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Prepaid cards

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					Prepaid cards

Plastic promise
May 4th 2006 | NEW YORK
From The Economist print edition

Stored-value cards take off
FOR the millions of Americans without bank
accounts, prepaid cards—also called stored-
value cards—could be the next-best thing.
Prepaid cards can be loaded with money and
used as a debit card, but without a bank
account. While credit-card growth has
stagnated in recent years, the prepaid
market is booming. The PELORUS Group, a
research firm, reckons that the dollar
volume of prepaid cards, $126 billion last
year, will top $470 billion by 2010 (see

Prepaid cards are of two types. Single-use
cards, such as telephone cards or Gap gift
cards, can be used only with the issuer.
More relevant for the unbanked are multi-
purpose cards, which can be used almost
anywhere that accepts a credit card. These
increasingly offer the services that used to
come only with a bank account. They can be used to store electronic deposits from
employers or the government, withdraw cash from machines, transfer funds and pay

NetSpend, one of the fastest-growing prepaid-card marketers and processors, has
even added a feature that lets customers funnel money into an interest-bearing
“savings” account. NetSpend boasts that it distributes its cards in more than 10,000
convenience stores, petrol stations and so forth—a bigger network of “branches”
than any bank. And convenience stores are open 24 hours a day and are to be found
in even the most impoverished district.

Enthusiasts think all this is just the beginning. They hope that, soon, prepaid cards
can contain credit-like features, such as overdraft protection or loan advances on
direct-deposited salaries. This could help unbanked customers build credit histories,
opening the way to loans and other financial products. Indeed, credit-scoring firms
are experimenting with using the records generated by people's prepaid cards.

Others are more sceptical. Many prepaid cards have opaque fee structures that make
them pricier than simple bank accounts. Fees can include not just upfront
“activation” charges but also levies for reloading funds and monthly “maintenance”.
Regulation is still hazy. Some cards do not enjoy the federal deposit insurance that
most bank accounts do. Others do not protect cardholders' money if cards are
stolen—something of a drawback in rough areas.

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