This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

Prepaid debit cards are no substitute for credit cards





Has it finally happened? Have prepaid debit cards moved from being a distress purchase (once used only by those who couldn't get approved for mainstream debit and credit cards), through acceptability, all the way to exclusivity? At least one company seems to think so, because it's issuing a platinum prepaid product -- made of pure platinum. The Pure + Solid® Platinum MasterCard® weighs in at a minimum of 65 grams (just shy of 2.3 ounces), and costs … wait for it … roughly $38,000.

Given that the spot price for platinum closed in New York on July 29 at $1,474 an ounce, you're paying an awful lot -- more than $30,000 -- for the craftsmanship that allegedly goes into making the card, your PriorityPass membership (apparently the only perk) that gives you free access to some airport lounges, and the supposed prestige that comes from owning "arguably the most exclusive card in the world," in the words of the issuer's website. Other than that, you seem to get pretty much the same functionality that comes with any other prepaid MasterCard. Exclusive? Unless we've all gone totally bonkers, your new card could be unique.

Prepaid more mainstream

In July 2014, market research company GfK published its latest review of the prepaid market, and found that 60 percent of Americans had used such a card during the previous 12 months. However, that number included branded gift cards, government benefit cards, payroll cards and student cards, as well as "general purpose reloadable cards (GPRCs)," the ones most of us think of when we talk of prepaid debit cards. Only 16 percent of GfK's sample had used any prepaid card aside from a gift card.

While this suggests that GPRCs still have a way to go, other data from industry body the Network Branded Prepaid Card Association may indicate growth potential. The association asserts:

  1. People with annual incomes in excess of $100,000 are using prepaid cards at comparable rates to those of less affluent consumers.
  2. Relatively high satisfaction rates of about 70 percent are to be found across income groups and generations.

How quickly such growth in usage might occur is unclear. Market research company Packaged Facts forecasts the amount likely to be charged to GPRCs is set to increase 17 percent in 2014, and calls its prediction conservative. However, the First Data SpendTrend analysis for June 2014, which measured the spending on different payment media that month compared with the same period last year, found growth of only 4.0 percent. The comparable dollar value of payments on credit cards was up 3.9 percent.

Brakes on growth

Less than two years ago, IndexCreditCards.com warned readers of the dangers of GPRCs, in particular, high costs, sneakily hidden fees, minimal consumer protections and a near-total lack of regulation. Things have changed to some extent since then, but -- while a number of reputable companies are now offering good products -- there is still little to stop rogue players from ripping off consumers. Indeed, it was only on July 21, 2014, that federal regulator the Consumer Financial Protection Bureau began to accept complaints from the public about prepaid products.

And there's still no serious regulatory structure in place. As The Pew Charitable Trusts reported in February 2014:

...there are no federal laws or regulations that directly protect consumers from hidden fees, liability for unauthorized transactions, or loss of funds in the event of an issuing institution's failure. Nor are there federal rules requiring these cards to provide disclosures of fees, terms, conditions, or dispute resolution practices.

Why credit cards are better

Even if you have the luck and persistence to seek out a GPRC issuer that voluntarily offers the same protections and benefits as a bank debit card, you'd still be missing out on a whole lot that credit card users take for granted.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,810.06 +91.06 0.51%
S&P 500 2,063.50 +10.75 0.52%
NASDAQ 4,712.97 +11.1030 0.24%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs