American Express will start issuing a new prepaid debit card June 21. The company, previously known for aiming at higher-end, luxury buyers, is staking new ground by targeting the average consumer. Other card-issuers are expected to follow suit.
Building on the PASS card
Lat year, American Express introduced the PASS prepaid card, designed to help parents to keep their children on a financial leash. However, the company soon realized that prepaid cards had a far greater potential. Last year, According to the industry group Network Branded Prepaid Card Association, U.S. consumers spent about $37 billion on prepaid cards. That is double the amount from last year and quadruple the figure from 2008.
Reaching a large demographic
Dan Schulman of American Express stated, “this card is for everyone. It could be for a parent who wants to give their kid a card, it could be for someone who doesn’t have access to credit. It’s a very large market that spans demographics.”
No bank is required for the new cards, and there is a built-in safeguard against debt. A consumers can only spend what is loaded onto the card.
A promise of minimal fees
American Express promises to shave the fees normally associated with prepaid cards. The company will charge a fee of $4.95 when money is loaded onto the card, although no fee is charged if money is transferred from an existing bank account. The only other fee is a $2 charge whenever the card is used at an ATM. Card holders, however, are allowed one free ATM transaction per month.
Other benefits of the new card
The American Express card will come with online history and balance checks. In addition, card users will receive the other benefits associated with American Express cards, such as purchase protection and roadside assistance.
Other card issuers likely to follow
Given the growth in the prepaid card industry, other banks and card-issuers are expected to follow in the footsteps of American Express. Gerri Detweiler, personal finance expert at Credit.com, said, “I can’t imagine that every large issuer isn’t looking hard at prepaid cards right now.”
Not affected by credit card legislation
Consumer groups warn that prepaid cards are not covered by the CARD Act, which Congress passed last year to limit credit card fees. Prepaid cards are also exempt from the Durbin Amendment, a law soon to take effect that limits “swipe fees,” the fees that banks charge retailers when customers use debit cards. Banks may see the prepaid card as a alternative source of revenue lost from other card transactions and take advantage of the loophole.
The American Express prepaid card will be available at no cost online and will later be available in drug stores and other retail locations. The card purchase fee will be about $5.