Prepaid Cards Get 'Upscale' Makeover

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NEW YORK-American Express Co. is trying to take prepaid debit cards-typically targeted at underbanked consumers-upmarket.

The credit card issuer recently announced a deal with AAA Southern New England in which the automobile club's 2.8 million members will receive membership cards that include a prepaid payment function.

Users who activate the prepaid feature will be able to load funds to the account using AmEx's credit and charge cards or checking and savings accounts. The card also includes an up-front activation fee of $15 but lacks charges for things like reloading funds, checking balances and currency conversion that are standard with most prepaid cards today and have raised the ire of consumer advocacy groups. It also does not have a monthly service fee, according to American Banker, an affiliate of Credit Union Journal.

"This is for sure a premium prepaid card," said Stefan Happ, the senior vice president and general manager of AmEx's global payment options business, adding that its prepaid cards appeal to "a very broad section of the population, likely broader than" its credit and charge card franchise.

The AAA program, which begins this month, is AmEx's latest effort to expand its traditional base of higher-end credit card holders.

In February it began testing the sale of co-branded prepaid cards with Target Corp. It announced a deal to sell gift cards in more than 1,800 post offices beginning this month under a pilot test with the U.S. Postal Service and is also pushing Serve, a digital wallet service similar to PayPal that lets customers fund a prepaid account using existing payment cards, including non-AmEx ones, and bank accounts.

The amount of money loaded onto reloadable, "open-loop" prepaid cards, which carry the brand of a payment network like Visa Inc. or MasterCard Inc., is expected to reach $201.9 billion in the U.S. in 2013, up from $28.6 billion in 2009, according to Mercator Advisory Group.

"We really do expect to fully participate in the growth of this sector," Happ told American Banker, adding that AmEx expects to make additional announcements about prepaid products.

Under its latest partnership, AAA Southern New England's members will receive the cards when they renew their membership. They can also request one before their membership expires. The club serves members in Massachusetts, Connecticut and Rhode Island.

By partnering with an organization like AAA, whose members are users of mainstream banking services, and limiting reload options to AmEx cards or bank accounts, AmEx is recognizing "that prepaid can be a budgeting tool for anyone, really, who wants to set aside money," said Ben Jackson, a senior analyst with the prepaid advisory service at Mercator.

"AmEx is taking the prepaid card upmarket, so they're breaking out of this idea that prepaid cards are only for the unbanked [or] underserved," Jackson said.

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