Reasons why prepaid cards have become one of the fastest growing financial products

prepaid card

Anyone who is looking for a new credit card would like to know the rewards that come with it. Rewards can be of different kinds with each credit card company devising reward schemes to woo customers. When selecting a credit card, nobody would like to settle for anything less than the best at least in terms of rewards. Any card that is best for someone does not necessarily be best for you.  The perception of the best credit card depends on what one expects from it, and since expectations vary, naturally your best credit card is best for you only. Indeed, there will be many others who have similar expectations as yours and find the same card best for them too. However, those searching for the best credit card would find prepaid cards quite attractive.

Leaving aside the debate about best credit cards there should not be any dispute that prepaid credit cards are great for gifts. Those who want to enjoy more flexibility in making payments without involving banks would find prepaid cards most useful. Just load money and start spending without worrying about following payment dates for making timely payments as it happens with credit cards. Moreover, there is no fear of sinking into debts by using prepaid cards because you are using your own money for spending only when it is available. The trend of using prepaid cards and debit cards is fast gaining popularity, especially among millennials. Preference for these cards over credit cards is a result of the change in the attitude of consumers who are now more interested in ensuring that the money they spend is money they have with them at that point in time.

The growing trend of using prepaid cards

To understand what prompted such change in the behavior of consumers you must look at some figures declared in the report by the Consumer Financial Protection Bureau (CFPB) of the United States sometime in the end July/ early August 2018. Overdrawn accounts have become a pain for Americans as they have paid for bounced checks and overdrawn accounts fees that amounted to $15 billion in the previous year. How hard overdrafts hit Americans will be clear from the fact that although the average overdraft per person is $24, the fees paid per overdraft are $34. This is a classic example when the punishment far exceeds the crime. Against this backdrop, it seems quite natural that consumers are turning to ways to save themselves from the unnatural penalty of overdrafts by choosing to use prepaid cards.

Aversion for debt

There used to be a time when credit cards were an exciting choice despite the various fees that one had to pay for using it. People would not mind paying interest, penalties and other fees for the sake of enjoying credit, but this was at the time when plastic money was just in its nascent stage. After the initial euphoria with credit cards settled down, people discovered that they had to pay a reasonable price for using credit cards and gradually turned towards other alternatives like debit cards and prepaid cards.

Young adults, especially millennials and those belonging to Gen X and Gen Y are strongly opposed to living on debts and prefer using prepaid cards instead of credit cards.

Safer choice

Credit cards have its attraction in terms of rewards and perks that accompany it but as everything comes at a cost, credit cards users must be ready to pay the price for it. The fears of uncontrolled debt ride high with credit cards as also high payment of interests and penalties in case of failing to make timely payments. Managing credit cards can be quite stressful for users especially for those who are unable to use it responsibly.

Although prepaid cards do not help users to build credit or avail interest-free credit for a specified period that by providing quick financing, prepaid cards are much safer. Prepaid cards do away with the need of going to banks as you get money readily by swiping the card that you must load with money first. Its use does not need the involvement of a bank or any banking process, and you can use it just as conveniently as debit cards.

In 2003, Americans paid less than $1 billion for loading prepaid cards, and in 2016 the figure rose to $100 which shows how fast the popularity of these type of cards is rising.

The evolution of prepaid cards

During the 1980s, prepaid cards first broke into the scene in the form of phone cards that were the first type of closed-loop cards, meaning cards created for specific use and purpose. Throughout the last decade of the twentieth century, other types of closed-loop cards came into the market that users could redeem at only specified merchant outlets. These were just like gift cards.

Then came the open-loop cards or EBT cards that were the predecessors of prepaid cards that we see today. You can load money on these cards and use it at any merchant outlet without restrictions. This gave enormous flexibility to users who found prepaid cards extremely useful for making payments for almost anything and everything.

The facility of loading prepaid cards with retailers and online facilities enhanced the convenience of using these cards. Any merchant outlet that accepts debit cards is ready to take prepaid cards which is why sometimes people confuse prepaid cards with debit cards.

Purchasing prepaid card

Unlike credit cards that you must apply for and wait for the credit card company’s or bank’s approval for getting it and that too not always with certainty, you can straight away walk into a store and buy prepaid cards. You can buy a Visa card off the shelf today, an idea that was quite revolutionary in the 1990s when Green Dot made the cards available or the first time at Rite Aid, Walmart.

The idea of prepaid cards is revolutionary because it does not involve banks and banking processes. The prepaid card company collaborates with a merchant outlet for the issuance of prepaid cards that you can use anywhere.