News & Resources

Prepaid cards replacing checking accounts

Feb 04, 2013 Sean Albert

The recent economic recession was believed by many to be largely the result of poor financial decision-making on behalf of major banks. As more individuals continue to become uncomfortable with traditional banking services such as debit cards and checking accounts, alternative financial services have experienced major increases in demand and subsequent profitability.

Prepaid cards remain at the forefront of many consumers' preferences, especially those in demographics such as the unbanked and underbanked populations. Businesses and financial institutions can expect to see higher profits and stronger loyalty by either offering or accepting prepaid cards in the near future, as many experts believe this industry will continue to enjoy exponential growth for years to come.

A major shift to prepaid
FOX Business recently reported that consumers are increasingly moving away from traditional banking accounts because of a variety of common issues, such as high fees, hidden penalties and overall shoddy practices. On top of this, business owners, especially those in the service and goods industries, are looking to prepaid cards as a method of improving profit margins through an avoidance of higher debit and credit swipe interchange fees that came with the Dodd-Frank Act.

The source explained that such legislation has led to even more fees levied by many providers of traditional checking accounts, including much higher minimum balances, increased overdraft fees and monthly costs of keeping a debit card. These expenses, when coupled with widespread economic hardships among most consumer demographics, have led to a massive shift away from traditional banking accounts and toward prepaid cards.

According to the news provider, the most recent Federal Deposit Insurance Corporation Study revealed that roughly 25 percent of households in the United States have used at least one alternative financial service, including prepaid cards. A growing number of these households no longer have checking accounts, as the study found 10 percent of the population has avoided these traditional financial services. 

Methods of success
Businesses considering the launch of prepaid card initiatives should consider a variety of trends in the industry, especially regarding consumer preferences, to ensure a successful venture. Many reports indicate that customers are looking for the most convenient and transparent prepaid card services, ones that don't have high fees for use or a lot of fine print.

By creating simple, transparent and beneficial prepaid card options, businesses can expect to improve customer loyalty and profits as the industry continues to become more popular with time.