Both American Express and JPMorgan Chase have unveiled prepaid cards to appeal to the underbanked and unbanked, while California-based card issuer Kaiku Finance has debuted its prepaid alternative to appeal to a larger market.
“We think prepaid can be of value and use to all types of consumers,” Jon Round, the CEO of Kaiku, said, according to The Wall Street Journal.
Prepaid card use has enjoyed increasing popularity, growing by 20 percent in 2011 to $483 billion. That number is expected to rise to $594 billion in 2013, and field research reveals that prepaid is not only being used by low-wage earners but by other income groups.
A report by Aite Group showed that 33 percent of all prepaid users make more than $45,000, while 15 percent of prepaid consumers make more than $70,000, The Wall Street Journal reports.
Experts say that issuers are appealing to a larger customer base as prices become more competitive. Chase’s Liquid prepaid card carries a monthly fee of $4.95, while Kaiku’s fee is $1.95 per month.
Additionally, prepaid cards offer several advantages over traditional checking. Cards are never “maxed out” and are often more cost-effective than a traditional checking account, which can be accompanied by costly fees, according to The Wall Street Journal.
Banks have sought out revenue alternatives following the enactment of the 2010 Dodd-Frank Act, legislation designed to reduce risk to the U.S. financial system. The legislation has led to an $8 billion loss for banks since it took effect in 2011.
Other bank representatives, however, maintain that banks are responding to a demand for new, innovative banking products.
“I think the main driving force is it’s an exciting new product,” Nessa Feddis, the vice president of the American Bankers Association, said, The Wall Street Journal reports.