by Donna M. Airoldi | August 04, 2010
Prepaid cards that carry network brands like Visa, MasterCard, or American Express are gaining in popularity, but primarily as gift cards, according to Cardbeat, a market research report published by Auriemma Consulting Group.

In the April 2010 Cardbeat survey, which had 528 cardholder responses, 42 percent of respondents said they had received a network-branded (or open-loop) gift card, compared to 67 percent who had received a store-specific card.

“That’s a big increase since our 2005 Cardbeat survey of the gift card market, when only 26 percent of shoppers received open-loop cards,” said Nancy Stahl, editor of Cardbeat for the Westbury, NY–based consulting company.

Ironically, this success is occurring at a time when prepaid issuers are trying to distance themselves from gift cards. The language of the CARD Act legislation that regulates fees and expiration dates on gift cards does not apply to general-purpose prepaid cards, and marketers of network-branded cards are working to reposition the product in the consumer’s mind.

Issuers, however, have not yet made much headway, said Stahl. “General-purpose stored-valued cards have the potential to replace traveler’s and payroll deposit checks in the same way that gift cads replaced paper gift certificates, but fewer than 10 percent of our customers have used a prepaid travel or payroll card.”

Another product variation of the general-purpose reloadable card is directed at teens and young adults, considered a growth market. Although familiarity with and usage of these prepaid youth cards was low, parents in the survey were relatively receptive to the concept.

About one-third of parents felt quite positive about general-purpose reloadable cards for teens, and another third were willing to consider them, Stahl said. Prospect parents liked the idea of their child having a card to use in an emergency (64 percent) and felt it offered greater security for their child than carrying cash (59 percent).”

American Express recently re-entered the teen market with a new product, PASS, which will compete with current market leader Visa Buxx, Stahl added. Each product offers tracking and spending alerts for parents and easy reloading, while teens can customize their cards then use them like cash for movies, food, and entertainment.

“Issuers should emphasize the security benefits, and position the product as a prepaid debit card, which many consumers perceive as safer than a credit card,” said Stahl.

Full results of the Auriemma survey are available by subscription only ($30,000 for one year/12 issues; individual issues $3,000). For more information, contact Nancy Stahl at (516) 333-4800 or nancy.stahl@acg.net.