Home > 2013 > Credit Cards > New Tech Could Mean Trouble for Prepaid Debit Cards

New Tech Could Mean Trouble for Prepaid Debit Cards

Advertiser Disclosure Comments 0 Comments

New Tech Could Be Trouble for Prepaid Debit CardsThese days, millions of consumers across the country rely on prepaid debit cards as a means of handling their finances because they find traditional bank accounts to be too expensive. However, with coming technology changes for the card industry, those people might have more difficulty in obtaining these accounts at low costs.

Within the next few years, many of the nation’s top credit and debit card issuers plan to make a major change to a new type of card information storage technology that involves the use of microchips instead of the current magnetic strips, according to a report from American Banker. But the problem for those who rely primarily on prepaid debit cards — a market that is projected to be worth hundreds of billions within the next few years — is that banks tend not to make a tremendous amount of money on them. Recent statistics show that most prepaid accounts are only active for six months or less, and, therefore, don’t generate as much in the way of fees as issuers may like.

This fact, combined with the higher manufacturing costs associated with these microchip-enabled cards that are set to become the standard in the next few years, means that many banks could decide to stop issuing them altogether, the report said. Many may try to move to mobile prepaid account options that likely would not have any added manufacturing costs to build into the price, or they could transition prepaid debit cards to being less for under- or even unbanked consumers and more for consumers interested in “value-added” products.

In general, those without robust access to traditional banking products use them mainly to receive funds either from their employers or government entities, the report said. MasterCard projects that as much as $369 billion will flow through these accounts by these means by 2017, meaning that value-added accounts — those for consumers who have them in addition to standard banking products — will likely make up more in funds than that amount.

Some prepaid debit card issuers have been criticized for charging potentially unfair fees for everything from adding money to accounts to monthly maintenance fees. However, in reality, many Americans rely on these cards in their everyday lives with little difficulty, indicating that these fees are likely still more affordable for low-income consumers than traditional bank accounts.

Image: Hemera

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.