Over the past decade, financial services companies have offered an increasing number of options to households who do not hold or regularly use conventional checking and savings accounts. Some options come from mainstream banks and companies, while others come from “fringe” financial services such as check-cashing or payday loan services. These “fringe” services have been criticized as profiting on unfortunate consumers without providing opportunities for them to build wealth through savings or access to credit. Now, new “market bridging” products, such as general-purpose reloadable prepaid cards, are emerging to fill the need between conventional checking and savings accounts and nonaccount services.
Introduced in the early 1990s, reloadable prepaid cards are among the most popular of these products. They function like electronic bank accounts without checks; consumers load funds on the card and can spend only what they load, limiting the risk of overdraft while providing immediate liquidity. Transaction costs are low, and many providers are adding features, including bill payment with credit reporting, money transfer, savings wallets, and small-dollar lines of credit.
To learn how consumers use prepaid cards and whether the cards help financially underserved consumers manage their money and start down a path toward financial prosperity, the Center for Financial Services Innovation (CFSI) selected two provider firms for study—AccountNow and NetSpend. Both are leaders and innovators in the prepaid card industry. AccountNow distributes cards primarily over the Internet, while NetSpend sells cards primarily through grocery and convenience stores and check-cashing outlets. In-depth interviews were conducted with 22 prepaid card users in the Chicago and Seattle metro areas.
Our findings give evidence about the potential of prepaid cards to enhance families’ financial well-being. We present new data about prepaid card users’ day-to-day financial lives, including the nature and amount of income sources, family expenses, and use of different financial services. Our interviews show the roles that prepaid cards play in consumers’ lives, including roles that may be symbolic (having access to this product or using this service) or instrumental (accomplishing something for the consumer).
The research notes financial circumstances that lead consumers to prepaid cards and examines several benefits consumers cite as reasons for liking their cards such as: convenience, accessibility, immediate liquidity, simplicity and transparency, value, and built-in discipline. The research also considers consumers’ short- and long-term financial goals and their experiences with two enhanced prepaid card features—AccountNow’s bill pay with credit reporting and NetSpend’s associated savings account.
Prepaid cards are a helpful financial tool, and users appreciate their features. Prepaid cards may also help consumers achieve short-term financial goals, such as paying off debt and accumulating emergency savings. However, achieving longer-term financial goals will likely require more intensive and comprehensive services and products that extend beyond what prepaid cards currently offers.