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Written by Cyndie Martini
on May 05, 2016

Prepaid cards made their debut in the 1970s, and they have since been a consistent payment method many people have turned to in the intervening decades. For the most part, the people who used prepaid cards were college students, low-income workers and unbanked individuals, or those who did not have a checking account at a bank or credit union.

However, the prepaid trend is growing beyond these demographics as more people see the benefits of using one. According to Payments Leader, the U.S. Federal Reserve has even referred to the payment method as the "fastest growing method of payment," and in 2014, more than $200 billion of retail was purchased using prepaid cards. And, according to a study from The Pew Charitable Trusts, those using a prepaid card may not necessarily be a college student, low-income or an unbanked person any longer.

In fact, more than one-quarter of those surveyed had a college or postgraduate degree, more than one-third of prepaid card users earned more than $50,000 a year. Plus, nearly three-fourths of survey respondents had an account at a bank or credit union. Banked individuals were the main reason prepaid card usage increased more than 50 percent between 2012 and 2014.

Benefits of prepaid
The reasons for the shift in attitudes toward prepaid cards are plentiful. First, they act as an excellent budgeting tool. Consider the plastic alternatives to a prepaid card: the credit card and the debit card.

Credit cards are convenient and can help a person to make an important purchase before they have the funds to do so. However, it's easy to get carried away with credit. Purchases can add up quicker than the user realizes, and added interest can make bills difficult to keep up with.

Debit cards are also handy, but if the user isn't careful, it only takes one purchase for the user to be charged overdraft fees.

Prepaid cards, on the other hand, can allow for better budgeting, explained CNBC. This is because once the money loaded onto a prepaid card is spent, the user cannot make any more purchases until the card is reloaded.

"[People use prepaid cards] to gain control of their finances, avoid overspending and overdraft fees," Alex Horowitz, a research manager at The Pew Charitable Trusts. "This way they know they can put a certain amount on the card and spend that and no more."

Strategic budgeting is a key factor in why many people choose prepaid:

  • 72 percent aim to avoid overdraft fees
  • 67 percent use them to stay out of debt
  • 57 percent avert check-cashing fees

Another attractive benefit of prepaid cards is the security, according to Ron Hynes, MasterCard's global head of prepaid solutions, who spoke with PYMNTS.

"If a consumer loses his or her card, or it is lost or stolen, he or she has no liability," he explained. "This is different for cash one may lose $300 cash from a wallet, and there's no getting it back. That is probably the most profound example of security." explained how consumers like that there is no link between a prepaid card and the holder's personal information or any bank account. Even if the card is stolen or compromised, the only thing at risk is the amount of money on the card. The cardholder's credit will not falter and all existing bank accounts will remain untouched.

How credit unions can market the card
As the popularity of prepaid cards continues to grow, it's important that credit unions stay ahead of the trend. According to The Pew Charitable Trusts' survey, 19 percent of banked individuals and 6 percent of unbanked people purchase their prepaid cards at banks or credit unions.

However, with the right marketing strategies and member education, this number has potential to grow. There are many people out there, both credit union members and nonmembers alike, that would benefit from a prepaid card. By teaching them how to use it to stay out of debt and on budget, more people will see the value prepaid has to offer.


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