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PAGE ONE Economics
FOCUS ON FINANCE

the back story on front page economics

April

■

2015

From Coins to Big Bucks:
The Evolution of General-Purpose
Reloadable Prepaid Cards
Jeannette N. Bennett, Senior Economic Education Specialist

“

All ideas grow out of other ideas.
—Anish Kapoor, Sculptor

”
GLOSSARY

hat are some of the first things you see when you walk into
most large retail stores? Chances are large racks of prepaid cards
will be something you notice. Sometimes there’s even more than
one rack—all displayed to grab your attention. This trend in marketing
prepaid cards can be traced back to the prepaid phone card.
Before cell phones were invented, pay phones were used for communication when people were away from home. Telephone booths
with pay phones were common fixtures on street corners and in public
places. Using a pay phone required the caller to insert coins in certain
amounts. Local calls cost a set amount, but the cost of long-distance
calls was determined by an operator according to the duration and destination of the call. If the caller didn’t have the correct amount of
change, the call was ended. In addition, vandalism of pay phones was
frequent because the coins were physically inside the phone.
As an alternative to using coins, the prepaid phone card was invented
in Europe in the 1970s and was introduced in the United States by the
late 1980s.1 The prepaid card idea quickly expanded to include merchantspecific cards (private-label prepaid cards). These cards are widely
called “gift cards” and can be used only at the stores named on the
cards. In the early 1990s, the government began replacing paper-based
food stamps with electronic benefit transfer (EBT) prepaid cards. These
cards could be used at a wide variety of merchants. Within only a few
years, the prepaid phone card idea had inspired an even bigger idea:
the prepaid card market.

Underbanked—Consumers or businesses
that have limited or poor access to primary
financial services provided by banks and
rely on alternative financial services.

The General-Purpose Prepaid Card Evolves

Unbanked—Consumers who have no account
at a bank or a financial institution.

W

Today there are a number of different types of prepaid cards, including
reloadable cards. And in recent years, changes in consumer spending
habits have particularly increased the popularity of the general-purpose
reloadable (GPR) prepaid card. The GPR prepaid card is the fastest-

Direct deposit—An electronic transaction in
which money is deposited directly into a
payee’s bank account from a payer’s bank
account.
Electronic benefit transfer (EBT)—An
electronic system that allows a recipient to
receive financial benefits from the government via a debit card. The recipient uses the
EBT card to make purchases from retailers.
General-purpose reloadable (GPR) prepaid
card—A prepaid card that is branded as a
“general-purpose” reloadable (GPR) card.
A prepaid GPR card allows consumers to
reload the card with additional funds and
even set up direct deposits to the card.
Private-label prepaid card—A merchantspecific card that can be used only at a
particular merchant or chain of merchants
(e.g., Sears or JC Penney); a card issued by
and used for purchases at a retailer. Privatelabel cards cannot be used on a generalpurpose card network.
Reloadable card—A prepaid card that allows
the cardholder to add more funds (money)
to the card.

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Federal Reserve Bank of St. Louis

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Common Fees for GPR Prepaid Cards
• Initial activation
• Monthly maintenance
• ATM withdrawals
• Balance inquiries
• Reloading (either by cash payment or direct
deposit)
• Card replacement
• Calls to customer service
• Monthly statements
• Replacement card
• Inactivity

growing noncash form of payment: The number of
transactions increased at an annual rate of 33.5 percent
from 2009 to 2012. A total of 3.1 billion GPR prepaid
card transactions were made in 2012, which is 1.8 billion more transactions than in 2009.2
A GPR prepaid card looks like a debit or credit card,
carries the logo of a major payment card network
brand—American Express, Discover, MasterCard, Visa—
and can be used like a debit card. The card can be used
to make purchases anywhere the card brand is accepted
and to obtain cash at any ATM that connects to the
card’s network.
A GPR prepaid card can be purchased at a retailer
or online and has no value until it is purchased and
“loaded” with an amount of money. The card is not
linked to a bank account, and transactions are made on
a “pay-as-you-go” basis. Whenever a purchase or cash
withdrawal is made, the amount is subtracted from the
card’s balance. The card can be activated either online
or by telephone. Only activated cards can be reloaded
with additional funds. After the card is activated, a new
personalized card is sent to the purchaser and this registered GPR card can be reloaded with additional funds
at retail locations, online, or by direct deposit.3 Consumers can use activated GPR cards as substitutes for
checking accounts by directly depositing their earnings,
withdrawing funds at ATMs, and purchasing goods
and services.
The popularity of the GPR prepaid card has increased
despite costs incurred with its usage. Although competition among prepaid card issuers and increased volume

