Prepaid Debit Cards Popular with the Underbanked
Prepaid cards have been a popular topic lately. I have been very vocal in my opinion of prepaid debit cards and the fess that are charged for their use. Recently Javelin Strategy and Research conducted an online survey of more than 3,200 consumers concerning prepaid cards. The report was called “Prepaid Cards and Products in 2012”. Approximately 17 percent of the prepaid cards are held by young consumers and the underbanked. Young consumers are Gen Y (mid 20’s to late 30’s) and the underbanked are those that don’t use traditional bank products, but want to have financial independence.
Prepaid card usage has increased, while checking accounts, savings accounts, credit cards and debit cards have decreased. This increase in prepaid cards has been due to the innovative features offered with these cards, such as advanced online and mobile account management, credit history development and rewards programs. This group uses social media and has access to mobile devices including smartphones. Approximately 60 percent of this group uses prepaid cards for online purchases.
18 percent of underbanked and young consumers own prepaid cards, compared to 10 percent of all consumers.
56 percent of underbanked consumers in the study used their prepaid card for online purchases, compared to 46 percent of all prepaid owners.
Underbanked consumers report higher average prepaid reload amounts than do other consumers.
53 percent of Gen Y and 47 percent of the underbanked consumers report that rewards would encourage their adoption and use of prepaid cards.
This survey mentioned that another incentive for prepaid cards is to build credit history. I want to clarify that you can’t build credit history with prepaid cards. Prepaid cards are not considered credit; you are not borrowing or deferring payment to be paid later like credit cards. This information is not reported to the credit bureaus.
I’ll be the first to admit that the momentum these cards enjoy shocks me. They’re so fee heavy and there are so many other, better, cheaper alternatives.
Credit Expert Witness, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. Follow him on Twitter here.