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Consumers embracing prepaid cards, survey finds

Feb 03, 2013 Sean Albert

Justin Bieber recently announced that he was teaming up with financial firm to promote a new prepaid debit card for teenagers.However, if a recent study by the Mercator Advisory Group is any indication, alternative credit strategies have already become commonplace among American consumers.

"As we examined opportunities to expand prepaid card sales, we noted that growth will likely come from facilitating the use of prepaid cards as a payment tool," said Karen Augustine, manager of CustomerMonitor?Survey Series at Mercator Advisory Group. "Prepaid customers are buying a greater variety of prepaid cards, but they need better tools to be able to use them more as a real payment form."

Young adults have traditionally been the top purchasers of prepaid cards, but according to the survey, alternative credit firms are now receiving business from all age groups. More than half of consumers between 35 and 64 years old bought prepaid cards in 2012, primarily those who sought them from specific retailers (cited by 38 percent of respondents) and online services (18 percent).

For the first time, alternative credit firms received more business from the 35 to 64 demographic than from young adults.

Alternative credit has surged in popularity in recent years, particularly the use of prepaid cards, as Americans look to take advantage of their substantially lower service fees. A report by CardHub revealed that after usage grew 20 percent from 2006 to 2009, prepaid cards exploded in 2011 with a nearly 33 percent year-over-year increase.

American consumers loaded nearly $60 million total onto these cards in 2011, a number that could jump 200 percent by the end of 2013. The study projected that prepaid card revenue will increase another 44 percent in 2012, surpassing $82 billion, before exploding to $117 billion at the following year.