Prepaid card use set to rise
May 17, 2013

Prepaid cards aren't new concepts. They've been around for quite some time, and numerous celebrities have placed their faces on them within the past few years. However, a recent survey found prepaid card accounts are on the rise and increasingly considered a viable alternative to a traditional checking account. Companies utilizing electronic payment solutions to accept credit card payments may see an increase in the number of consumers carrying prepaid cards in the near future. 

Consumers prefer options 
In recent years, prepaid cards have received criticism for their transaction processing fees, but data from Javelin found more than 13 percent of consumers own a prepaid card. Javelin released a new report titled "Checking vs. Prepaid: Threat or Opportunity?" on the prepaid card market. The study researched financial institutions and surveyed more than 11,000 consumers over the past year. 

The report noted customers gravitate to the payment option as an alternative to traditional banking accounts. After comparing the two options in a baseline scenario, the study found prepaid accounts offer lower monthly fees on average. Traditional banking fees were an average of $8.84 while prepaid card fees were $6.89. The nearly $2 difference a month may be enough to convince many consumers to utilize prepaid cards. The study found overdraft fees for banking accounts to be one of the main reasons for the pricing difference.

According to the report, the prepaid purchase volume is expected to reach $150 billion this year and may increase at a compound growth rate of 5.56 percent in the next five years. 

Payment method gets banks' approval
Banks already capitalize on this rising trend by issuing their own prepaid cards.

Aleia Van Dyke, a payments analyst for Javelin, said banks are using prepaid cards to encourage consumers to open a checking account.

"Banks … are using prepaid accounts to rebuild reputations and relationships with the underbanked, and it's a product that won't make the customer dig into their wallets to pay for," Van Dyke said. 

By entering the prepaid card market, banks are set to drive consumers to use plastic more often. On the retailers' end, accepting prepaid cards is no different than debit or credit cards. Small- and medium-sized businesses do not need to integrate new technology for consumers to pay with preloaded cards. As it becomes more affordable for customers to use plastic at the point of sale, SMBs may see more consumers purchase products with prepaid cards. 

Nexus: G-WEBCD1