A. The Beauty Of Prepaid Debit Cards!

I have been a long time proponent of using prepaid debit cards.  Anyone who considers themselves to fit within lower middle class and down really has no need for a bank account, especially if your credit is already bad.  Basically, anyone who lives check to check or has a $0.00 (or negative) balance at least once a month has no need for a bank account.  Below is an article highlighting the ‘rising’ cost of bank fees, as the reason, however I have long held that the fees and rules that commercial banks ‘lord’ over their customers were already to high and restrictive.  I challenge anyone who still believes in bank accounts to show me what a bank account can do for you that a prepaid debit card can’t (and then some).  Read the article below and get at me (as the late, great Michael Jackson would say, ‘It’s with L-O-V-E’!):

With bank fees rising, prepaid debit cards could replace checking accounts

Matthew Scott
Dec 4th 2009 at 11:00AM

More Careful Spenders

Research firm IBISWorld estimates the prepaid debit card market to be between $50 billion and $160 billion for 2009. The category has expanded at an average rate of 15% to 40% annually for each of the last five years.

“The prospects are strong for prepaid debit because the recession and unemployment is affecting the economy,” said Aite Group research director Gwenn Bézard, author of the report, Prepaid Debit Cards: A Credible Alternative to Checking Accounts. Consumers have already shown that they are moving from store gift cards to prepaid debit cards to save money. Bézard said the use of prepaid debit cards is trending up, “as people become more careful as to where they spend and how much they pay in bank fees.”

Bézard said prepaid debit cards could deliver savings of about $350 to more than $1,800 per customer for about 14% of those who already have checking accounts. He said the findings of his report, originally released in February, were still relevant, particularly as Congress debates placing restrictions on bank overdraft fees.

A similar report from financial advisory firm Britton Woods put the annual savings from using a prepaid debit card instead of a checking account at between $96 and $146, but it only covered “basic” debit card and checking account use. “There are a multitude of services a consumer could use that would increase costs for both bank and prepaid card accounts,” the report said.

Frustration with Bank Fees

The savings are derived primarily from avoiding overdraft fees and non-sufficient funds fees that banks charge for not maintaining enough deposits, the reports say. “Checking accounts are free up until the point where you start to generate overdraft fees,” said Bézard, noting that at $35 each, overdraft fees can make a “free” account quite expensive. Monthly account maintenance fees of $6 to $10 add up as well.

Yet another report by Consumers Union, Prepaid Cards: Second-Tier Bank Account Substitutes, suggests that consumers are switching to prepaid debit cards in response to economic uncertainty and frustration with bank services and fees. But the report also emphasizes a number of reasons why prepaid debit cards deliver banking services that are still high cost. The report adds that the cards may come with confusing fees and may not deliver the same protections for income loss as debit cards linked to traditional bank accounts.

Taken as a whole, the reports indicate that through hidden fees and deposit requirements, banks may have priced checking accounts out of the reach of some consumers, opening up a great opportunity for alternative lending operations like Green Dot, NetSpend and AccountNow, which issue re-loadable prepaid debit cards.

Never Going Back?

These companies are already set up in check cashing establishments nationwide, and they allow customers who direct deposit their paychecks onto the cards avoid activation and monthly fees, while providing access to credit card and online purchasing, as well as bill pay by phone, check or online.

Unemployed and low-income workers who discover prepaid debit cards because they cannot maintain account balances in their bank accounts may not return to banks once they get back on their feet. The Aite Group estimates that $20 billion in bank service charge income could be lost if a significant number of consumers switch from checking accounts to prepaid debit cards. The banks apparently are not concerned — yet.

“While banks claim to address the unbanked market, their [non-sufficient funds] policies contribute to driving an ongoing flow of customers away from mainstream banking,” said The Aite Group report.

Follow-Up Article:

Gift Cards:  How the new plastic economy is becoming a tool for hidden charity

Bruce Watson
Nov 26th 2009 at 11:00AM

Sales of gift cards fell last year, and they’re expected to fall again this year. They’re still one of the most popular gifts items, but as unemployment and inflation have transformed everyday indulgences into unjustifiable luxuries, gift cards have changed, too. Once an invitation to impulse purchases, they’re becoming a strategy for gift-givers to help friends and family weather economic storms.

As my DailyFinance colleague Matthew Scott recently noted, the gift-card economy has shifted over the past year from retailer-branded cards to cards that function as cash or credit cards. Part of this may be a holdover from last year’s parade of bankruptcies; as Linens & Things and The Sharper Image crashed and burned, their cards suddenly becameworthless. Visa (V) and American Express (AXP) gift cards may lack a store’s branding appeal, but they’re far more likely to survive a downturn.

 

Part of the shift move may also lie in gift cards’ viability as a form of low-level banking or overseas money transfer. These cards often havesignificant fees, but they’re still cheaper than wire transfers, and they let users save and move money easily without resorting to cash. In this respect, they fill a necessary gap: The economic crisis may have reduced credit access for lower-income consumers, but it hasn’t reduced those consumers’ need for credit or the easy flow of cash. Cash cards and gift cards let these consumers fulfill their banking needs — albeit at a premium price. 

Giving the Gifts of Utilities and Health Care

Another indication that gift cards are filling a need in the economic crisis is the growing popularity of special-purpose cards. Credit-branded gift cards let users spend their money on an endless array of items, which makes them problematic for gift-givers concerned about their loved ones’ inability to spend wisely. Some utilities now sell prepaid gift cards that can be applied directly to an energy bill. They’re decidedly unsexy, but they offer a delicate, indirect way to help a relative keep the lights on. Another common casualty of lowered economic circumstances is health insurance, so various health care providers are offering cards that cover prepaid doctors’ visits, services, and even insurance premiums.

Utility and health-care cards also offer a solution to the growing gift-card trend for exchanges. As gift cards become ever more common, more sites now let cardholders sell or exchange their cards. On the surface, companies like Gift Card Buy Back and Gift Card Rescue effectively make the brand on the card irrelevant, as consumers can move their gifts from place to place with minimal difficulty. Of course, these services don’t come cheap: Even the best of them offer only 80 cents on the dollar, and most give back much less.

As the Salvation Army expands its cadre of bell-ringing Santas who accept credit cards, charity itself is becoming far more plastic — in all senses of the word. With gift cards providing an attractive cover for charity, retailers will probably keep losing sales to more flexible and useful methods of cash transfer.