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.”