The use of prepaid cards as a payment method has grown exponentially over the past decade. This alternative form of payment eliminates the need for a bank account, because funds are connected directly to a card. Unlike other types of cards that require a credit check, income verification, or bank account, prepaid cards are more easily accessible. They serve as a substitute for traditional bank accounts, and are widely used in retail stores in the form of gift cards, e-commerce, and other platforms.
In 2003, prepaid cards were used for 800 million transactions worth $20 billion. By 2012, more than 9 billion prepaid card transactions were made, totaling $220 billion. The number of prepaid cards being used continues to grow in the world of credit card processing, as many users embrace prepaid cards as a way of avoiding debt or bank overdraft fees.
Millennials and Gen Xers are debt averse, and this behavior is driving prepaid cards’ popularity as a growing trend. They accounted for 80% of U.S. prepaid card users in 2013, and the number of users will continue to grow.
Prepaid cards also cater to those with no bank account or limited access to banking services. Since so much payment processing is being done online, it is necessary to have a convenient way for people without a bank account to pay. Prepaid cards broaden payment access for these individuals, and anyone looking for alternatives to traditional banks.
Prepaid cards offer many benefits to banks and credit card processors. They can include activation, reload, & maintenance fees, and even a per transaction fee, all of which goes to the issuing bank. Since they carry the widely-accepted Visa and MasterCard logos, merchants can process them using the same processor they use for network-branded credit or debit cards, and come with the same processing fees.
As this segment of the market continues to grow, merchants and banks will need to continue to expand their offerings to meet demand.