As credit card usage drastically declines, prepaid cards have seen their chance to take over the plastic market. According to an NPR story prepaid cards are the fastest growing form of electronic payment.
Prepaid vs. Credit
Prepaid cards differ from credit cards because they are reload-able and disposable, similar to gift cards but with the added benefit of increased usable. They are also the latest push by banks to remake some of the revenue lost from the Dodd-Frank Wall Street Financial Reform and Consumer Protection Act regulations imposed by the government.
Remember: Obama Signs Financial Reform Into Law
The cards are slowly becoming a force to be messed with as they increase in usage. And it looks like timing is working for the prepaid market as Americans turn their backs on credit cards. Earlier this month it was reported that over 8 million people have gotten rid of their credit cards this past year.
Catch up: Credit Card Use is Down (and it looks like) Out
The decrease in credit card usage and increase in the prepaid market shows that American’s are still turning to plastic as a main form of payment. In an NPR interview, Terry Mahr an individual on the general counsel of the Network Branded Prepaid Card Association (NBPCA) stated, “It’s a lot safer than carrying cash … [and] the consumer can better budget and keep track of what they’re spending.”
Although the added flexibility of use is clearly a benefit, these cards have many American’s wondering What’s the Catch? It’s not that there is exactly a ‘catch’ but there are definite weak points of these new cards. One being, their lack of regulation. Many of these cards carry absurd fees that seem small separately, but end up racking up costs in the long run. Some of these fees include; withdrawal fees, maintenance fees, reloading fees and inactivity fees. Due to the relatively new banking product, regulators will most likely be unable to have any say over how these cards are marketed in the near future.
Prepaid Cards: A solution or Problem?
In the past year the financial industry has seen many changes, most sparked from the recession. More Americans became unbanked while others turned to non-traditional banking. After feeling pressure from the strict regulations of the financial reform, banks have ceased many free account programs and slyly changed the rules and regulations of other programs. Advocators for prepaid debit cards see this as a new, affordable and convenient way to manage money. They believe these cards can provide some relief for the low-income to moderate-income households who have been turned away from traditional credit cards.
Prepaid Card Check List
Before hopping on the bandwagon, make sure you research and compare various prepaid cards to get the best offer. Here is a list of things to consider:
- Read the fee schedule of the card to become fully knowledgeable on what to expect in terms of monthly and yearly payments.
- Compare different card options, and elect a payment schedule and account fees that will fit with your spending and budgeting.
- Check the fees in terms of opting for “debit” or “credit”
- Compare other options for your finances: a regular debit card, credit union etc.