Believe it or not, tech-savvy millennials are ditching smartphone apps and mobile wallets in favor of a longstanding payment method – prepaid cards. Once thought of as an option used only by the underbanked, prepaid cards are drawing serious interest from millennials. In fact, one in three Americans ages 18 to 34 have used a prepaid debit card and 60% would consider using one.
Think income might be a factor? Think again. Three out of five millennials who earn $100,000 or more report using prepaid cards. Lack of options doesn’t appear to be an issue, either – 83% of millennial prepaid card users also have debit cards.
From avoiding debt to sidestepping traditional bank fees, here’s a look at what’s fueling prepaid cards’ rise among millennials and what it means for the businesses that employ them.
Why prepaid cards?
While relatively small, banking fees can quickly add up – and a growing number of millennials are starting to take notice of the various options now available to them. Banks charge an average monthly fee of $13.22 on basic checking accounts. More importantly, even a small, accidental overdraft can incur significant punitive charges. To avoid such surprises, more millennials are opting for prepaid cards. Although these cards do come with fees, many young users appreciate the ability to put a hard cap on their spending and avoid the costly overdraft fees so typical of traditional bank accounts.
Which brings us to another key benefit: prepaid cards can help users stay debt-free. The average US household owes approximately $16,000 in credit card debt. By allowing cardholders to load the required funds prior to making a purchase, prepaid cards help eliminate debt concerns altogether. Having access only to the amount of funds available on a prepaid card can also benefit those who tend to overspend.
In addition to minimizing debt, prepaid cards can even function as a learning tool for millennials who are getting used to living – and spending – on their own. Unlike credit cards, which allow users to plunge deeper into debt, prepaid cards feature a set amount of money that can be tracked and spent – all without negatively impacting a credit score.
Finally, millennials are also opting for prepaid cards over credit and debit cards because of the security benefits. Whereas the latter can potentially give fraudsters sweeping access to an individual's financial assets, prepaid cards are not linked to any broader portfolio and typically have limited available funds.
Taking the pain out of payments
Considering their surge in popularity with millennials, it may be time for businesses to start looking at prepaid cards as a payment option for their workers. Doing so will not only boost engagement rates, but it may also demonstrate a company’s flexibility to potential prospects. Perhaps even more importantly, cardholders won’t have to deal with credit checks and overdraft fees commonly associated with credit cards.
As with any payment method, however, there are challenges both companies and workers should keep in mind. For example, if a prepaid card is lost or stolen, there may be fewer protections in place than there are with traditional debit or credit cards – although even this is being addressed through regulatory changes. And when it comes to bigger purchases, such as a house or car, credit cards help build the required credit history that prepaid cards often can’t – at least, not yet.
Still, the benefits of prepaid cards may outweigh the risks in the eyes of millennials. From fewer fees to a smaller chance of accruing debt, it’s easy to see why more millennials are opting for prepaid cards than ever before. By offering prepaid cards as a payout option, businesses can better cater to the needs and preferences of the largest working generation in the US.