Use of Prepaid Swipe Cards on the Rise

published 3 August 2011

Until now, reloadable prepaid cards have been primarily used by people without bank accounts, and by states to deliver benefits. But Mercator Advisory Group predicts that $70.7 billion will be loaded onto these cards in 2011, a 68% increase over 2010.

Banks hope that the fees on prepaid cards will help them recoup revenue lost as a result of limits on fees charged to credit card users and, now, cuts in the fees paid every time someone swipes a debit card (for more on bank fees, see How to Get a Better Deal at Your Bank).

Plus, prepaid cards have started to appeal to more affluent customers. Issuers have a “great opportunity to go up-market,” says Brent Watters, a Mercator analyst. Higher-income consumers are using prepaids to avoid going into debt. Or they’re giving one to a child who is traveling abroad or going away to school.

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The new American Express Prepaid card eliminates many of the fees (purchase, activation, maintenance and some reloading fees) that traditionally characterize these cards. However, you will pay $2 for ATM withdrawals after the first one each month. Reload at no charge via checking account transfers or direct deposit.