Prepaid Cards Skyrocketing in Popularity

September 11, 2012, Written By John H. Oldshue

Thanks to regulations and legislation on credit cards, banks are turning renewed attention to an old source of revenue: prepaid cards.

Prepaid cards were once the black sheep of the card family, charging high interest rates and fees to consumers with low credit scores who found it difficult to qualify for a standard credit card. Changes in the credit card industry have slashed a number of revenue sources for issuers, and prepaid cards–not covered by these recent regulations–have become a possible source of much-needed revenue. Today, competition for the prepaid market is growing, and driving down rates and fees.

Consumers loaded approximately $57 billion onto prepaid cards in 2011, and loads are projected to reach approximately $82 billion in 2012, $117 billion in 2013, and $167 billion in 2014, according to the Mercator Advisory Group.

Currently, there are no government regulations and consumer protections on prepaid cards–debit and credit card rules and regulations do not apply. But that may soon change. The Consumer Financial Protection Bureau is investigating the fees and practices of prepaid cards and seeking input on ways to enforce safety for consumers.

Many major credit card issuers have recently entered the market with prepaid cards with lower fees, including the American Express Prepaid Card and Chase Liquid. Even celebrities are getting in the market such as Magic Johnson, Suze Orman and numerous cartoon characters. Some cards have been complete busts, like the Kardashian Kard.

In November 2011, the Pew Safe Checking in the Electronic Age Project conducted focus groups to understand consumer motivation with prepaid cards. Here are some of the findings from the focus group:

* Many participants have a checking account but they are unhappy with the possible fees on their account. They would rather pay the $2 or $3 fee on a prepaid card instead of the possibility of a $35 overdraft fee on their checking account.

* Many consumers are not aware of the fees that can be levied on their accounts, or that prepaid cards don’t have the same consumer protections as credit cards.

* Many don’t want a credit option because it would be easy to overspend and use money you don’t have. They also don’t want overdraft options on the card.

* Consumers like the perceived anonymity of using a prepaid card and believe it offers better protection from fraud and identity theft.

* Even though there are many prepaid cards available, few participants comparison shopped for their prepaid cards, and just picked the card that was convenient or recommended to them.



The information contained within this article was accurate as of September 11, 2012. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.


About John H. Oldshue

John Oldshue is the creator of LowCards.com. He worked for over 15 years in television and won an Emmy award for his reporting. He covers credit card rate issues for LowCards.com.
View all posts by John H. Oldshue