• July 2, 2010

Prepaid cards that carry network brands, like Visa or MasterCard, are gaining in popularity, but primarily as gift cards, according to Cardbeat, a syndicated market research report published by Auriemma Consulting Group (ACG).

In a recent Cardbeat survey of 528 cardholders conducted in April 2010, 42% of respondents said they'd received a network-branded (or open-loop) gift card, compared to 67% who had received a store-specific card.

"That's a big increase since our 2005 Cardbeat survey of the gift card market, when only 26% of shoppers received open-loop cards," says Nancy Stahl, editor of Cardbeat.

The success is occurring at a time when prepaid issuers are actually trying to distance themselves from gift cards. The language of the CARD Act legislation that regulates fees and expiration dates on gift cards does not apply to general-purpose prepaid cards, and marketers of network-branded cards are working to reposition the product in the consumer's mind.

However, issuers have not yet made much headway, said Stahl. "General-purpose stored-value cards have the potential to replace traveler's and payroll deposit checks in the same way that gift cards replaced paper gift certificates, but fewer than 10% of our consumers have used a prepaid travel or payroll card," she says.

Another product variation of the general-purpose reloadable card is directed at teens and young adults, and that market may be poised for growth. Although familiarity and usage of these prepaid youth cards were low, parents in the survey were relatively receptive to the concept.

About one-third were quite positive, and another third were willing to consider the product, Stahl said. Parents like the idea of their child having a card to use in an emergency (64%) and felt the card offered greater security for their child than carrying cash. American Express has just re-entered this market with a new product, PASS, which will compete with current market leader Visa Buxx. --Tanya Irwin