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Consumers, businesses shift to prepaid

Dec 08, 2012 Sean Albert

Prepaid cards have rapidly become a preferred choice of many consumers, as more businesses and financial institutions begin to offer the alternative financial product. Additionally, as prepaid cards have been proven to reach the unbanked and underbanked populations with much higher success than traditional banking products, they are a viable option for any small business to offer. Some providers are beginning to offer prepaid cards that come with most of the benefits of traditional checking and saving accounts, though they often have lower annual fees and no additional charges. Researchers believe the unbanked are deterred from creating traditional accounts by overdraft fees and the possibility of racking up debts through credit cards, and this option eliminates the chances of either of these events from occurring. Why consumers prefer prepaid
NASDAQ recently reported that prepaid cards are currently experiencing exponential growth. According to the news provider, the industry represented a $28.6 billion market in 2009, while the Mercator Advisory Group projects consumers will load $168 billion onto prepaid cards in 2015. The industry is ripe for growth because of a variety of factors, maybe the most paramount among them being the increasing distrust in traditional banking systems following the financial crisis. The source explained that while in the past, prepaid cards might have cost consumers more money than traditional avenues, research from the Pew Institute indicates that savvy users can save with prepaid. NASDAQ explained that, on average, prepaid cards cost roughly half the amount of common checking accounts for annual use, while providers of the alternative financial service continue to drive down fees. Finally, the news provider said that about 7 percent of the U.S. population is considered unbanked and do not seem to have any intention of using traditional banking services any time soon, while 20 percent of those said they will likely use prepaid cards instead of traditional financial services. Why businesses offer prepaid
As a result of the Dodd-Frank Wall Street Act, and more specifically the Durbin Amendment, debit and credit interchange fees have continued to rise in recent years. Since the legislation passed, many financial institutions have been forced to increase the costs associated with swipes, passing the buck on to business owners and consumers. To circumvent the issue, businesses and banks are pushing prepaid cards as an alternative that is not currently under the statutes of the legislation, thus allowing them to keep costs low and entice more customers.