Over the past few weeks, there have been anumber of articles and research reports about the value of prepaidcards to consumers. Conflicting studies published by the Consumer’sUnion and the Network Branded Prepaid Card Association purport toshow that prepaid cards are a bad deal or a good deal forconsumers. Press reports and company releases tout prepaid cards asthe perfect tool for people without bank accounts and immigrants,and as a trap for unsuspecting rubes.
The truth of the matter is that prepaid cards can be all of thesethings, depending on who buys them and how they are used. Withbanks and credit unions looking to prepaid cards as a turn downproduct and potential replacement for debit cards in the wake ofthe Durbin Amendment to the Dodd Frank Act, it is likely thatprepaid cards will become a growing part of the financial serviceslandscape.
A recent release by the Federal Reserve showed that the annualgrowth rate of transactions on prepaid cards from 2006 to 2009 was21.5 percent, which was faster than credit cards, debit cards, andACH transactions. The majority of these transactions (67 percent)are less than $25, which means consumers are using prepaid cards inplace of small dollar transactions that are normally handled bycash.
Along with the transaction growth and increase in interest by thebanks, the variety of prepaid products continues to grow. Soconsumers are confronted with a growing list of options, features,and functions for the cards they can buy.
Whether or not any of those cards are a good deal will need to bedetermined by the consumer testing the product and seeing whetherit meets financial needs in a cost-effective way compared to theother options out there. The question of whether prepaid cards area good deal compared to checking accounts or stashing money underthe mattress or the barter system can only be answered based on howwell and how cost effectively they meet the needs of consumers. Inall of this, consumers need to shop around and make comparisons ofthe cards to one another and to their other options.