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The US prepaid card market: A review
Journal of Payments Strategy & Systems,
1
(2),
125-139
(2007)
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.
Keywords: prepaid cards; payment systems; incentives; gift cards; government benefits
The full article is available to subscribers to the journal.
Author's Biography
Sujit Chakravorti is a senior economist in the economic research department at the Federal Reserve Bank of Chicago and has been analysing payment systems for close to 20 years. His research focuses on the economics of payments and the evolving structure of global financial markets. Bob has presented his research findings at industry and academic forums domestically and internationally. He has published research in the Antitrust Bulletin, International Journal of Industrial Organization, Journal of Payment Systems Law and Review of Network Economics along with various Federal Reserve publications. He also leads the Chicago Fed’s Annual Payments Conference team that organises payments industry conferences. Before joining the Chicago Fed, Bob worked at the Dallas Fed. Prior to joining the Federal Reserve System, he worked at KPMG as an international economist advising foreign governments on financial market policy. In addition, he has been a visiting scholar at the European University Institute and the International Monetary Fund. He received a BA in economics and genetics from the University of California-Berkeley, and an MA and PhD in economics from Brown University.
Victor Lubasi is a senior analyst in the financial markets group of the Federal Reserve Bank of Chicago. His research focuses on the economics of payments and has appeared in the Journal of Payment Systems Law along with the Federal Reserve Bank of Chicago’s Economic Perspectives and Chicago Fed Letter. He has been interviewed in the Chicago Tribune, Tampa Tribune and Consumer Reports magazine. Victor has over 10 years of experience at the Chicago Fed and has held various positions in the Economic Research Department’s Payments Studies Group, the Strategic Planning and Project Management Office, and the Internal Auditing Department. He received a BS in finance from the University of Wisconsin-Parkside and an MBA in economics and finance from the Graduate School of Business at the University of Chicago. He can be contacted on +1 312 322 2366 or victor.lubasi@chi.frb.org
