One of the fast growing trends in the credit card industry is prepaid cards and gift cards.Facts:
By 2009 industry experts expect there to be more than 50 million prepaid cards in use.
Forces that are driving the prepaid market include:
– people who have no banking accounts (about 80 million people in the USA)
– they replace cash transactions and travelers cheques
– brand loyalty (such as a department store prepaid card)
– money remittances
To date there is over $.5 trillion USD loaded on some form of prepaid cards
Prepaid cards are commonly called stored value cards
Why use prepaid cards???1. Teen spending cards – these are good mechanisms for teaching children about credit. While the traditional prepaid card does not affect credit (unlike a secured credit card where you put money up front when you receive the card) it still is a useful mechanism to teach money management.
For example, if your teenager leaves for college, you may consider giving him or her a prepaid card with some pre-determined amount of money. This could be all the money for a semester and your student could be responsible for managing the budget, checking balances on the prepaid card, etc. Plus, you get the look and feel of a real credit card.
2. Travel cards – now all major networks offer acceptance of prepaid cards. In many cases they carry the same protection as travelers cheques. If you remember the old commercials about American Express traveler cheques – the ease at which they are replaced if lost or stolen – same principle.
3. Anonymous – prepaid cards are a good way to remain anonymous when doing transaction. There is not the same customer information that follows a traditional credit card. The end user may be less affected if some form of fraud strikes, for example, lets say your prepaid card number is compromised, the most you are ever out is value of the prepaid card itself. Plus, there is not exposure to your sensitive personal information.
Look who else is entering the prepaid card arena ….Wal-Mart is now selling prepaid VISA debit cards that will allow millions of low-income shoppers who do not have bank accounts to now participate in cash-less shopping with the convenience of plastic.
Wal-Mart will add a number of in-store centers to handle the new prepaid segment as well as payroll check cashing and money transfers.
The FDIC (Federal Deposit Insurance Corporation) estimates that some 40 million American households are “un-banked” or “underbanked” meaning that they do not have even a checking account an any type of financial institution.
One of the big drawbacks of prepaid cards is the fees that are generally associated with them. Some of the common fees that may be associated with a prepaid card include:
– Initial purchase or loading fees
– Monthly maintenance fees
– Reload fees (if you want to place more money on the card)