The companies have built businesses by selling cards to customers and charging fees for their use. Other companies provide cards as independent sales organizations.
For example, Green Dot Corp. told the New York Times that there was more than $4 billion in transaction volume on its cards in 2008. These companies sell their cards in check cashing outlets, payday lending outlets, in drug stores, grocery stores, and over the Internet.
The companies show that prepaid cards can become a line of business for banks. Banks have offered payroll cards to companies that want to get rid of checks. These companies often want to use direct deposit for payroll but cannot because their employees do not have bank accounts.
Prepaid cards give banks a way to provide a service by replacing checks with an electronic payment. Comerica and U.S. Bank have built large prepaid businesses by offering prepaid cards for government programs such as Social Security and state child support programs.
By offering prepaid cards, banks can boost their fee and interchange income. Beyond payroll and government benefits cards, banks have sold gift cards, travel cards, and payroll cards to consumers and businesses. The 2007 Federal Reserve Payments Study estimated that almost 322 million transactions were made with open-loop prepaid cards in 2006, and this shows that a large market for prepaid cards exists.
The United States has approximately 18.5 million households that do not have a bank account.These consumers are an opportunity for banks because they need to cash checks, pay bills, and buy goods and services.
Prepaid cards can help them avoid check cashing fees when consumers use direct deposit, and they can help them make purchases over the Internet, rent cars, and make bill payments without using money orders or
Although prepaid cards can be an opportunity for banks, before building a prepaid program, banks need to understand how prepaid cards work and what the challenges are.