Get Ready For A Spike In Prepaid Card Sales

Credit Cards

Photo: Flickr Andres Rueda

The use of prepaid cards has been growing dramatically, attracting even American Express into the arena.Last year saw a spike in prepaid card use of 35 per cent over 2009, and the future is very bright due to customer pushback against a variety of rising bank fees and overdraft penalties.

The Mercator Advisory Group predicts that consumers will amass $525 billion on their prepaid cards by 2012, making it a very attractive market even for American Express, which normally targets a more affluent customer base.

Dan Schulman, group president for enterprise growth at Amex, in an interview with Bloomberg, said, “More and more, people will probably move toward prepaid cards as a substitute” for debit cards as a result of recent regulatory changes that will force debit cards issuers to cut back on their reward programs.

He added that the prepaid industry saw one billion transactions last year, and “we think it will grow even more quickly as a result of the recent legislation.”

The prepaid card business has been burgeoning for a multitude of reasons.

Prepaid cards can be used to pay bills and purchase goods at any store that accepts a debit card. Also, with this card, users do not have to worry about overdraft fees. These cards are very convenient for users and, for some, are a handy substitute for a traditional bank account.

Retailers, like Wal-Mart, are benefiting tremendously from the prepaid card industry. Wal-Mart receives 66 cents for every prepaid card they sell. And retailers who sell prepaid cards usually find that customers will use those prepaid cards at their stores.

Though fees for some prepaid cards can rack up rapidly, American Express’ prepaid card users do not have to worry about this matter. American Express senior vice president of product development and marketing for global payment options, Laura Kelly, noted that Amex’ prepaid card does not charge monthly fees or activation and balance inquiry fees.

There is also no charge for online purchases, or when customers reload the card using deposits in a savings or checking account. There will be a fee, however, for customers who add to their prepaid card balance with cash. If the card is lost or stolen, users will not have to worry about paying for fraudulent charges and there is no cost to receive a replacement card.

Some prepaid cards charge up to $4.75 for reloading money onto the card in the store and $2 for withdrawing money at the ATM. But based on consumer desire for these convenient cards, this is a price that consumers have been willing to pay.

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