August 10, 2010
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News: Prepaid Cards Produce Rapid Growth
Some of the major credit card companies like JP Morgan Chase & Co., Bank of America, and Citibank don't issue prepaid credit cards and by all accounts, are missing out of some valuable business. Prepaid cards are typically issued to sub-prime borrowers. Although sub-prime borrowers had a high percentage of credit card defaults during the recession, many prime borrowers had difficulty as well. Nevertheless, the top U.S. lenders have pulled out of the market of issuing credit to sub-prime cardholders and are focusing on the prime and more elite consumer. Jumping in to fill the gap, is the Green Dot Corp. (GDOT) which sells branded debit cards through retailers and targets teens just learning to manage money.
Green Dot Corp. latched on to the concept of selling prepaid credit cards to the sub-prime cardholder and it appears the company has finally found its niche. According to Green Dot Chief Executive Steve Streit, sub-prime cardholders were responsible for producing over $160 million last month through its share trading; a 30 percent increase in share price. If things continue to progress as expected by the Nilson Report, the prepaid credit card industry expects these sales to reach over $200 billion by 2013.
Another big player in the prepaid card business is NetSpend Holdings Inc. The company is running a close second to Green Dot in the prepaid card business. NetSpend expects to generate an estimated $200 million in its upcoming sale. Prepaid cards look and function just like a regular credit card, however, differ in the fact that the consumer purchases the amount they wish to spend and any transaction attempted beyond that amount is rejected. Prepaid cards are easy to locate and can be purchased at most larger retailers including Wal-Mart Stores Inc. (WMT) and Walgreen Co. (WAG) and are immediately accessible. Green Dot credits Wal-Mart for much of its success in selling its prepaid card.