have helped lower card fees, usage can be costly.4 Fees,
terms, and conditions of usage vary among cards, and
fees may be determined according to individual spending habits. For example, some cards have different fees
according to the number of transactions each month
and whether the card is reloaded using direct deposit
or with cash (see the boxed insert).
Additionally, the fee disclosure can be confusing
and difficult to understand. Currently, the style, format,
and content are determined by each card company.
This makes it hard to determine the card’s cost or to
compare the costs of different cards. To address this
concern, in 2014 the Consumer Financial Protection
Bureau began the task of creating a new, standardized
disclosure requirement for prepaid cards to assist consumers in comparing the fee structure among cards so
fees can be further minimized.

Who Uses the GPR Prepaid Card?
The GPR prepaid card quickly became widely used
as an important product for lower-income, underbanked, and unbanked consumers. In some instances,
prepaid cards have become necessities for these consumers. For example, prepaid cards are now an alternative for government payments such as Social Security
payments, veterans and military benefits, unemployment
benefits, and wages for federal employees. Unbanked
and underbanked recipients of such benefits can use
the prepaid cards to pay for purchases and routine
expenses such as bills. In 2013, the Federal Reserve
System reported that about one in five U.S. consumers
conduct financial transactions outside the mainstream
banking system and are considered either unbanked
or underbanked.5 Based on these data, it is estimated
that 17 percent of unbanked and 22 percent of underbanked consumers held GPR prepaid cards in 2012
compared with 6 percent of banked consumers.6
In 2013, Phoenix Marketing International (Phoenix)
conducted a survey of consumers to collect information on GPR prepaid card usage.7 This research verifies
that lower-income consumers continue to use GPR prepaid cards (Table 1). However, the survey finds that other
consumer groups have adopted the GPR prepaid cards
by choice.
The Phoenix study shows the greatest increase in GPR
card ownership and use occurred among Millennials.8

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Federal Reserve Bank of St. Louis

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FOCUS ON FINANCE

Table 1

Table 2

Ownership of GPR Prepaid Cards by Income

Ownership of GPR Prepaid Cards by Age

Income group

Percent
owning cards
(August 2013)

Percent
owning cards
(August 2012)

25

21

Total consumers

Total all income groups

Age group (years)

Percent
owning cards
(August 2013)

Percent
owning cards
(August 2012)

25

21

<$25,000 per year

28

26

Millennials (18-32)

45

34

$25,000-$49,999 per year

21

22

Generation X (33-48)

35

27

$50,000-$99,999 per year

26

16

Baby Boomers (49-67)

18

16

$100,000+ per year

27

18

Greatest Generation (68+)

4

4

SOURCE: Modified from Herbst-Murphy and Weed, p. 5 (see note 7).

SOURCE: Modified from Herbst-Murphy and Weed, p. 7 (see note 7).

Table 3

Table 4

Reload Value and Frequency by Income within Age Group

Distribution of Heavy GPR Prepaid Card Spenders by Age*

Cardholder income
by group
Total

Average
reload
amount ($)

Percent reloading
at least
once a month

78

59

Income within age groups ($)
<$50,000

56

60

$50,000-$99,999

84

74

117

81

<$50,000

67

60

$50,000-$99,999

89

62

$100,000+

90

61

<$50,000

80

49

$50,000-$99,999

83

42

$100,000+

92

42

81

56

Percent heavy spenders

Millennials (18-32)

44.0

Generation X (33-48)

33.1

Baby Boomers (49-67)

21.7

Greatest Generation (68+)

Millennials

$100,000+

Cardholder
age group (years)

1.2

NOTE: *“Heavy spending” is defined as more than $200 in the previous month.
SOURCE: Modified from Herbst-Murphy and Weed, p. 35 (see note 7).

Generation X

Baby Boomers

Greatest Generation
All incomes*

NOTE: *This sample size is too small to divide by income group.
SOURCE: Modified from Herbst-Murphy and Weed, p. 17 (see note 7).

Forty-five percent of Millennials owned a GPR card in
2013—an 11 percent increase over 2012 (Table 2). And
Millennials use their GPR prepaid cards more frequently
for purchases and reload their cards more often and
with a higher average value than card users in other
age groups (Table 3).

