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The US prepaid card market: A review

Author

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  • Chakravorti, Sujit
  • Lubasi, Victor

Abstract

General-purpose prepaid cards were heralded as an electronic cash substitute in different parts of the world during the last decade. Many such applications no longer exist, however, and transaction volume remains relatively low on those systems that still operate. Alternative applications geared towards certain payment market niches are beginning to gain market traction in the USA. This paper discusses four prepaid applications — gift cards, payroll cards, pre-tax spending cards, and government benefit transfer programmes. Prepaid cards offer an alternative for disbursers to transfer funds to those individuals that do not have transactions accounts, do not provide disbursers access to their transactions accounts, or are restricted to using the funds for certain types of purchases. Prepaid cards may offer recipients a more convenient and cost-effective means to make purchases. Successful applications tend to leverage existing payment infrastructure to overcome the chicken-and-egg problem that new payment instruments face. Aligning market incentives among payment system participants, however, is a key driver for widespread market adoption. Furthermore, these incentives may vary across different payment market segments.

Suggested Citation

  • Chakravorti, Sujit & Lubasi, Victor, 2007. "The US prepaid card market: A review," Journal of Payments Strategy & Systems, Henry Stewart Publications, vol. 1(2), pages 125-139, January.
    • Handle: RePEc:aza:jpss00:y:2007:v:1:i:2:p:125-139
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    More about this item

    Keywords

    prepaid cards; payment systems; incentives; gift cards; government benefits;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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