.
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7/26/2012 04:10 PM
It was refreshing to read Mr. Pugh’s article on prepaid cards since it approached the topic with a business-like focus rather than the alarmist handwringing that some pundits embrace. Prepaid cards are already mainstream and people from all walks of life are using them for all of the reasons that Pugh lists. Thanks for the thoughtful heads up. –Marvin U. 01/14/12
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