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Prepaid cards viewed as preferable to banked consumers

Sep 03, 2012 Sean Albert

New alternative credit options have led to better profit margins among the nation's financial institutions and lenders. Though prepaid cards have been around for more than a decade, they have only recently become popular among younger generations and the underbanked - two demographics that banks have constantly tried to reach. By offering prepaid cards, financial institutions remain relevant to the newer generations, while improving the percentage of the population that takes advantage of banking. Prior to the advent of new payment systems and methods, a large portion of the nation's consumers had little to no involvement with banking.
Prepaid cards for those with bankingWhile it has been made clear that prepaid cards are among the best avenues to reach the underbanked, Daily Finance recently reported that these alternative forms of credit also serve the population of already-banked consumers. According to the source, certain card offerings are expected to shift the general market landscape in the card industry. This includes the Kaiku Card, which the news provider explained as one of the first offerings to not target underbanked or unbanked consumers, but rather get credit card holders to switch over. The company backs its product up by saying it is easier to use than traditional credit methods, as well as safer in terms of credit scoring. Prepaid card usage skyrockets
Daily Finance further noted that prepaid card usage rose more than 20 percent last year, while the industry is forecast to reach $600 billion by the end of next year. This represents a massive new industry that could have a shot at taking on the also increasingly popular mobile payment. CardHub recently assessed some of the reasons why prepaid cards are growing in popularity, especially in recent years. According to the source, prepaid cards can serve as an alternative to checking accounts, a new preference for giving children an allowance, and be used as a check-cashing tool. Further, these cards have increasingly been used by college students for two reasons: financial aid disbursement and family support. Earlier this month, several reports showed that parents are increasingly giving their college-bound children prepaid cards as opposed to credit cards, as prepaid cards are safer, but still help build credit. Additionally, many financial aid-based loans offer prepaid cards as opposed to transfers into checking accounts, providing a quicker availability of the funds.