American Express Co. is trying to take prepaid debit cards, typically targeted at underbanked consumers, up market.
The credit card issuer on June 8 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 may load funds to the account using AmEx’s credit and charge cards or checking and savings accounts. The card also includes an upfront activation fee of $15 but lacks charges for such activities as reloading funds, checking balances and converting currency that are standard with most prepaid cards and have raised the ire of consumer-advocacy groups. It also does not have a monthly service fee.
“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, suggesting its prepaid cards appeal to “a very broad section of the population, likely broader than” its traditional 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.
It began testing in February the sale of co-branded prepaid cards with Target Corp. at some of the retailer’s stores (
The amount of money loaded onto reloadable, “open-loop” prepaid cards, which carry the brand of a payment network like Visa Inc. or MasterCard Worldwide, 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 said, adding the company expects to make additional announcements about prepaid products in the future.
Banks are expected to issue prepaid cards because the products are exempt from pending caps on debit card interchange fees they earn.
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.
AAA members that activate the payment feature will be able to pay for purchases at any merchant that accepts AmEx cards.
By partnering with an organization such as 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 Advisory Group in Maynard, Mass.
“AmEx is taking the prepaid card up market, so they’re breaking out of this idea that prepaid cards are only for the unbanked [or] underserved,” Jackson said.
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