General-Use Prepaid Cards: The Path to Gaining Main-Stream Acceptance

30 Pages Posted: 18 Apr 2007

See all articles by James McGrath

James McGrath

Federal Reserve Bank of Philadelphia

Date Written: March 2007

Abstract

Following the rapid proliferation of merchant-issued prepaid gift cards, some people assumed that the added functionality available in network-branded prepaid cards would lead to similar early success for these payment vehicles. While a number of emerging applications are gaining traction, others are struggling to reach viable scale. This paper argues that the rich functionality made possible in what we define as general-use prepaid cardscreates a significant "cost hurdle" that must be overcome with economically viable solutions. Observing market developments, the paper identifies two emerging strategies that hold particular promise: 1) developing applications that efficiently displace high-cost legacy structures, and 2) creating financial services solutions for consumers outside the traditional banking framework. Both of these strategies rely on defining large markets to target and creating longer term relationships with cardholders.

Suggested Citation

McGrath, James, General-Use Prepaid Cards: The Path to Gaining Main-Stream Acceptance (March 2007). FRB of Philadelphia Payment Cards Center Discussion Paper No. 07-03, Available at SSRN: https://ssrn.com/abstract=980763 or http://dx.doi.org/10.2139/ssrn.980763

James McGrath (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

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