PHILADELPHIA — Reloadable prepaid is becoming a popular alternative to checking accounts for a growing number of Americans, and more credit unions than banks are offering the product, according to separate studies from the Pew Charitable Trusts and Moebs Services.
The new Pew reports, part of the nonprofit's Prepaid Cards Research Project, found that consumers loaded $64.5 billion onto prepaid debit cards in 2012, a 13% increase from the $56.8 billion in 2011, and more than double the $28.6 billion in 2009.
Pew research also found that 12 million people, or 5% of adults, use prepaid cards at least once a month. The average prepaid card customer has a household income of nearly $30,000 per year and three-quarters of these consumers are under 50 years of age.
Primary reasons for consumers choosing prepaid, according to Pew, are avoiding credit card debt and overdrafts, plus having greater spending control.
Pew indicated that prepaid cards may help consumers avoid using checking accounts and absorbing checking fees, but cautioned that no federal laws or regulations directly protect consumers from hidden fees on prepaid.
The Consumer Financial Protection Bureau, however, is expected to issue some guidelines on prepaid cards this May. Currently prepaid cards don't have to provide disclosures of fees or terms.
More prepaid cards are charging monthly fees that are similar to traditional checking accounts instead of other transaction-based fees. Of the 66 most popular prepaid cards, Pew reports that the median fees were $5.95 for a monthly fee, $2 for an out-of-network or in-network ATM withdrawal, $1 for a point-of-sale signature or PIN transaction and $1.95 for a live customer service call.
Michael Moebs, economist and CEO at Moebs Services in Lake Bluff, Ill., said the "growth and configuration of prepaid cards has taken us all by surprise. It's been under the radar. This is a service that the marketplace is designing.'
A recent Moebs Services study shows that while 16.4% of financial institutions offer a prepaid card, 23.7% of credit unions are in the marketplace vs. 14.5% of banks and 7% of thrifts.
The Moebs study, which surveyed 2,890 financial institutions in January, found that on the bank side it's the larger institutions — 27.6% of FIs greater than $50 billion in assets — providing reloadable prepaid cards.
Moebs said that the big banks are in the prepaid business for the interchange and reload fees, while credit unions are more often in the business to offer a product that meets members' needs.
"Large FIs have the system resources to design and deliver [prepaid], while credit unions are close to the potential target audience for a prepaid card and may have a better understanding of the need," he said.
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