Feb 11, 2013 Sean Albert
After the recession hit, many banks and providers became extremely stingy with whom they handed out credit cards to. This forced consumers to find unconventional payment methods - and recent reports indicate that they are gravitating toward alternative credit.
"Prepaid cards are the new hot financial product," Odysseas Papadimitriou, CEO of CardHub.com, recently told The Atlanta Journal-Constitution.
A Mercator Advisory Group report found that in 2011, consumers loaded nearly $60 billion onto prepaid debit and credit cards, an approximately 33 percent year-over-year increase from 2010. That number is expected to nearly double to $117 billion in 2013. In addition, Mercator Advisory Group also revealed that reloadable and store-branded gift cards totaled nearly $500 billion in 2011.
Even as banks have eased up on lending restrictions, consumers are still leaning toward alternative credit strategies. But the benefits of prepaid cards have been felt by groups of people outside just those with poor.
"For folks unbanked or underbanked, this can be a better solution than high-priced loans or traditional credit cards or even in carrying cash after short term," Liz Coyle, spokeswoman at Georgia Watch, told The Atlanta Journal-Constitution.
Prepaid cards have wide-ranging benefits
Coyle said that alternative credit has become extremely popular for people who are worried about building poor credit - and particularly those who cannot afford to do so. These cards allow consumers to use the same shopping methods available to those with credit cards, but without the risk of building up poor credit scores.
Meanwhile, Steve Ledford, partner of Novantas partner, said that many families will children in college are also opting to use prepaid cards.
“It's still a fraction of what you see going through traditional debit cards and credit cards, but it is growing fast," he told the news source.
In addition, there is another, lesser-known use of prepaid cards: spending money during vacation. In a recent blog for Travel Bites, Sarah Gibbons, editor of Travelbite.co.uk, discussed her use of one of these cards during her trip to Tenerife.
With no ATM fee, no commission and multi-currency capabilities, Gibbons said "the process couldn't have been easier." At the same time, these cards have just as much - if not better - security than traditional debit and credit, as they can be canceled in the event the card gets lost or stolen. In addition, because they only contain a limited amount of money, there is less of a risk of thieves running up huge tabs.