Prepaid Card Use Climbs Among U.S. Adults

NEW YORK -- Consumers backed away from traditional banking products in 2011, pushing prepaid card use up about 18 percent for the year.

Citing a study by market research firm Javelin Strategy & Research, Businessweek reported that about 13 percent of U.S. adults used prepaid cards last year compared to 11 percent in 2010.

"People used to think of them as cards for people who didn't have a lot of money, whereas today, they're becoming much more common for a variety of uses and a variety of demographics," said Beth Robertson, director of payments research for Javelin.

She pointed to several factors as key drivers behind this shift. For example, regulations have increased the cost of checking and debit products, and consumers are beginning to choose prepaid as a budgeting tool, the news outlet reported.

The Javelin study also found that as prepaid cards ticked up, the number of consumers with checking accounts, credit cards and debit cards took a hit. About 88 percent of consumers had a checking account in 2011 compared to 92 percent in 2010. Consumers with credit cards fell to 67 percent from 74 percent, and those with debit cards dropped to 66 percent from 78 percent.

However, the Businessweek report noted that those still with credit and debit cards are using them more.

"Overall spending is continuing to grow despite the fact that fewer consumers have those cards in their wallets," Robertson said.

The shift to prepaid cards comes during a year when the Dodd-Frank regulations curbed other revenue sources, driving banks to increase fees where they could. But that is not to say prepaid cards are without their own fees. According to the news report, BB&T may charge a $10 monthly fee for its prepaid cards; that's reduced to $5 for users who add at least $1,000 to their cards in a month. U.S. Bancorp may charge nothing for cash deposits made at its branches and may charge a $3 monthly fee and $1 to check a card's balance at a non-U.S. Bancorp ATM.

Prepaid cardholders, on average, said they pay about $1.96 to add money to their cards, the Javelin study found.