A consequence of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 is that young consumers will flock to prepaid cards out of necessity, said Jerry Welch, Chief Executive Officer at Tampa, Fla.-based prepaid card processor nFinanSe Inc. As a provision of the new consumer protection law, which went into effect Feb. 22, 2010, individuals under the age of 21 will have to either demonstrate the ability to repay balances in order to be issued credit cards or get adults to cosign on accounts.
Traditionally, young adults off to college could easily apply for and receive credit cards on their own, without the consent of parents. But that practice was problematic, since young, financially inexperienced consumers would often run up purchases on the cards, be unable to repay balances and consequently be hit with high interest rates. But those days are over, according to Welch.
"This act is going to dramatically change that," he said. "So kids are not going to be getting all of these credit cards. ... These are kids that are used to being online - they are used to buying things online. They are used to downloads, other things. How do they do that without a credit card?"
Debit cards are one answer. But, as Welch pointed out, transacting online using cards tied to bank accounts exposes cardholders to greater financial damage posed by fraud. Another possibility is campus cards, which allow students to make electronic purchases on campus and at certain off-campus locations. But that restricted area use, let alone no online use, makes campus cards less than ideal for young cardholders' needs, Welch said.
That leaves network-branded, general-purpose reloadable (GPR) prepaid cards as the only solution, Welch said. "And so we think there is absolutely no doubt that we in the reloadable prepaid card business are going to benefit from the new credit card legislation," he added.
Welch estimates that 100 million U.S. consumers have a need for GPR cards, with college students representing 18 million. But only "several million cards" are in the marketplace, he said. Therefore, the untapped market for GPR cards is an enormous one, he noted.
Welch believes the prepaid card industry is still in its infancy, with consumer groups such as the unbanked and generation Y just now catching on to the potential of prepaid cards. He has noticed increased promotion of prepaid cards by the card brands and urges the industry that the time is now to be aggressively marketing to these consumer segments.
NFinanSe is targeting the younger demographics through an online music Web site, nFinanSeMusic.com, where the songs of young, up-and-coming musicians can be downloaded. The idea is that music lovers will recognize the nFinanSe branding and want to find out more about the company's prepaid products.
"They'll see we issue reloadable prepaid cards," Welch said. "And then, when they go to the supermarket or drugstore or general merchandise retailer, they'll see our cards and go, 'Those are the people who give us the music downloads.' And they'll look at our product and see that we have the best pricing and the best product, and they'll buy it." NFinanSe also has the social media angle covered with presences on MySpace, Facebook and Twitter. With such marketing efforts underway, Welch expects adoption rates to accelerate. "Five years from now, we'll look back and go, 'Oh, wow, what a run,'" he said.
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