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American Express gets into prepaid cards

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Kai Ryssdal: Prepaid debit cards get a pretty bad rap. They’re loaded with fees: fees to get the card, to use the card, to close the card. Today, American Express announced a prepaid card that eliminates almost all those fees. Why? Would ya believe: fees?

Marketplace’s Jennifer Collins has that story.

Jennifer Collins: Prepaid debit cards are a $60 billion industry. The main reason why:

Netspend ad: I can only spend the money I have on the card. So I’m in control.

Of everything but the fees, which can add up fast. Most prepaid debit card users tend to be low-income, have poor credit and limited banking options. Todd Zywicki, a professor at George Mason University, says the new AmEx card could change the game.

Todd Zywicki: What we might be seeing is a real renaissance in the prepaid card industry as more mainstream consumers shift away from traditional debit cards to these prepaid cards.

AmEx’s card isn’t fee-free. There are charges for multiple ATM use and loading the card with cash instead of, say, your checking account. But the fees are still lower than other prepaid cards. Ron Shevlin is an analyst with Aite Group.

Ron Shevlin: They lend a whole lot of credibility to the prepaid card space just by coming into the market with this kind of announcement.

Shevlin says AmEx’s strategy is to make money by collecting so-called interchange fees, which merchants pay every time you swipe the card. And the company also collects twice, says Josh Frank of the Center for Responsible Lending.

Josh Frank: Because they both own the payment network and issue cards, they can get the money that for other card issuers would go elsewhere.

And in a market that’s expected to nearly double in the next four years, he says more banks are expected to follow AmEx into the prepaid pool.

I’m Jennifer Collins for Marketplace.

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