Prepaid cards picking up in popularity

A Macy's gift card

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Stacey Vanek-Smith: The number one gift this holiday season? Gift cards. We shelled out about $87 billion on those this season. The latest spin? Cards you can spend anywhere. And they're not just for the holidays, as Jill Barshay reports.


Jill Barshay: Next time you get a rebate from a retailer, don't be surprised if it comes as a plastic debit card rather than a check.

Tim Sloane is a director at market research firm Mercator Advisory Group. He says $143 billion will be transacted on prepaid cards in 2010, a 50 percent increase over this year.

Tim Sloane: Checks are notoriously expensive to issue and to manage. And so the trend is toward implementing all-electronic disbursement.

Sloane says banks, Mastercard and Visa are investing millions in prepaid card technology, and marketing the cards to corporations, governments and universities. Already Wal-Mart processes payroll on them. Social Security and unemployment benefits come on prepaid cards, too.

But the cards can be a challenge to use at the register. Sloane says many merchants can't read how much money is on the card, or easily split the total bill with a credit card.

Sloane: There are so many merchants that don't know how to do that, that it's unbelievable.

Prepaid cards are also under fire for the monthly fees that some financial institutions deduct. In February, the Federal Reserve is slated to issue new regulations.

In New York, I'm Jill Barshay for Marketplace.

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