Prepaid Debit Cards Becoming Popular Alternative
As debit cards continue to replace checks and cash as the most popular way to purchase goods and services, more consumers are turning to transactions not tied to traditional banking accounts.
Birmingham-based Regions Financial Corp. jumped into the fray a year ago, rolling out a product it calls Now Banking.
Mega discount retailer Walmart and large banks Wells Fargo and JPMorgan Chase have also begun selling prepaid debit cards as they seek to be a part of an industry that experts estimate could add up to $100 billion in purchases in 2013.
It’s a national phenomenon, as reloadable prepaid cards, including store-branded gift cards and payroll cards, added up to $483 billion in 2011, double what was stored on such cards four years earlier, according to Mercator Advisory Group.
Prepaid cards are more popular with the unbanked who don’t have checking accounts, but a growing segment of the general consuming public is turning to them as well. Parents are turning to prepaid cards for their kids in college or on family vacations, and many middle-income folks are using prepaid cards as an alternative to cash.
Some consumer experts say prepaid cards provide a valuable service by providing the conveniences of a credit card such as online shopping without relying on credit. But consumers need to be aware of the costs of such cards.
According to a September 2012 report by the Pew Charitable Trusts, the median fee to buy a prepaid debit card was $9.95 and the mediation transaction fee was $1. In contrast, ATM fees were $2.25 and monthly fees averaged nearly $6.
One advantage of prepaid cards is they can help control excess spending as users are limited to the amount loaded on the cards.