Don't look for
to replace checking accounts anytime soon. While the cards can work
as a stand-in for traditional bank accounts, a new study finds most
cards are short-lived.
The study, conducted by the
Federal Reserve Bank of Philadelphia
, provides a snapshot of how consumers are using prepaid cards. The
findings indicate most people use them only temporarily, and ATM
fees are a significant source of the charges associated with the
Trends in prepaid card use
The Federal Reserve Bank looked at 280 million transactions
spread across 3 million cards nationwide. Consumers purchased the
cards through a variety of means such as online and through retail
locations. Other cards were provided by the government or employers
as part of payroll or benefit distribution programs.
While usage varied considerably, the study came to the following
- Most prepaid cards are used for less than 6 months.
- Cards used for direct deposit are used for twice as long and
have 10 times the activity of other prepaid cards.
- Only 20 percent of cards are used intensively.
- Grocery stores, fast food restaurants and gas stations are
where consumers are most likely to make a purchase with a prepaid
- Use of general purpose reloadable cards, such as those
available for purchase in stores, is concentrated in the West and
- Prepaid cards used for payroll purposes seem to be
concentrated in the South and Southeast.
General purpose reloadable cards and payroll cards are used most
frequently, with only 20 percent having dormancy periods longer
than 90 days. However, 45 percent of cards distributed by financial
institutions and 80 percent of those associated with flexible
spending accounts had dormancy periods of this length.
Card fees traced to the ATM
Overall, the Federal Reserve Bank of Philadelphia concluded that
prepaid cards are not a major moneymaker for card issuers. For a
typical card, issuer revenues and cardholder costs were $12 per
month or less. Even on the most active cards, issuer revenue and
cardholder costs were generally $20 per month or less.
ATMs accounted for a significant portion of a cardholder's
monthly fees. The study determined 15-40 percent of monthly fees
could be attributed to ATM surcharges. The high proportion of ATM
fees may be linked to the number of cash withdrawals made by
cardholders. Of money loaded on the card, 30-50 percent is
typically removed via cash withdrawals rather than purchases.
The latest data from the Federal Reserve System found there were
6 billion prepaid card transactions in 2009 valued at more than
$140 billion. However, despite the popularity of these cards, this
study suggests most consumers are using them only temporarily
instead of as a permanent replacement for
their checking accounts