In chat last week, marketsurfer was being critical of an ad on CNBC that offered entrance into the pre-paid credit card issuing business.
Looking at the facts, he may be quite wrong in his analysis.
Prepaid cards now join the lexicon of plastic right along credit cards, secure credit cards, ATM cards, revolving charge cards, and debit cards....each having their own unique properties.
Prepaid cards help users toe the line
By Nicole Reino
STAFF WRITER
November 29, 2003
As the holiday shopping season gets started, microchip-embedded "prepaid cards" are becoming an increasingly popular option for shoppers concerned about staying within budget.
The cards look like credit or debit cards â bearing the logos of the major credit card companies â but they act as cash. Like a debit card, prepaid cards are a "pay-as-you-go" form of plastic.
However, unlike with debit cards, the funds don't come out of the user's checking account. Instead, cardholders choose how much money they want to "load" onto a card.
Prepaid card volume is expected to reach $71.5 billion by the end of this year, up 31 percent from 2002, according to the Nilson Report, a trade journal for people who work with consumer payment systems.
Researchers expect that number to reach $225 billion by the end of 2020.
Visa prepaid cardholders have spent nearly $1 billion with the cards this year, said Kenny Thomas, director of corporate relations for Visa USA Inc.
"We see that number reaching $50 billion in three to five years," Thomas said.
Big reasons for using the cards include keeping a cap on spending and avoiding the accumulation of debt, according to a survey by Coinstar, a company whose machines in grocery stores let shoppers get rid of loose change.
Coinstar's machines dispense vouchers that stores can exchange for cash or groceries, but the company also gives shoppers the option of receiving a prepaid card.
"When prepaid card users reported their reasons for using the card, their No. 1 reason was avoiding interest," Coinstar Inc. spokesman George White said.
A survey by American Bankers Association showed that 21 percent of banks that issue debit cards also offer prepaid cards, compared with 8 percent in 2002.
Some of the cards carry charges that kick in if the card isn't used up within a specified period of time.
With a prepaid card, there's no monthly bill â although some prepaid cards come with a monthly statement that shows cardholders their spending activity.
Each kind of prepaid card comes with its own stipulations. With some versions, the card itself must be purchased. With others, the card is free. Consumers can load as little as $20 and as much as $5,000 onto a card. Some can be reloaded.
"We've seen a tremendous growth over the last three years," Thomas said.
Demand is driven by convenience and versatility, he said, adding that 57 percent of prepaid card users buy them for holiday use.
Credit card companies say prepaid cards help individuals monitor their spending habits.
Some shoppers aren't convinced. "That's not something I'd use, because I budget my money wisely," San Diego resident Laura Sandhoff said. "But I could see where it may be beneficial for others who have compulsive spending problems."
Coinstar's study shows the average shopper's budget at $805 for 2003 holiday purchases. The study also found that one in five Americans plans to spend more this holiday season than last year.
Most people begin their holiday shopping with good intentions of sticking to a budget, said Jeanni Harrison, a certified financial planner and public relations director for the Financial Planning Association of San Diego.
She said a prepaid card can be an effective budgeting tool because it might make shoppers more aware of how much they're spending.
"But it boils down to willpower," Harrison said. "It is much easier to spend when you have plastic."
San Diego resident Keegan McNamara believes prepaid cards are easier to lose than cash.
"I don't see myself using one of these at all because it seems like it would be more of a hassle," McNamara said. "The risk of losing it is just not worth it."
Credit card companies say using a prepaid card is safer than using cash.
Some analysts say prepaid cards are a step toward a "cashless society" in which plastic is used for all purchases.
Coinstar found that 45 percent of Americans believe society could be cashless within the next 10 to 20 years. Additionally, 51 percent of the prepaid card users that it surveyed said they carry as much cash today as they did a year ago.
"It's a relatively new form of currency," Coinstar's White said, "and as such it's going to take some time."
