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General-use prepaid cards: the path to gaining mainstream acceptance

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  • James C. McGrath

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 creates a significant ?cost hurdle? that must be overcome with economically viable solutions. 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 strategies rely on defining large markets to target and creating longer term relationships with cardholders.

Suggested Citation

  • James C. McGrath, 2007. "General-use prepaid cards: the path to gaining mainstream acceptance," Consumer Finance Institute discussion papers 07-03, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpdp:07-03
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    File URL: https://www.philadelphiafed.org/-/media/frbp/assets/consumer-finance/discussion-papers/D2007MarchGeneralUsePrepaidCards.pdf
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    Cited by:

    1. Michele Braun & James J. McAndrews & William Roberds & Richard J. Sullivan, 2008. "Understanding risk management in emerging retail payments," Economic Policy Review, Federal Reserve Bank of New York, vol. 14(Sep), pages 137-159.

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    Keywords

    Payment systems;

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