Consumer Interest in Prepaid Cards Continues to Grow
Traditional banking costs and lingering distrust of large financial institutions have led consumers to explore prepaid cards, according to a report from financial-services provider InComm.
At the same time, financial institutions are emphasizing prepaid offerings as regulations are limiting checking account profits.
As consumers turn to alternative cash-management tools, they’re swapping traditional checking accounts for prepaid cards.
According to a Nilson report, the top 50 largest U.S. banks and credit-union issuers of general purchase prepaid cards accounted for $118.09 billion in spending at merchants in 2013, up 6.1% from the previous year.
Meanwhile, Mercator Advisory Group said the amount of money loaded on general-purpose reloadable prepaid debit cards almost tripled from 2008 to 2013, rising to $76.7 billion. Mercator predicts that number will rise to $168.4 billion by 2015.
More indicators that deposit accounts are losing sway and several emerging services driving the trend:
- Once geared toward the under-banked, prepaid cards are replacing demand-deposit accounts for many consumers.
- The Federal Reserve's 2013 payment study showed prepaid-card transactions growing at 36.1% compound annual growth rate vs. 9.3% and 9% for credit and debit cards, respectively.
- Relatively new services such as direct-deposit and mobile-deposit card loading are expected to further accelerate prepaid card use.
There are four primary usage patterns for prepaid, according to a 2014 report by Alina Comoreanu. They are:
- An alternative to a checking account
- A tool to give your child their allowance
- An alternative check-cashing tool
- Provide access to electronic transactions
Here’s a look at how prepaid cards are being used and by whom.
Source: Aite Group survey of 1,242 U.S. consumers, Q2 2013