August 24, 2013
The growth of prepaid cards in the payments industry has been quite significant. Prepaid cards are used mostly to shop, pay bills, pay salaries and draw cash from ATM’s. Some of the ways to classify best and worst prepaid cards is by looking at factors such as transparency of fees, value the card offers to its user, safety, convenience etc.
Last year people in the US used prepaid cards 1.6 Billion times and transactions worth $77 Billion were made, according to Consumer Reports. Consumer reports have further ranked the best and the worst prepaid card providers.
According to them, the top 5 prepaid cards are:
· Prepaid card from Green Dot Bank
· Bluebird Card
· H&R Block Emerald Card
· Approved Card with direct deposit
· Approved Card without direct deposit
The worst prepaid cards are:
· American Express for Target prepaid card
· Account Now Prepaid Gold Visa
· Redpack Mi Promesa Prepaid Master Card
· REACH card from Tom Joyner
The worst prepaid cards that have been listed have high monthly fees, high activation and transaction fees and mostly their terms and conditions are not easy to understand for its user.
In a move to safeguard the prepaid card users from high fees Consumer Financial Protection Bureau (CFPB) stated that it may soon come up with new rules to safeguard users of prepaid cards.
Christina Tetreault, staff attorney for Consumers Union stated that 'The CFPB should rein in abusive prepaid card practices and require clear disclosure of all fees. Prepaid cards should come with guaranteed federal safeguards that protect consumers from losing their money because of fraud or merchant mistakes.'
Some of the other developments with Prepaid cards is its usage in US as payroll cards. Employees in US at stores like Walmart, Walgreen, Tacobell etc. are getting paid through prepaid cards. There are speculations that the employers are being rewarded by the card companies for doing so. Please read the full report here.
Employers are furious that they are receiving their pay through prepaid cards as they have to pay additional fees for withdrawing cash from ATM's. Fees to withdraw money through ATM's will costs the employees as much as $1.75, $2.95 for a paper statement and $6 to replace a card. This fees is eating up in to the hourly wages of the employees and this is causing distrust between the employees and the employers.
Employees are still looking out for a solution to this problem. One of the solutions that is working out for them is to withdraw their entire pay for the month in one go and pay $1.75 withdrawal fee. Getting paid through prepaid cards may not stop soon as an estimated $68.9 Billion will be paid out to the employees through 10.8 Million active prepaid cards by 2017, according to Aite Group.
LTP View: Prepaid cards were meant for unbanked and underbanked. If prepaid card users interests are not yet protected, users have no option than to switch over to traditional checking account.