US pre-paid card market to expand by 20% annually through 2016

The relatively young US pre-paid card market has rocketed in recent years, in part because of the decline of free checking for customers with low balances, and as more employers pay workers with debit cards.

The US pre-paid card market continues to enjoy strong growth despite economic turmoil and increased legislative and regulatory action. This growth has been sustainable because of the diversity of the prepaid market.

Prepaid cards will expand by 20% annually from 2010 to 2016, as the number of cards grows from 9.7 million in 2010 to 29.2 million in 2016.

The leading operators, Visa and MasterCard, control the largest share of the US pre-paid card market by number in circulation, with 67% and 25% of the category, respectively.

This mirrors their established dominance of financial card payments networks. American Express, which has focused more on the gift card segment, and Discover, have comparatively small shares of the open-loop category, at 4% and 3%, respectively, but have plans for expansion.

Wal-Mart Stores and American Express recently took the plunge into the prepaid debit-card market with a new card called Bluebird. The card has many features that are standard in regular bank accounts and seems to have remarkably few fees -- which have long been the scourge of prepaid cards.

Bluebird is the biggest sign yet that prepaid cards are evolving from a product for the poor and unbanked into a more mass-market offering that competes with regular checking accounts.

The prepaid market has become more complicated as a result of regulation and because of compliance issues, making it more difficult for a small company, entrepreneur or celebrity to create a prepaid card that would have staying power.

The Kardashian sisters, for example, saw their 15 minutes of prepaid fame vanish as soon as their card was launched; Magic Johnson is promoting his second prepaid card, after a card he helped market in 2004 proved short-lived.

With the economic recovery proceeding slowly, the popularity of pre-paid cards will increase. As competition within the pre-paid card market increases and more companies achieve significant economies of scale, costs and fees will continue to fall, maintaining a positive feedback that will make pre-paid cards even more attractive to consumers.

For more information on the US pre-paid card market, see the latest research: US Pre-Paid Card Market

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