Prepaid Cards Being Used Far More, Usage Up 18% While Debit Use Drops

When it comes to credit, prepaid cards foundered for a good while without catching on- but now prepaid cards are gaining a foothold among certain consumer demographics despite punitive fees attached to them.

According to MSNBC, use of the cards was up 18% in 2011, and young people who are eschewing traditional forms of credit are said to be one of the fastest-growing segments of prepaid card users. A study done by marketing research firm Javelin also revealed the cards are becoming more popular among people who don’t qualify for traditional credit- in the research, it was revealed that 88% of those surveyed had checking accounts, down from 92% of respondents in 2010.

However, the underbanked are not the only segment embracing the cards. While prepaid cards typically carry high usage fees, the research cites many previously-burned consumers who are happy to pay a $3 or $4 fee after experiencing years of crippling $35 overdraft fees. Pew’s Susan Weinstock explains:

“They’d rather pay the $3 and $4 fees to load and reload rather than pay a $35 overdraft fee… And just the fear of the overdraft fee seems to be driving them toward using a prepaid card.”

Beth Robertson is director of payments research at Javelin, and she Robertson comments:

“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.”

Robertson also says:

“Today’s prepaid features match and even surpass the features of many checking accounts. They include allowing you to manage your card through your mobile device or social media account, or make person-to-person transfers.”

Other reasons cited for skyrocketing prepaid card use is built-in budgeting as well as anonymity, as the cards lack most of the tracking features inherent with standard credit cards.