In recent years, prepaid cards have exploded in popularity, particularly among certain age groups and the unbanked population. In fact, a 2011 FDIC survey indicated that about 20 percent of US households are considered unbanked or underbanked, which means that they do not use traditional banks or mainstream financial services.
While they are prevalent among the unbanked, prepaid cards have also grown in popularity among millions of others across the nation. Consumers have begun to gravitate toward prepaid cards for a variety of reasons that include increased flexibility and the ability to avoid bank fees. In addition, they offer an alternative method to handling financial transactions.
The Federal Reserve has stated that prepaid cards are the fastest-growing payment method in the United States and that purchasing volume continues to rise each year. A collaborative report between the Aite Group and the US Department of Commerce revealed that prepaid card purchases exceeded $200 billion in 2014 alone. Prepaid cards continue to evolve, and their popularity shows no signs of slowing down. In the following, find out what’s on the horizon for prepaid cards.
Expect Faster Payments
While prepaid cards work nearly identically to bank-issued debit cards, up until recently they have lagged behind when it comes to the latest payment technology. That’s expected to change in the future as prepaid cards become even more mainstream.
According to data from a study conducted by First Annapolis Consulting, it’s estimated that about 75 percent of smartphone owners have used their devices to make purchases, and many also use them to keep track of merchant promotions and rewards programs.
In addition, consumers have embraced person-to-person payments, which are quickly becoming a preferred alternative to exchanging cash between individuals. Some prepaid cards can be even used with popular mobile payment smartphone apps.
Prepaid Cards Could End Up Pushing Banks Out
While it’s already been established that the unbanked and underbanked prefer to use prepaid debit cards, even consumers with bank accounts are beginning to make the switch. Millennials, in particular, have embraced prepaid debit cards. This could be due, in part, to a general disdain for credit card debt, but many more have chosen prepaid cards as a way to avoid exorbitant bank fees.
Many banks have chosen to eliminate free checking accounts and have instead opted to charge customers various fees that are often hard to anticipate. Couple this with the fact that many employers have begun to use prepaid cards for payroll purposes, and it’s easy to see why consumers are increasingly finding fewer reasons to visit their local bank.
One of the chief benefits of prepaid cards is that they can be used for nearly any financial transaction. Javelin Strategy and Research reported that more than 50 percent of underbanked consumers use their prepaid cards primarily for online shopping, followed by paying their bills and rent, as well as purchasing gas.
Prepaid Cards Could Help You Avoid Credit Card Debt
As Americans have slowly come out of the recession that began in 2008, many have begun to examine the decisions that they made that led to the financial crisis in the first place. In doing so, consumers want to become more educated about credit card debit and budgeting, as well as how to make smarter financial choices overall. Credit card debt is still a huge problem in the United States, with the average household carrying more than $5,000 in credit card debt alone. However, studies have shown that consumers are becoming more proactive and starting to shy away from credit cards. The Federal Reserve reported that the average debt load has decreased by 13 percent since 2010.
Surviving without a credit card used to be quite difficult, particularly in terms of completing transactions associated with planning a vacation such as booking a flight or securing a rental car. With the advent of prepaid debit cards, consumers who have chosen to live without a credit card can still complete many of the same transactions. While retailers in the travel sector have been slow to allow the use of prepaid cards, some are gradually beginning to get on board. Many rental car companies, as well as several major airlines, already have policies that permit the use of prepaid debit cards. As time goes on, we can expect to see even more merchants getting on board with them.
Prepaid card issuers continue to work tirelessly to provide customers with products and services that can drastically improve how everyday financial transactions are handled. With more tools and technology available to help consumers make payments and manage their funds, the future of prepaid debit cards looks promising.
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