Millennials use more prepaid cards
October 31, 2014

There has been a rise in the use of prepaid cards across the country, which is something that retailers should not only acknowledge but take advantage of. It is helpful that any merchant that can accept debit card payments can swipe prepaid cards as a general rule. However, there have been a lot of different ideas as to who is exactly using prepaid cards, with a common belief that unbanked and underbanked people are the ones most likely using it as an accessible alternative to traditional banking. Recent studies by the federal government have refuted that assumption by bringing age into the mix.

A younger, richer cohort
The Federal Reserve Bank of Philadelphia released a study in conjunction with research firm Phoenix Marketing International on prepaid card use. Speaking with 4,200 American adults, they discovered many of the assumptions about prepaid card users are false. For example, despite claims of that prepaid card users are underbanked, around 90 percent of respondents in the survey had checking accounts while 85 percent of them had debit cards. That indicates that prepaid card users represent a significant portion of the banking population.

With this commonality, what has been the main motivation behind prepaid card use? The survey found that age, seconded by income, were the driving factors. About 45 percent of households headed by millennials included someone who used prepaid, the highest of any age group, with Generation X second at 35 percent. This indicates that adoption has been driven more by the fact that it's new technology than it is by its utility. In addition, the most active users among those surveyed had an annual income exceeding $50,000. Combining the two demographics, millennials earning more than $100,000 per year were the most likely to use a prepaid card once per month at 96 percent, with average spending at $173.

What this means is that a new group of prepaid users has to be classified. The Fed study referred to this active group of people as "power users" who combine both traditional and alternative services together for complete coverage in their banking needs. Retailers should take advantage of this through using integrated payments systems that work with store-designed prepaid cards. Similar to store credit cards, creating store-specific prepaid might be a loyalty program that offers discounts to these users. That can bolster consumer retention at stores.

Nexus: G-WEBCD3