The typical general purpose reloadable card user is often stereotyped as a person of low income with no formal bank account. However, an article by the Federal Reserve Bank of Philadelphia revealed a significant portion of prepaid card users are middle- and upper-class millennials.
The latest version of this report – titled "Millennials with Money: A New Look at Who Uses GPR Prepaid Cards" – was released December 2015 with data from the 2014 Consumer Payments Monitor. This updated version expanded on an article originally released in 2013. The first report generated so much public interest the Philadelphia Fed Bank decided to return to it a year later and see if any changes occurred.
According to the updated report, 25 percent of American households had some form of general purpose card in 2014. While this number was only a 4 percent increase from 2013, the ownership rate among "millennials with money" – that is, shoppers ranging from 18 to 32 with household incomes of $100,000 or more – had risen dramatically. Forty-nine percent of the younger wealthy consumers said they owned such a card in 2013. In 2014, that number grew to 60 percent.
Interestingly enough, many of these millennials with money reported using a prepaid card in addition to a typical bank service. In fact, most card users said they were not unbanked. Ninety percent of respondents in both reports had a checking account in addition to a preloadable card, shattering the notion such services were primarily for underprivileged consumers.
Many owners used the checking account alternative the same way they would a common debit card. Sixty-nine percent said they used prepaid cards to submit electronic payments online, while 70 percent used the cards in stores. Another 40 percent used the cards to pay bills.
Reasons for avoiding banks
Where millennials and the unbanked greatly differ were their reasons for using prepaid cards and other alternative financial services. Millennials prioritized convenience – 28 percent said banks don't provide all the services they need, and the same amount said banks were inconveniently located. What's more, 20 percent simply didn't like how long it took a bank to transfer money. Meanwhile, only 1 percent of unbanked persons felt local banks could not accommodate their needs, and less than 3 percent said there wasn't a financial institution close to their home or office. For these people, prepaid cards and other financial management methods were chosen out of necessity. Over a third said they did not have enough money to maintain a checking or savings account, while 15 percent found banks untrustworthy.
Entrepreneurs interested in prepaid cards
While GPR cards are typically used for personal services, some small business owners have begun using them as well. Indeed, a handful of startup founders have turned prepaid cards into products, the Los Angeles Times reported. These entrepreneurs are often young, college-educated and come from a stable financial background. Prepaid cards allow emerging companies to focus on marketing and reaching new consumers, while an international payout service oversees the subsequent electronic payments. For instance, Clearbanc allows Uber drivers to receive daily deposits on what is essentially a payroll card. Drivers of the ride-sharing service now have a dependable method of receiving money more frequently.
"Prepaid has created a platform that allows you to very quickly test a new product and get it into the hands of consumers," said founder Andrew D'Souza, according to the LA Times.
Businesses offering any sort of payout should be aware of what their consumers want. As the "Millennials with Money" report has shown, user preferences vary and aren't always what people expect them to be.