American Express Rolls Out First Prepaid Credit Card 'For Everyone'
NEW YORK -- American Express is rolling out its first prepaid card aimed at the general market on Tuesday as it moves to stake a claim in the growing industry.
The announcement marks a notable departure for the company, which is known for catering to a more affluent clientele with its signature green charge cards.
Prepaid cards, which are often sold in drugstores and can be reloaded with cash, are usually marketed to low-income consumers who don't have credit cards or checking accounts. But Amex is betting that its newest offering will find appeal among a broader swath of consumers.
"This card is for everyone," said Dan Schulman, who was hired last summer to head Amex's enterprise growth unit. "It could be for a parent who wants to give their kid a card, it could be for someone who doesn't have access to credit. It's a very large market that spans demographics."
American Express says its prepaid card pares down the number of fees that users often encounter. The Amex card only charges two fees:
1. To load money on the card at retailers such as Walmart and Walgreens, consumers pay $4.95. There is no fee to transfer money onto the card through a checking or savings account.
2. The other fee is for ATM withdrawals. Cardholders get one free withdrawal a month, and are charged $2 per withdrawal thereafter.
The simplified costs are in contrast to the long list of fees that can come with other prepaid cards. Some cards charge a monthly fee, for example, or $1 or more for every transaction. Other cards charge fees to speak with a customer service representative.
The Amex prepaid card can be ordered online at no cost. When it becomes available in retail locations later this year, the card will come with a purchase fee of about $5.
In addition to the competitive pricing, the Amex prepaid card provides a range of services. Users can review transaction histories online and sign up for email or text alerts when balances dip to a certain level. Cardholders are also given access to perks associated with other Amex cards, including roadside assistance and purchase protection against damage and theft.
The Amex prepaid card builds on the company's PASS prepaid card, which was introduced last year as a way for parents to keep teens on a spending leash. But the company quickly realized prepaid cards had bigger potential, given their rapid growth in recent years.
Last year, Americans spent an estimated $37 billion on prepaid cards. That's twice as much as the previous year and four times the amount in 2008, according to the Network Branded Prepaid Card Association, an industry group.
Consumer advocates warn against prepaid cards, however. They say that consumers with limited means would be better off with traditional checking accounts, where fees can be avoided altogether as long a minimum balance or other conditions are met.
Prepaid card issuers nevertheless say they offer a useful alternative. As consumers struggled with debt during the recession, issuers touted the cards as a handy budgeting tool.
The rollout of the new Amex prepaid card was expected. Before joining the company last year, Schulman was the head of the prepaid group at Sprint Nextel Corp. And earlier this year, the company hired Laura Kelly, a former executive vice president of prepaid debit cards at MasterCard.
Amex isn't the only company eyeing the prepaid market. Analysts expect major banks to turn to prepaid cards in response to changing regulations. Most notably, a rule set to be issued July 21 is expected to sharply limit the fees banks can collect from merchants whenever customers swipe their debit cards.
Prepaid cards will not be subject to that rule, however. That means card issuers can still reap in uncapped merchant fees when consumers use prepaid cards. These merchant fees, which are typically 1 percent to 2 percent of the purchase amount, will be how the Amex prepaid card generates most its revenue, Schulman said.
Other major banks and card issuers may soon start tapping prepaid cards as well. Instead of offering low-income customers checking accounts with debit cards, for example, analysts say banks will increasingly offer them prepaid cards.