The Prepaid Card Evolution

These days, general-purpose reloadable prepaid cards are better served by the phrase “prepaid account,” which helps underscore their evolution from payment cards to fully-fledged banking products, notes Packaged Facts in the report Prepaid and Gift Cards in the U.S., 6th Edition.

While making purchases and withdrawing cash from ATMs still serves as their foundation, prepaid accounts can also serve as money transfer conduits linking cardholders to a variety of funding methods, as well as to digital banking and money transfer hubs such as PayPal, furthering their ability to transact online and offline. More and more also offer rewards and discounts, helping to incent purchasing and increase retention, while giving prepaid cardholders a taste of the rewards earned by many credit card users.

Money management tools are now built into virtually every major prepaid card brand, allowing accountholders to track spending, receive email and text alerts, create budgets, save money in set-aside accounts, and more—offering a breadth of tools that eclipses the scope of those offered in many basic checking accounts. And with overdrafts prohibited, and without even a hint of exploitative fee structures, the accounts (and the industry) are no longer burdened by a predatory stigma.

Clearly, the industry has succeeded in many fronts in providing consumers with low-cost products that are not necessarily bank account substitutes—they are bank accounts, at least to many consumers using them. 

Industry successes on multiple fronts—image, features, value, and access to digital commerce—have helped position general-purpose prepaid accounts to appeal to a broader audience, including digital-forward Millennials; those seeking multiple banking accounts; contract workers; the self-employed; and small businesses. Products targeting each of these audience members have been developed and are gaining traction in the marketplace.

-- by David Morris, senior consultant