Visa, MasterCard See Gold in Prepaid

Revenue and profit at both companies have been in the double digits and are expected to stay there over the next few years. The companies also do not extend credit to consumers, instead issuing their cards through bank partners and collecting a fee on each transaction. As U.S. consumers struggle to pay their bills, loan delinquencies and defaults have taken a bite out of earnings at other card-based companies such as American Express (AXP Quote) and Discover Financial Services (DFS Quote), which do hold consumer debt.

Prepaid cards are often thought of as simply travel and gift cards, which include a set amount and expire once the amount is fully used. But their potential extends far beyond that, the companies say. Both Visa and MasterCard are tapping into traditionally cash- and check-based markets like employer payroll systems, federal and state government disbursements -- such as child care benefits and unemployment funds -- health care services and rebates.

"We think prepaid products are uniquely good for those segments and we believe we are uniquely well-positioned to penetrate those segments because we start with such a strong leadership position in debit and debit processing," Buse says. Like charge cards and debit cards, Visa and MasterCard receive a fee per transaction for every prepaid transaction.

Opportunities Abroad and Overseas

The latest trend is "reloadable" prepaid cards, in which customers can replenish card funds instead of having a set amount. JPMorgan Chase (JPM Quote) plays a significant role in the state disbursement industry, among others.

U.S. Bancorp (USB Quote) has taken an interest in general, reloadable cards, which could be attractive to a huge, largely untapped market: Low-income or immigrant customers and others, such as teenagers, who do not have traditional checking or savings accounts. Such spenders typically turn to check-cashing services, payday lenders, money orders and tax refund anticipation loans in order to get cash -- often at high fees, according to Celent.