Prepaid debit cards
By Jeremy M. Simon | Published: June 22, 2006
For the estimated 60 million Americans who do not have bank accounts, a regular credit card is not an option. But for those of us who want the convenience of a credit card yet may not be able to get one due to poor or no credit history (or perhaps because we do not have or do not want to have relationships with banks), a prepaid debit card may be the solution.
A prepaid debit card acts like a combination of a credit card and a debit card (and is even called a prepaid credit card sometimes), allowing cardholders to load money onto it and then to use the prepaid card anywhere a debit card is accepted. Because the money is loaded onto the card in advance, there is no credit risk for the card suppliers, unlike with traditional credit cards.
Prepaid debit cards allow the cardholder the convenience of having an alternative for cash when paying for such things as groceries, restaurant bills and gasoline, and when making online purchases.
Fans of the cards note that they act like a bank account on a card, with lower costs than check-cashing and payday lending outlets, and are safer and easer than carrying around cash.
If you decide a prepaid debit card is right for you, you won't be alone. An estimated $117 billion of purchases will be made in 2006 using prepaid plastic, including gift cards, payroll cards and renewable debit cards issued under the MasterCard or Visa logos. MasterCard forecasts that by the end of 2009, pre-paid and stored value card transactions could reach $257 billion.
The reloadable debit cards, such as the All-Access Visa from NetSpend, are issued by banks but marketed to consumers through some retail outlets and websites such as CreditCards.com. Cardholders may pay an activation fee, monthly service fees, and, usually, fees to withdraw cash when using the cards at ATMs.
NetSpend cards, for example, carry fees of $2 for each ATM and PIN transactions. Some other companies, like ECount, sell their cards to consumers through businesses, which use them for incentive or rewards programs or for payroll deposits.
Marketers of prepaid cards explain that one of the goals of their products is to increase financial literacy among what they label the "unbanked," many of whom live at or below the poverty line and who generally are neglected by bank marketing programs. The FDIC believes that 13 percent of U.S. families have no bank account.
Meanwhile, it is getting easier to use prepaid debit cards. Due to the enormous size of the market, Visa is gearing up to roll out a nationwide network of retails spots where consumers can reload cash onto their Visa-branded prepaid cards.
Visa remarks that it is specifically targeting the millions of "unbanked" consumers in the U.S., a segment of the population it estimates earns $1 trillion in annual income but pays $1.5 billion of that annually in check-cashing fees. These fees may be bypassed by workers having their salaries deposited directly by employers into the debit cards.
The prepaid debit card options are increasing as well, with banking giants such as Citibank and J.P. Morgan Chase recently entering what was once the exclusive territory of dozens of small companies with their own offerings.
NetSpend will be raising its profile after an April signing of former University of Texas quarterback Vince Young to a three-year endorsement deal that could be worth about $10 million with incentives. Young will appear in NetSpend's upcoming regional advertising campaign, and his image or autograph will be featured on the card.
If a prepaid debit card sounds like the card solution you have been looking for, getting one is as simple and quick as applying online. As mentioned earlier, NetSpend's All-Access Visa Prepaid Card is available through the CreditCards.com website. You can apply in 60 seconds with 2 easy steps and get a card in as little as 5 days.
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