Nicole Reino: (619) 293-2079; nicole.reino@uniontrib.com
Looking at the facts, he may be quite wrong in his analysis.
Prepaid cards now join the lexicon of plastic right along credit cards, secure credit cards, ATM cards, revolving charge cards, and debit cards....each having their own unique properties.
Prepaid cards help users toe the line
By Nicole Reino
STAFF WRITER
November 29, 2003
As the holiday shopping season gets started, microchip-embedded "prepaid cards" are becoming an increasingly popular option for shoppers concerned about staying within budget.
The cards look like credit or debit cards â bearing the logos of the major credit card companies â but they act as cash. Like a debit card, prepaid cards are a "pay-as-you-go" form of plastic.
However, unlike with debit cards, the funds don't come out of the user's checking account. Instead, cardholders choose how much money they want to "load" onto a card.
Prepaid card volume is expected to reach $71.5 billion by the end of this year, up 31 percent from 2002, according to the Nilson Report, a trade journal for people who work with consumer payment systems.
Researchers expect that number to reach $225 billion by the end of 2020.
Visa prepaid cardholders have spent nearly $1 billion with the cards this year, said Kenny Thomas, director of corporate relations for Visa USA Inc.
"We see that number reaching $50 billion in three to five years," Thomas said.
Big reasons for using the cards include keeping a cap on spending and avoiding the accumulation of debt, according to a survey by Coinstar, a company whose machines in grocery stores let shoppers get rid of loose change.
Coinstar's machines dispense vouchers that stores can exchange for cash or groceries, but the company also gives shoppers the option of receiving a prepaid card.
"When prepaid card users reported their reasons for using the card, their No. 1 reason was avoiding interest," Coinstar Inc. spokesman George White said.
A survey by American Bankers Association showed that 21 percent of banks that issue debit cards also offer prepaid cards, compared with 8 percent in 2002.
Some of the cards carry charges that kick in if the card isn't used up within a specified period of time.
With a prepaid card, there's no monthly bill â although some prepaid cards come with a monthly statement that shows cardholders their spending activity.
Each kind of prepaid card comes with its own stipulations. With some versions, the card itself must be purchased. With others, the card is free. Consumers can load as little as $20 and as much as $5,000 onto a card. Some can be reloaded.
"We've seen a tremendous growth over the last three years," Thomas said.
Demand is driven by convenience and versatility, he said, adding that 57 percent of prepaid card users buy them for holiday use.
Credit card companies say prepaid cards help individuals monitor their spending habits.
Some shoppers aren't convinced. "That's not something I'd use, because I budget my money wisely," San Diego resident Laura Sandhoff said. "But I could see where it may be beneficial for others who have compulsive spending problems."
Coinstar's study shows the average shopper's budget at $805 for 2003 holiday purchases. The study also found that one in five Americans plans to spend more this holiday season than last year.
Most people begin their holiday shopping with good intentions of sticking to a budget, said Jeanni Harrison, a certified financial planner and public relations director for the Financial Planning Association of San Diego.
She said a prepaid card can be an effective budgeting tool because it might make shoppers more aware of how much they're spending.
"But it boils down to willpower," Harrison said. "It is much easier to spend when you have plastic."
San Diego resident Keegan McNamara believes prepaid cards are easier to lose than cash.
"I don't see myself using one of these at all because it seems like it would be more of a hassle," McNamara said. "The risk of losing it is just not worth it."
Credit card companies say using a prepaid card is safer than using cash.
Some analysts say prepaid cards are a step toward a "cashless society" in which plastic is used for all purchases.
Coinstar found that 45 percent of Americans believe society could be cashless within the next 10 to 20 years. Additionally, 51 percent of the prepaid card users that it surveyed said they carry as much cash today as they did a year ago.
"It's a relatively new form of currency," Coinstar's White said, "and as such it's going to take some time."
Nicole Reino: (619) 293-2079; nicole.reino@uniontrib.com
