Pre-Paid Cards Boom or Bust ?

In the United States, open loop (bank issued) pre-paid cards have experienced only moderate success. When the cards were first brought to market, expectations were of far greater success. There was a lot of hype about the benefits of the cards in meeting the needs of the “unbanked”, defined as those without direct deposit accounts.

Mercator Advisory Group divides pre-paid cards into 12 segments, including prepaid segments in 12 categories. These include payroll, travel, campus, in-store and distributed gift, transit, utilities, open money and financial services, and digital media.

Pre-paid cards are most profitable for card-issuing programs if the cards are reloaded on a regular basis. Therefore, the best application for card profitability comes from payroll or for government run entitlement programs such as social security or welfare.

Estimates are an average open-loop pre-paid card user pays $12.50 in fees each month. What card holders are charged for varies from program to program. The most annoying fee assessments are those that make card-holders pay extra for every point of sale purchase, customer service call, balance inquiries, card load, and for exceeding the amount on the card.

Card holders resent being charged fees to access their money. The old argument that cards fees are less than the costs of cashing a paper check at a check cashing establishment no longer hold water. Walmart now cashes checks for a flat $3 and loads the funds onto a pre-paid card.

It’s cheaper for a worker to use Walmart than to accept a payroll card through his place of employment. The average pre-paid card program simply cannot compete. Profits will continue to be squeezed and force many card-programs out of business.