Prepaid Debit Cards Growing in Popularity

Las Vegas Review-Journal
August 12, 2012
Sieroty, Chris

More large, traditional banks are entering the prepaid debit card industry, a business once dominated by alternative financial services companies. The amount loaded onto prepaid cards is expected to reach $81.8 billion in 2012 and $116.9 billion in 2013, predicts the Mercator Research Group. Mainstream banks like J.P. Morgan Chase and Wells Fargo are seeking new revenue sources to offset recent federal regulation that restrict fees on other consumer loan products. The Durbin Amendment, part of the Wall Street Reform and Consumer Protection Act of 2010, reduced the interchange fees that banks can charge merchants when a consumer uses a debit card. Many types of prepaid cards are exempted from these rules, however, and still earn higher fees from merchants. American Express is also using prepaid cards to broaden its customer base, partnering with companies like Target Corp. to offer prepaid cards in stores. More consumers are using prepaid cards because they can be used for transactions beyond basic purchases and ATM withdrawals. With some prepaid cards, customers can avoid traditional checking and saving accounts but still use services like online bill pay and paycheck direct-deposit. Javelin Strategy & Research found that 13 percent of U.S. adults used prepaid financial services in 2011, up from 11 percent in 2010. That gain has come with a decline in the use of traditional banking services. Javelin also found that 88 percent of consumers maintained checking accounts in 2011, down from 92 percent the year before. Because they are a relatively new financial product, prepaid cards have little regulation; and many customers complain about the fees attached. However, the Consumer Financial Protection Bureau is looking into possible regulations to make fees and terms of these cards more transparent.
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