May 07, 2013 Sean Albert
For many American shoppers, the electronic payments methods that likely come to mind most readily are credit and debit cards. While these may be some of the most commonly used transaction technologies today, that stands to change as the market shifts both in terms of shoppers' priorities and the quality of competing services. Among the main rivals to traditional electronic payments are ACH cards and other similar prepaid tools, and experts believe that as offerings grow more diverse and appealing, they stand to make the shift from alternative to mainstream.
Competition does prepaid cards good
According to Bankrate's 2013 Prepaid Debit Cards Survey, one of the major factors driving growth in prepaid card use is the increasing involvement of a number of high-power parties. The source noted that between 2008 and 2012, the amount of money loaded onto these payment tools tripled, reaching $76.7 billion and could increase to as much as $168.4 billion by 2015, and this may be thanks to reductions in what have traditionally been seen as the biggest drawbacks to going prepaid - fees.
In its survey, Bankrate found 21 percent of prepaid cards carry fees for making PIN-based point of sale transactions, and many also require users to pay maintenance charges on a monthly basis. But now, five of the leading banks in the United States have begun to offer reloadable debit cards, and these financial institutions have also opted to include at least some ATM services for free. USA Today noted that the survey found 13 percent of issuers offered service for a monthly fee with no additional charges, and that most of these entities were banks.
As traditional banks increasingly enter the prepaid space, it may translate to major changes. In order to maintain their hold on the market, alternative businesses will have to make some significant choices, including whether to lower or do away with fees in the name of staying competitive. Even though many individuals interested in ACH cards and similar tools actively opt to stay away from big banks, that could change if they offer options that are clearly stronger. If prepaid providers take these shifts as a call to action, adoption could see major improvements due to more advanced, financially beneficial options entering the payments sphere.
Aleia Van Dyke, analyst for Javelin Strategy & Research, told Bankrate that these changes are likely to bring in a more diverse client base for reloadable debit card vendors. She suggested that since options are now more advanced, offering better account-management tools and fewer extraneous charges than before, many individuals beyond the unbanked demographic are likely to see them as a choice comparable to traditional debit or credit cards.
Rob Levy, director of research at the Center for Financial Services Innovation in Chicago, pointed out to the source that as the prepaid market becomes more competitive and fees lower, these tools can meet a number of important consumer needs, even extending to younger shoppers.
"Some banks are seeing this product as an auxiliary product to checking accounts," Levy said. "It's for the customer to then give to their kid in college or to pay his allowance or to use for discreet budgeting purposes, for travel, for buying things on the Internet."
In a separate article, Bankrate noted another feature of prepaid options like ACH cards that may be especially appealing to today's consumers. These tools aren't credit - instead, users draw funds from the real money they load onto the devices. Because of this, prepaid cards don't affect a person's consumer credit report. While they can't be used as a way to build up these indicators, they can't be a source of debt, either.