The Promise of Prepaid Cash Cards

Posted by Mark Brousseau

It’s estimated that the percentage of U.S. households without bank accounts may be as high as 26 percent. So what happens to the $1.1 trillion that those households take in each year? According to Turner Investments, much of that money is likely to end up on prepaid cash cards over the next five years.

Turner Investments anticipates that the market for prepaid cash cards may grow at double-digit annual rates between now and 2015. Two small prepaid-card vendors that appear to be well positioned to profit from that growth are Green Dot and NetSpend Holdings, Turner Investments says.

For the consumers averse to traditional banking, Turner Investments says prepaid cash cards may hold three benefits:

•The cards can be a cheaper alternative to checking accounts. Consumers who are prone to overspending can’t spend more than they put on the cards, so they aren’t exposed to overdraft charges. Also, the increased checking-account fees resulting from new federal financial reforms are driving some consumers to the cards.

•The cards require no background check, unlike some checking accounts.

•The cards are convenient to load and use, enabling customers to take their paycheck to a retailer where they can have the money loaded onto a card and start shopping immediately.

What do you think?

Punitive Fees Under Threat

By Mark Brousseau

Bank revenues generated by punitive fees, such as for overdrafts, may be under threat, analysts from New York-based First Manhattan Consulting Group (FMCG) write in the January/February issue BAI Banking Strategies.

FMCG estimates overdraft fees alone total almost $20 billion per year and have been growing quickly as many banks have allowed customers to overdraft in more complicated ways – such as through debit, online bill payment and automated teller machine (ATM) withdrawals.

But FMCG believes the growth of fee revenues will slow as punitive fees begin to draw the attention of Congress and as legislation is adopted that requires banks to notify customers before imposing an overdraft fee.

What do you think? E-mail me at m_brousseau@msn.com.