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Prepaid Industry Scores an A-

[Thursday, April 3rd, 2014]

Prepaid cards are one of the hottest financial things going these days. Not only are celebrities like Justin Bieber targeting young people with their very own cards, prepaid products like Bluebird and Serve (both from American Express) are making a play to replace traditional checking accounts.

This is good news for the unbanked market—people who cannot get a traditional bank account or credit card because of limited credit or lack of credit history.

But how well are prepaid cards meeting the needs of their customers? The Center for Financial Services Innovation (CFSI) is attempting to answer that question with their very first Prepaid Industry Scorecard. It measured18 prepaid cards (approximately 90% of the prepaid market) against industry benchmarks for design, delivery of services, positive use and sustained value.

The findings of the scorecard indicate that so far, the prepaid industry is on the right track—albeit, with room for improvement. Despite concerns from consumers and government agencies about fee structures, lack of fraud protection and the overall security of prepaid cards, the CFSI scorecard gave the industry a grade of A- for overall adoption of basic practices.

Going the extra mile

The CFSI also said the prepaid industry could go beyond basics and increase value to consumers by adding services to promote positive use. Things like adding free ATM networks, companion cards linked to other accounts, budgeting tools and built-in savings strategies are all ways that the prepaid industry could provide more value to customers. For these more sophisticated practices, called “Stretch” and “Next Generation” in the Scorecard lingo – the industry scored a B and a C-.

Better than bank accounts?

Prepaid cards can do many of the things that checking accounts can do. People can have paychecks direct deposited to the cards, set up bill pay, withdraw cash from ATMs, and use the cards for purchases the same way they would use a credit card. Prepaid cards can be used anywhere that accepts credit cards, provided they accept cards from the same network as the prepaid card—MasterCard, Visa, and American Express being the major players.

For people who cannot qualify for an unsecured credit card, prepaid cards are the answer when they are faced with a situation in which they need to use a credit card. And for the unbanked, who cannot get a checking account, a prepaid card provides a way to get paid and pay others.

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