New Perspective for GPR Prepaid Cards
The Phoenix research confirms the expansion of the
GPR prepaid market into younger and higher-income
populations and identifies the Millennials as a primary
age group for continued growth in the GPR prepaid
market. With an estimated 77 million Millennials,9 the
sheer size of this generation can potentially ensure continued growth in the market. Combining the original
target market groups—low-income, unbanked, and
underbanked consumers—with the Millennials adds a
new perspective to the GPR card market: a larger target

PAGE ONE Economics®

Federal Reserve Bank of St. Louis

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FOCUS ON FINANCE

market with more spending power (Table 4). This expansion changes the GPR prepaid card market substantially.

NOTES

Conclusion

2 Federal Reserve System. “The 2013 Federal Reserve Payments Study:
Recent and Long-Term Payment Trends in the United States: 2003–2012.
Summary Report and Initial Data Release.” December 19, 2013; p. 21;
https://www.frbservices.org/files/communications/pdf/research/2013_payme
nts_study_summary.pdf.

Prepaid cards were invented as a solution to a problem: replacing coin usage in pay telephones. This invention has been improved upon and has evolved into a
huge competitive market. There are many brands:
Green Dot, Bluebird, MoneyPak, and MoneyCard, to
name just a few. A walk through almost any store (e.g.,
Wal-Mart, Walgreens, 7-Eleven, Family Dollar) provides
just a snapshot of how the original phone card idea
grew into a mega-market netting big bucks. Consumers
loaded $28.6 billion on GRP prepaid cards in 2009, and
the load value increased to $64.5 billion in 2012.10 As
competitive marketing of the GPR prepaid cards targets
younger and more affluent consumers with substantial
buying power, it is logical that the total load value will
potentially grow even more. From coins to big bucks—
that’s a lot of growth! ■

1

“Phone Cards 101—Phone Cards History”;
http://phonecards101.weebly.com/.

3 Bennett, Jeannette. “Cards, Cards, and More Cards: The Evolution to
Prepaid Cards.” Federal Reserve Bank of St. Louis Inside the Vault, Fall
2011, pp. 1-6; https://www.stlouisfed.org/publications/inside-the-vault/fall2011/cards-cards-and-more-cards-the-evolution-to-prepaid-cards.
4

Bennett (2011).

5

Federal Reserve System (2013).

6

Hitczenko, Marcin and Tai, Mingzhu. “Measuring Unfamiliar Economic
Concepts: The Case of Prepaid Card Adoption.” Working Paper No. 14-9,
Federal Reserve Bank of Boston Consumer Payments Research Center, June
18, 2014, p. 2;
http://www.bostonfed.org/economic/wp/wp2014/wp1409.pdf.
7 Herbst-Murphy, Susan and Weed, Greg. “Millennials with Money: A New
Look at Who Uses GPR Prepaid Cards.” Discussion paper, Federal Reserve
Bank of Philadelphia Payment Cards Center, September 2014;
http://www.phil.frb.org/consumer-credit-and-payments/payment-cards-center/publications/discussion-papers/2014/D-2014-Millennials.pdf.
8

Millennials can be defined as consumers between 18 and 32 years of age.

9

Related Readings
“General Purpose Reloadable Prepaid Cards: Penetration, Use,
Fees, and Fraud Risks” by Fumiko Hayashi and Emily Cuddy.
Research Working Paper No. RWP 14-01, Federal Reserve Bank of
Kansas City, February 2014;
http://www.kansascityfed.org/publicat/reswkpap/pdf/rwp14-01.pdf.

Pew Research Center. “The Millennial Count.” March 22, 2010;
http://www.pewresearch.org/daily-number/the-millennial-count/.
10 Pew Charitable Trusts. “The Need for Improved Disclosures for General
Purpose Reloadable Prepaid Cards.” February 26, 2014;
http://www.pewtrusts.org/en/research-and-analysis/issuebriefs/2014/02/26/the-need-for-improved-disclosures-for-general-purposereloadable-prepaid-cards.

“Prepaid Products: New Disclosures to Help You Compare
Options” by Eric Goldberg. Consumer Financial Protection Bureau,
November 13, 2014;
http://www.consumerfinance.gov/blog/prepaid-products-new-disclosures-to-help-you-compare-options/.

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