AmEx Joins Prepaid Card Fray

June 23, 2011

Prepaid debit cards are huge. Just ask the folks at American Express. AmEx this month announced its own branded prepaid debit card and is positioning the product as a lower-cost alternative to prepaid cards with the Visa and MasterCard logos.

In a June 14 press statement, the company characterized its introduction of the new American Express Prepaid Card as a "game changing move." Indeed. AmEx seems to be shedding some of the elitist mystique long tied to its charge cards to pursue opportunities in the unbanked and underserved markets with a prepaid debit card that looks to be a lot cheaper than those issued by the leading prepaid companies.

There are no fees for purchasing the new AmEx prepaid cards online. There are no monthly fees, or fees for loading funds onto cards, or other nuisance fees. In fact, the only fees charged are for ATM withdrawals; one per month is free after which cardholders pay $2.00 per ATM withdrawal.

Funds can be loaded onto AmEx Prepaid cards from existing bank accounts or using MoneyPak, a prepaid card loading option available at stores selling prepaid Visa and MasterCard products at a cost of $4.95. (AmEx is promising reimbursements for MoneyPak purchases.)

Amex Prepaid Cardholders also gain access to online financial management tools, and they are entitled to all the benefits AmEx offers its charge cardholders, including Purchase Protection and Roadside Assistance.

Transparency, Consumer Education

"With this new, consumer-friendly everyday payment card, American Express will further serve new customer segments that do not rely on traditional charge and credit cards to manage their day-to-day finances," the company said in its announcement.

"We created a simple, transparent and easy-to-use everyday payment card to address the real pain point that consumers have with existing prepaid products in the market that are laden with fees and confusing terms," is how Dan Shulman, Group President at Amex put it.

Prepaid debit cards have come under a lot of scrutiny lately and several prepaid companies have been criticized over fees and disclosure practices. Last month, the Florida Attorney General's Office subpoenaed the records of five prepaid card companies, including Green Dot and UniRush. (UniRush, founded by rap mogul Russell Simmons issues the Rush prepaid card.) You can read coverage of that here.

AmEx said it is partnering with Consumer Action, the consumer education and advocacy group to launch a national consumer education program on prepaid debit cards. Last year, Consumers Union, publisher of Consumer Reports, released a scathing report likening prepaid debit cards to "second-tier bank accounts" and urging greater regulatory oversight of the prepaid card market.

Americans use nonbanks to cash $60 billion in checks yearly

_{-Federal Reserve}