More than 1 in 8 American consumers now carry reloadable prepaid debit cards, according to a new report from Javelin Strategy & Research. Stronger rewards, cheaper fees, and changing attitudes about traditional banks all contributed to the growth of prepaid debit, even during a period that saw many banks shrink the number of their traditional checking, savings and credit card accounts. In October, Javelin commissioned researchers to interview more than 3,000 Americans about how their use of prepaid debit cards has changed over the past few years. In the process, the research team gained insight into how consumers choose prepaid cards from an increasingly crowded field. Beth Robertson, Javelin's director of payments research, told CardRatings.com about her team's findings.
Online purchasing drives adoption of reloadable debit cards
More than half of underbanked respondents told Javelin's research team that they used prepaid debit cards for routine online purchases. E-commerce remains in its infancy, mainly because of issues of access and security. Reloadable prepaid Visa, MasterCard, and American Express accounts let underbanked Americans convert cash into online currency, while shielding traditional bank accounts from online fraud. "E-commerce is only about 6 percent of retail spending," Robertson says, adding that retailers and banks have a long way to go before they master this emerging market. In the meantime, successful card issuers have turned reloadability into an opportunity to foster long-term customer loyalty. Instead of burning one-time-use debit cards, Robertson says, more Americans are reloading the same accounts. Over time, that trust can grow to the point where customers consider using more financial services from their debit card issuers.
Building new banking relationships without bank branches
"Underbanked" consumers make up a growing segment of the American population, according to Javelin's findings. "More people are coming into the country with less of a relationship with traditional banks," Robertson says. "They're less inclined to open a checking account because they're comfortable with other means of managing their money."