Prepaid debit cards serve niche market
As consumers swipe debit cards for groceries, gasoline and other purchases, increasingly those transactions aren't tied to a traditional checking account.
Prepaid debit cards are part of a growing niche of payment methods geared toward people who don't have checking accounts, or folks who have them but still use the services of a check-cashing business.
Major names such as Wal-Mart, JPMorgan Chase and Wells Fargo are among corporate giants that are selling their own prepaid debit card services, a segment of the payments industry that could account for nearly $100 billion in buying power in 2013.
“Prepaid cards are the new hot financial product,” said Odysseas Papadimitriou, CEO of credit card comparison website CardHub.com.
Payment processors such as Atlanta's Elavon and Global Payments stand to reap revenue from each card swipe. Others, such as First Data and TSYS, make money not only off transactions but also for running the infrastructure for prepaid payment systems, said Steve Ledford, a partner with New York-based financial industry consultancy Novantas.
Reloadable prepaid cards in general — including store-branded gift cards and payroll cards — held $483 billion in 2011, double what was stored on the cards in 2007, according to Mercator Advisory Group.
Of that segment, prepaid debit cards, which generally have a Visa, MasterCard of American Express logo and include many of the features of a traditional bank account, held nearly $57 billion at the end of 2011, up from $12 billion in 2007.
Mercator projects prepaid debit will reach nearly $100 billion in stored value by the end of next year.
Twenty-nine percent of Americans have purchased a prepaid debit card for their own use, and 34 percent have bought one to give as a gift, according to polling this year by Synergistics Research.
Prepaid debit cards have been around for several years, led by companies such as Green Dot and NetSpend. But increasingly traditional banks, retailers like Wal-Mart, which partnered with American Express for a card called Bluebird, and even celebrities such as hip-hop icon Russell Simmons are pushing their way into the game. Chase introduced this year a card called Liquid, and Regions Bank rolled out Now Banking about a year ago.
For banks it's a way to capitalize on sources of fee revenue curtailed by recent federal regulations, such as a cap on the fees larger banks can charge merchants to process traditional debit purchases.
It's also a way for financial institutions to broaden their customer bases.
Liz Coyle, a spokeswoman with consumer rights group Georgia Watch, said prepaid debit cards carry benefits for consumers. For instance, they can provide conveniences of credit cards — such as online shopping — without relying on credit.
“For folks unbanked or underbanked, this can be a better solution than high-priced loans or traditional credit cards or even in carrying cash after payday,” she said.
But consumers need to do their homework, Coyle said, by paying attention to transaction fees or fees that might be charged for instance, for replacing a lost card.
A September 2012 report by the Pew Charitable Trusts found the median fee to buy a prepaid debit card was $9.95, ATM fees were $2.25, and monthly fees averaged nearly $6. The median transaction fee was $1.
Pew found that prepaid cards carry risks to consumers because of confusing fee disclosures that make it difficult to compare products. Most have from seven to 15 different types of fees.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Pittsburgh angles to keep Heinz headquarters in merger
- Michigan man takes Heinz to court over Dip & Squeeze ketchup packet
- Stop foreign dumping, U.S. Steel CEO Longhi tells Congress
- Pa. Gas & Electric agrees to $6.8 million settlement of polar vortex claims
- If you get this letter from the IRS, it’s legitimate
- Home appraisal is below sales price — now what?
- Energy Department OKs loan of $259M to Alcoa to promote clean energy
- Farmers fund research on gluten-free wheat
- Falling demand for steel not likely to reverse any time soon
- Federal Trade Commission cracks down on crooked vehicle sales
- Corporate missteps hurt reputations, profits, sometimes in long run