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General purpose reloadable prepaid cards : penetration, use, fees and fraud risks

Author

Listed:
  • Emily Cuddy
  • Fumiko Hayashi

Abstract

Prepaid cards are the most rapidly growing payment instrument. General purpose reloadable (GPR) prepaid cards, in particular, have gained considerable traction especially among the unbanked and underbanked. How these cards are used is now of acute interest to both policymakers, seeking to ensure broad access to electronic payment methods, consumer protection for prepaid cards, and payments system security, and to payment card industry participants, desiring to advance their product offerings and business models. This study examines the end-user experience of using a GPR card. It investigates which factors, if any, affect the intensity and duration of GPR card use, estimates the fee burden associated with various card usage patterns, and calculates fraud rates by transaction and merchant type. Because we lack cardholder information other than zip code, we supplement our card data with local demographic and socioeconomic data to test whether these factors are correlated with the observed variation in card use and incurred fees. Our results suggest that both account and local socio-demographic characteristics significantly influence the life span, the load and debit activities, the shares of purchase and cash withdrawals, and the average number and value of fees incurred per month, and that transaction and merchant types influence the rate of fraudulent transactions.

Suggested Citation

  • Emily Cuddy & Fumiko Hayashi, 2014. "General purpose reloadable prepaid cards : penetration, use, fees and fraud risks," Research Working Paper RWP 14-1, Federal Reserve Bank of Kansas City.
    • Handle: RePEc:fip:fedkrw:rwp14-01
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    File URL: https://www.kansascityfed.org/documents/7715/rwp14-01.pdf
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    References listed on IDEAS

    as
    1. Robert M. Hunt & Stephanie M. Wilshusen, 2012. "Consumers’ use of prepaid cards: a transaction-based analysis," Consumer Finance Institute discussion papers 12-02, Federal Reserve Bank of Philadelphia.
    2. Richard J. Sullivan, 2009. "The Benefits of Collecting and Reporting Payment Fraud Statistics for the United States," Payments System Research Briefing, Federal Reserve Bank of Kansas City, issue October, pages 1-5.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Claire Greene & Oz Shy, 2015. "How are U.S. consumers using general purpose reloadable prepaid cards?: are they being used as substitutes for checking accounts?," Research Data Report 15-3, Federal Reserve Bank of Boston.
    2. Josh Hanson & Fumiko Hayashi & Jesse Leigh Maniff, 2015. "Driver of choice? the cost of financial products for unbanked consumers," Research Working Paper RWP 15-15, Federal Reserve Bank of Kansas City.
    3. Shy, Oz, 2021. "Cashless stores and cash users," Journal of Policy Modeling, Elsevier, vol. 43(3), pages 622-638.
    4. Jeffrey Carpenter & Emiliano Huet-Vaughn & Peter Hans Matthews & Andrea Robbett & Dustin Beckett & Julian Jamison, 2021. "Choice Architecture to Improve Financial Decision Making," The Review of Economics and Statistics, MIT Press, vol. 103(1), pages 102-118, March.
    5. Emily Cuddy & Fumiko Hayashi, 2014. "Recurrent overdrafts: a deliberate decision by some prepaid cardholders?," Research Working Paper RWP 14-8, Federal Reserve Bank of Kansas City.
    6. repec:fip:a00001:94158 is not listed on IDEAS
    7. Marcin Hitczenko & Mingzhu Tai, 2014. "Measuring unfamiliar economic concepts: the case of prepaid card adoption," Working Papers 14-9, Federal Reserve Bank of Boston.

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    More about this item

    Keywords

    Prepaid cards; Unbanked; Fraud risks; Payment card fees; General Purpose Reloadable; Electronic payments;
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