There’s a new kind of plastic on the rise. Prepaid debit cards are the fastest growing of all electronic payments, according to a new report by the Federal Reserve System. U.S. consumers loaded $28.6 billion on reloadable prepaid debit cards last year. In an increasingly card-based economy, issuers of prepaid debit cards say they are offering an affordable alternative for the millions of unbanked and underbanked Americans. Consumers are drawn to the convenience of using prepaid debit cards, Terry Maher tells NPR’s Audie Cornish. Maher is general counsel of the Network Branded Prepaid Card Association (NBPCA), an industry group, and has spent the past 25 years advising financial institutions on their prepaid card businesses. Prepaid debit can be used anywhere the card’s brand, such as Visa or MasterCard, is accepted. “It’s a lot safer than carrying cash … [and] the consumer can better budget and keep track of what they’re spending,” adds Maher. Prepaid debit cards can also ease the worries of gift givers, allowing recipients to purchase their own gifts with the cards. Maher says prepaid debit cards help meet the needs for the millions of unbanked and underbanked in the U.S. “We’re providing a solution to a community that otherwise would have a great difficulty in participating in everyday activities.” At least 17 million unbanked adults do not have a checking or savings account, according to a 2009 survey by the Federal Deposit Insurance Corporation. The underbanked represent about 43 million adults who have a bank account but rely on alternative financial services such as check-cashing stores and payday loans. As the cost of keeping low-balance checking accounts rises, prepaid debit cards provide a more affordable option for increasingly more consumers, Maher says.

Published on December 12th, 2010 by NPR