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Prepaid cards: an important innovation in financial services

Author

Listed:
  • Julia S. Cheney
  • Sherrie L. W. Rhine

Abstract

This paper describes the characteristics of closed-system and open-system prepaid cards. Of particular interest is a class of open-system programs that offer a set of features similar to conventional deposit accounts using card-based payment applications. The benefits that open-system prepaid cards offer for consumers, providers, and issuing banks contribute to the increased adoption of these payment applications. Using these cards, consumers can pay bills, make purchases, and get cash from ATM networks. At the same time, consumers who hold prepaid cards need not secure a traditional banking relationship nor gain approval for a deposit account or revolving credit. By offering prepaid cards, issuing banks may meet the financial needs of consumers who may not otherwise qualify for more traditional banking products and these banks may do so with a card-based electronic payment application that essentially eliminates credit risk for the bank.

Suggested Citation

  • Julia S. Cheney & Sherrie L. W. Rhine, 2006. "Prepaid cards: an important innovation in financial services," Payment Cards Center Discussion Paper 06-07, Federal Reserve Bank of Philadelphia.
  • Handle: RePEc:fip:fedpdp:06-07
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    File URL: http://www.phil.frb.org/pcc/papers/2006/D2006JulyPrepaidCardsACCIcover.pdf
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    References listed on IDEAS

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    1. Julia S. Cheney, 2005. "Prepaid card models: a study in diversity," Payment Cards Center Discussion Paper 05-03, Federal Reserve Bank of Philadelphia.
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    Cited by:

    1. W. Scott Frame & Lawrence J. White, 2009. "Technological Change, Financial Innovation, and Diffusion in Banking," Working Papers 09-03, New York University, Leonard N. Stern School of Business, Department of Economics.

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    Keywords

    Payment systems;

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