Is direct deposit key to prepaid card longevity?

One significant hurdle faced by prepaid card providers is how to get consumers to use prepaid cards for longer periods of time. A report conducted by The Payment Cards Center of the Federal Reserve Bank of Philadelphia and the Center for Financial Services Innovation suggest that the answer may be to offer direct deposit on the cards.

The report, Consumers’ Use of Prepaid Cards: A Transaction-Based Analysis, said a linkage seems to exist between value load characteristics and direct deposit. Prepaid cards that did not allow users to direct deposit funds to the cards were used less often and for shorter periods of time. In contrast, cards that did offer direct deposit were used more often and for longer periods of time, the researchers found.

According to the report, the total average value loaded onto general purpose reloadable (GPR) cards purchased online, and that also come with direct deposit, was $9,460. But for GPR cards purchased online that do not come with direct deposit, the average load amount was $427.

The disparity was even greater for GPR cards purchased from financial institutions. The average value loaded onto those direct deposit-enabled GPR cards was $9,737, while the load value was only $353 for GPR cards without direct deposit.

The report said GPR cards that keep to these patterns "remain active at least twice as long (or longer) and have 10 times or more purchase and other activity than other cards in the same program category," Additionally, such cards apparently generate at least four times more revenue for card issuers. "Average monthly cardholder costs are about twice as high, because these cards are used more intensively; on a per transaction basis, cardholder costs are lower," the report noted.

The research was based on 280 million transactions made on over 3 million cards issued by Meta Payment Systems, a division of Meta Financial Group Inc. The report can be accessed at www.philadelphiafed.org/consumer-credit-and-payments/payment-cards-center/publications/discussion-papers/2012/D-2012-August-Prepaid.pdf .

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