The Rise of the Prepaid Card

Payments Leader

Posted on April 17, 2014


Over the past several years, prepaid cards have become especially popular among consumers who don’t want or can’t get traditional banking accounts. In 2012, the Center for Financial Services Innovation (CFSI) reported that general-purpose reloadable prepaid cards generated $1.6 billion in revenue for providers, and the numbers have grown since then.

According to the Pew Charitable Trusts, Americans deposited over $64 billion onto these cards that same year, with most doing so out of necessity. Many people turn to prepaid cards due to banking woes, which have left them without traditional checking accounts. To pay for items and get paid for services in the modern world, consumers and workers need some form of digital account; and, since prepaid cards function like debit cards, minus the checks, they tend to make the most sense.

Although they often come with an assortment of fees, prepaid cards offer some interesting benefits. In fact, according to another report by the Pew Charitable Trusts, prepaid cards may actually offer lower and fewer fees than standard checking accounts. For this reason and others, prepaid cards are pushing into a new market, comprised of financially-sound consumers, who use them alongside their traditional checking accounts.

An Expanding Market

These days, prepaid cards are becoming a personal finance tool of choice for more and more Americans. According to a 2013 study from, 59% of Americans with a standard checking account also use prepaid cards a minimum of once per month. Many do so to avoid high fees and inconveniences related to traditional branch banking. Research suggests that around 12 million Americans use prepaid credit cards, with most earning a household income exceeding $30,000 per year. The prepaid movement has also answered “what alternative do I have?” by providing a viable option.

2013 marked the end of an era for the federal government, which moved exclusively to electronic transactions to make federal payments for things such as veterans’ benefits, Supplemental Security Income, Social Security and more. For people with checking accounts, this wasn’t a real problem. For people without them, it might have been if not for the government-issued prepaid Direct Express Card, which can receive direct government-issued deposits.

Tapping the Market

With a billion dollar market, prepaid cards have become an alluring business venture for countless providers, who’ve sought clever angles to attain consumer attention. In 2012, reality television star Kim Kardashian lent her name to the “Kardashian Kard,” which was subsequently removed from circulation due to a media firestorm centered on high fees. Kardashian isn’t the only celebrity-endorsed card to hit the market. NBA Hall of Famer Earvin “Magic” Johnson also released a card bearing his name. Dubbed the “Magic Card,” this prepaid card has also enjoyed a short life, with its expiration scheduled for May 31, 2014.

There’s no shortage of opportunists looking to make a buck off these cards, but the opportunity is real. With approximately 77 million Millenials in the U.S. alone who already contribute $600B in annual spend, there no doubt will be more card types entering the market, of which some will continue to carry celebrity endorsements and some will flop. As such, providers will begin further differentiating their product offering to lure this rising demographic through features such as rewards, financial management tools, mobilized with gamification, social media tie-ins and more. As with any consumer adoption product, regardless of card type, the solution has to solve a need and provide value. It’s an interesting market dynamic for sure and some new innovative options are sure to come about in the near future to capitalize on this lucrative opportunity.


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Payments Leader

Payments Leader from FIS provides insights on credit, loyalty, fraud and emerging payments strategies through blog posts from our industry experienced authors.