Are prepaid cards the new checking account?

prelin —  March 11, 2013 — Leave a comment

checkingaccount

Besides for the massive difference of a physical cheque, how do prepaid cards and checking accounts differ? This evolution wasn’t obvious when prepaid cards debuted, but it’s past time to reckon with it. A checking account is simply a transactional account, something prepaid cards can almost be defined as.

Prepaid cards are expanding not just in number, but in features, incorporating all forms of payment. Meanwhile, checking accounts are contracting, not just in number of cheques written, but even as to available means of payment.

If features and costs were equal some customers, for instance, would prefer “prepaid card” because they think they’d have to apply and wait for a “checking account,” or because they fear incurring overdrafts—to which virtually all “checking accounts” now expose them.

For banks it makes sense to offer both labels, at least for now. More important, treat the prepaid card as a deposit product and manage it together with checking accounts, rather than with card products. Prepaid currently is different to a checking account in that there is a lack of overdraft facilities. However, as prepaid cellular providers start offering “advance airtime” the same concept could be applied to the prepaid cash card market. 

Whether the two will ever merge or become one and the same remains to be seen but for now smart consumers are reaping the benefits.

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