Credit Cards, Debit Cards, and Prepaid

Right from the start, the people who run credit card companies recognized that so-called “prepaid credit cards” were not credit cards at all. That’s obvious. If you’ve already paid for something before you buy it, there’s no credit involved. The phrase is an oxymoron.

What was needed, obviously, was a snappy, consumer-friendly name for the cards that people would instantly love and want to use. So the marketing geniuses in the credit card companies had a long, hard think, and–after much deliberation–came up with…”Network Branded Prepaid Card.” Just trips off the tongue, doesn’t it?

No surprise, then, that so many people still refer to them as prepaid credit cards.

Prepaid Credit Card Use to Triple?

On Monday, MasterCard published a report that it commissioned from the Boston Consulting Group. This forecast that prepaid credit card use would more than triple between 2009–when its dollar value was $120.2 billion–and 2017 when it is predicted to be worth more than $440 billion.

The report’s authors expect the U.S. to retain its global lead in the sector. In fact, they say that, in 2017, America is likely to account for 53 percent of the world’s prepaid credit card use, which represents a bigger share than double the next six biggest national markets put together.

Why the Jump?

Please say it’s not because so many Americans will have terrible credit scores by then and won’t be eligible for mainstream credit cards.

Unfortunately, that may be partly true, but more new research–published yesterday by Mintel–suggests that consumers’ disillusionment with banks could be at least as important a factor as banks’ disillusionment with individual consumers. Mintel’s press release said:

…19% of respondents overall stated that they would be interested in using prepaid cards to pay bills, rather than a banking account. More importantly, 25% of households earning more than $100K per year, the more profitable and desirable customers for banks, agreed that they would be interested in using prepaid cards. Their main motivation was to avoid overdraft and/or other types of banking fees.

Prepaid Credit Card Terms–a Warning

About nine months ago, the New York Times ran a feature that warned about excessive fees contained in the small print of some issuers’ prepaid credit card terms and conditions. It found wide variations between the amounts levied for all charges, including:

• Application fees
• Monthly maintenance fees
• ATM withdrawal fees
• ATM balance enquiry fees
• Inactivity fees
• Purchase fees
• Fees for calls to customer service

In fact, the Times found that at least one card had up to 24 different fees.

Prepaid Credit Card Applications

Before you sign a prepaid credit card application, remember two of the golden rules for choosing all cards:

1. Make sure you understand all the fees and other charges before you commit yourself
2. Pick the card that is cheapest for your particular lifestyle

So, for example, if you make a lot of ATM withdrawals, eliminate cards with high ATM fees.

Pick a Card

Some cards have been tailored to appeal to particular groups of consumers. For example, Current by Discover Teen Prepaid Debit Card could well suit a young person.

The ACE Visa Prepaid Debit Card has a handy option where you can choose to pay a monthly fee of $9.95 instead of an individual transaction fee on each of your PIN and signature purchases. This could appeal if you mainly use your cards to buy things in stores.

Meanwhile, The Mango™ MasterCard® Prepaid Card has very few fees at all (check them out on this website), and even waives its $5 monthly maintenance fee providing you deposit at least $500 a month. For many, this may well be a “best buy.”

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