Prepaid credit cards.

Discussion in 'Economics' started by ARogueTrader, Nov 29, 2003.

  1. In chat last week, marketsurfer was being critical of an ad on CNBC that offered entrance into the pre-paid credit card issuing business.

    Looking at the facts, he may be quite wrong in his analysis.

    Prepaid cards now join the lexicon of plastic right along credit cards, secure credit cards, ATM cards, revolving charge cards, and debit cards....each having their own unique properties.

    Prepaid cards help users toe the line

    By Nicole Reino

    November 29, 2003

    As the holiday shopping season gets started, microchip-embedded "prepaid cards" are becoming an increasingly popular option for shoppers concerned about staying within budget.

    The cards look like credit or debit cards – bearing the logos of the major credit card companies – but they act as cash. Like a debit card, prepaid cards are a "pay-as-you-go" form of plastic.

    However, unlike with debit cards, the funds don't come out of the user's checking account. Instead, cardholders choose how much money they want to "load" onto a card.

    Prepaid card volume is expected to reach $71.5 billion by the end of this year, up 31 percent from 2002, according to the Nilson Report, a trade journal for people who work with consumer payment systems.

    Researchers expect that number to reach $225 billion by the end of 2020.

    Visa prepaid cardholders have spent nearly $1 billion with the cards this year, said Kenny Thomas, director of corporate relations for Visa USA Inc.

    "We see that number reaching $50 billion in three to five years," Thomas said.

    Big reasons for using the cards include keeping a cap on spending and avoiding the accumulation of debt, according to a survey by Coinstar, a company whose machines in grocery stores let shoppers get rid of loose change.

    Coinstar's machines dispense vouchers that stores can exchange for cash or groceries, but the company also gives shoppers the option of receiving a prepaid card.

    "When prepaid card users reported their reasons for using the card, their No. 1 reason was avoiding interest," Coinstar Inc. spokesman George White said.

    A survey by American Bankers Association showed that 21 percent of banks that issue debit cards also offer prepaid cards, compared with 8 percent in 2002.

    Some of the cards carry charges that kick in if the card isn't used up within a specified period of time.

    With a prepaid card, there's no monthly bill – although some prepaid cards come with a monthly statement that shows cardholders their spending activity.

    Each kind of prepaid card comes with its own stipulations. With some versions, the card itself must be purchased. With others, the card is free. Consumers can load as little as $20 and as much as $5,000 onto a card. Some can be reloaded.

    "We've seen a tremendous growth over the last three years," Thomas said.

    Demand is driven by convenience and versatility, he said, adding that 57 percent of prepaid card users buy them for holiday use.

    Credit card companies say prepaid cards help individuals monitor their spending habits.

    Some shoppers aren't convinced. "That's not something I'd use, because I budget my money wisely," San Diego resident Laura Sandhoff said. "But I could see where it may be beneficial for others who have compulsive spending problems."

    Coinstar's study shows the average shopper's budget at $805 for 2003 holiday purchases. The study also found that one in five Americans plans to spend more this holiday season than last year.

    Most people begin their holiday shopping with good intentions of sticking to a budget, said Jeanni Harrison, a certified financial planner and public relations director for the Financial Planning Association of San Diego.

    She said a prepaid card can be an effective budgeting tool because it might make shoppers more aware of how much they're spending.

    "But it boils down to willpower," Harrison said. "It is much easier to spend when you have plastic."

    San Diego resident Keegan McNamara believes prepaid cards are easier to lose than cash.

    "I don't see myself using one of these at all because it seems like it would be more of a hassle," McNamara said. "The risk of losing it is just not worth it."

    Credit card companies say using a prepaid card is safer than using cash.

    Some analysts say prepaid cards are a step toward a "cashless society" in which plastic is used for all purchases.

    Coinstar found that 45 percent of Americans believe society could be cashless within the next 10 to 20 years. Additionally, 51 percent of the prepaid card users that it surveyed said they carry as much cash today as they did a year ago.

    "It's a relatively new form of currency," Coinstar's White said, "and as such it's going to take some time."

    Nicole Reino: (619) 293-2079;
  2. The people stupid enough to use these cards must be the same people who when asked what they paid in taxes last year, go, "nothing, infact I got money back".

    yeah you got money back, the government paid you, you stupid smuck. And that interest you could have been earning all year on your weekly overpayments, did the government kick that back over to you too.....

    Guess its true you can never go broke underestimating the stupidity of the American public.

    The only worthwhile use of the card I can see is maybe something like if your kid is going on a trip you preload one with 200 bucks or something incase they get a flat-tire or something, but surely no educated adults are using these things? Nope, they are.

  3. the ad on CNBC recruiting people for a "pre paid" card business showed a picture of the card. this card did not bare the visa, master card or amex insignia, as stated in your posted article. my comment was directed toward the card on the ad.

  4. Why would the card need to display Visa, Mastercard, AMEX, etc. symbol? ATM cards work at vendors because of the magnetic strip, not because of what is on the face of the card. As these pre-paid cards become more common, more and more vendors will accept them.

    Prepaid cards are like prepaid phone cards, and you could easily have vending machines offer them, or have them sold at 7/11's or other outlets.

    The point is that according to the article there is a growing demand for these pre-paid cards, and the ad on CNBC is attempting to tap into this market.

    There is also a growing use of these type of cards being used in place of gift certificates. Offering this service to companies who issue gift certificates is another market to tap into.

    I don't recall your comments being directed toward the card on the ad, but the concept of starting a business of offering pre-paid cards.

    Why not just admit you were uninformed when you made the comments last week?
  5. obviously, you are the one is uninformed in this regard. merchants are set up to accept the 3 major credit/ debit cards, as you know. the "unknown card type" shown on the cnbc ad would not be accepted by most merchants. are you involved in this cnbc advertised card business ?? your defense of same is making me thinkyou must be.


  6. Banjo


    You can walk into any starbucks and get their branded prepaid card. Load it with as much as you like, great for gifts. I'm sure western union et al will be doing it soon if not already.

  7. for sure. my wife uses a sbx card daily. that is a merchant specific type debit card. the ad on CNBC made it seem like you could use this odd looking generic prepaid card everywhere. the facts are, if it is not affilated with or bares the logo of mc, visa or amex--its use is VERY limited, regardless of what arougetrader thinks or says.


  8. What is the difference between a debit card and a pre-paid card.

    Assuming I am Joe Consumer and I get Direct Deposit...I simply use my Debit Card. If I loose it I can quickly call the 800 number and shut it off.

    If I loose my prepaid card what happens? You guess....Thats right.... its all local on that card......

    I am assuming that they will come up with a scheme to have direct deposit to these cards. Then there will be those that cannot add and subtract their checkbook registers that think its the best thing since apple pie. Hey I get my balance electronically this is great!!!!!

    Then there will be the day they need to write a check! Oh well they can't write anyways.....

    Or perhaps checks will be done away with and everybody engaging in commerce will need to accept these cards. Hey what the heck just implant the chip under the skin and do away with the card!

    I feel I havin trouble adapting to change?

    Michael B.
  9. the best credit card is the gm credit card. you get 5% back on all purchases towards any new gm car. i use this card for everything including insurance food and utilities. even though i pay the bill every month and have never paid them a dime in interest they give me 5% back on everything. looks like the closest thing to free money i have ever seen.
  10. Is there a limit? Could you build up points until you had the full purchase price of the car over a 6 or 10 y time period?

    Michael B.

    #10     Nov 29, 2003