Prepaid debit cards carry the reputation for appealing primarily to the un- or underbanked demographics. Individuals belonging to this sector typically rely upon cash, check-cashing services and alternative financing solutions to avoid traditional bank products, such as checking or savings accounts. However, new data reveals more financial institutions are expanding their prepaid offerings to not only target underbanked consumers, but also other demographics that are seeing the merits of these products.
A recent MarketWatch report highlighted this trend – which has been adopted by several regional and national banks – as a way to extend new products to existing customers. In recent months, there has been a push by banks to offer low-cost prepaid cards that carry a more affordable fee structure to underbanked Americans. While this is the preferred payment method for many belonging to this demographic, fees relating to activation, maintenance, ATM withdrawals, balance inquiry and other services, can be high and eat into a user’s remaining balance.
Now, financial institutions are advertising their lower fee structures to more affluent and financially stable groups, and marketing the cards as a money management tool, MarketWatch reports. As more Americans reevaluate their finances and spending habits in the wake of the recession, prepaid cards have emerged as a viable alternative to credit card spending. Data from the Mercator Advisory Group reveals that the market for prepaid cards increased 20 percent in 2011 to $483 billion, and is expected to climb to $594 billion by 2013, according to the news source. Separate data reveals that affluent and educated Americans are making up a larger percentage of individuals who now utilize prepaid products.
In addition to the wealthier segment, some financial institutions are also marketing these products to college students as well. Offering prepaid cards allows institutions to build relationships with the under-21 demographic without violating the rules set by the Credit Card Accountability, Responsibility and Disclosure Act, which makes it more challenging for banks to market credit cards to these students. Young adults can cover the costs of textbooks, food and other expenses with a prepaid card without the risk of overdrawing their accounts or racking up debt. Parents may also rely on the products to send their children money for emergencies or help them learn how to manage their spending effectively.