For more than two years we’ve really seen the prepaid debit card market grow by leaps and bounds as more Americans are using these products in lieu of traditional bank accounts. Not only that, but we’re becoming a lot more creative in how we use them aside from the bank alternative. Many parents are using them as an affordable way of teaching their kids – especially teens – the importance of money management.
Prepaid Debit Card Goes Mainstream
Before you assume prepaid cards are being used by the unbanked, you might want to rethink that. Initially, these financial products were touted as the ideal alternative for the under and unbanked. Then, they began going mainstream. Now many are finding them far more affordable and just plain easier to use than the traditional checking and saving accounts.
There are still concerns about the costs with some of these debit cards, but even those are becoming less of a worry as more of the bigger financial names get in on the offerings. Some charge, on average, one dollar a day just to use and reload the prepaid cards. Obviously, $30 a month isn’t feasible nor should anyone willingly pay those kinds of fees – especially with the many options available.
CardHub.com conducted its annual research and has just recently presented its findings in the 2013 Prepaid Card Report. It’s fascinating when you consider what all of the findings mean. For instance, in just four short years, the number of prepaid cards on the market has tripled. This, according to Mercator Advisory Group, is just the tip of the iceberg. By 2015, that number rises to 120 percent. It will be worth (the market as a whole) more than $168 billion. Massive, right? It’s why it’s even more important to find a product you like and then stick with it. With the fast growth and competition, you can be sure there will be rewards programs at some point.
Here are a few of the high and low points:
- The cost of using prepaid debit cards is down by 46 percent in just one year.
- The cost of using a prepaid card solely as a checking account alternative is up by 9 percent.
- Less than half of the available prepaid cards on the market today offer the perks that their checking account alternatives offer, including online bill pay and direct deposit for payroll checks (though most do offer direct deposit for government checks).
- Those celebrity endorsed prepaid debit cards? Steer clear. They’re going to cost you, on average 25% more than those without a celebrity’s face. Justin Bieber and Suze Orman were two mentioned specifically in the report.
- In terms of fees, the average prepaid debit card has ten fees. In one instance, the NetSpend Pay as You Go card has 19 fees. The American Express prepaid products, on the other hand, only have one each.
Huge Differences Based on Uses
One very important finding is in the way these products are used. There are those debit cards that are ideal for a particular person’s needs and then there are those that are absolutely the worst possible choices. This highlights the importance of researching your options. It can mean the difference of hundreds (and in some instances, thousands) of dollars every year.
According to the Consumer Financial Protection Bureau, which has begun overseeing these products and is now putting together new rules for the companies to abide by, half of Gen Y now carries a prepaid debit card. It’s the fastest growing sector in the financial industry and there are more than 7 million of these cards in circulation with “regular usage”. While they’re attractive for many and especially now that the fees are dropping, they’re especially profitable for banks and card networks. When American Express, JPMorgan Chase and some of the other big brands began treading into the prepaid market, this particular avenue really began growing and becoming a first choice, even behind traditional bank accounts, for those who aren’t underbanked. That speaks volumes about the way consumers are looking at money and finance these days.
Banks Searching for Profits
What many consumers don’t realize is that because of the tighter regulations in what banks can charge consumers, there’s been a search for ways to beef up those bottom lines again. With prepaid products, they have found their saving grace. You may recall some of their failed efforts of the past, including the now-infamous Bank of America declaration that it would begin imposing a $5 debit card usage fee. This one decision is what put into motion first, the massive abandonment by consumers of traditional banks to local credit unions and second, and perhaps most importantly, the Occupy movement.
Role of the Occupy Movement
Two years ago, the Occupy movement kicked into high gear when protesters began showing up at various banks’ CEO’s homes, complete with chants, signs and demands to put their consumers first. It worked to some extent as Bank of America quickly withdrew the debit and ATM fee and other banks soon began making at least a few concessions.
Many have wondered why CFPB decided to get involved. It’s simple, really. Before the regulatory efforts, these products were a bit like the wild west with no worries about high fee structures because no one was telling them they couldn’t. Now, though, the CFPB has stepped in, complete with its authority, and demanded these products become more affordable and transparent in the fees they do charge. As a result, there are new players in the game, the fees have dropped tremendously and the efforts of garnering new customers has become a battle to see who could offer the best value for their needs.
Which Prepaid Debit Cards Are the Best?
That brings us to the obvious question: which prepaid debit cards are best? The American Express cards, including BlueBird and Serve, are at the top of the list. Wal Mart has partnered with American Express to bring consumers the very popular BlueBird. The Chase Liquid card is another favorite among consumers, too.
If it’s the wrong debit card you’re wondering about, as mentioned, the NetSpend Pay As You Go card is one of the worst ranked.
Do you use prepaid debit cards? What has been your experience with them?