The High-Tech Evolution of Prepaid Cards

[Update: Some offers mentioned below have expired. For current terms and conditions, please see card agreements. Disclosure: Cards from our partners are mentioned below.]

What is a bank account? Is it a physical place to store money, a financial product that exists only in the virtual world, or perhaps both? When American Express and Walmart recently announced their new Bluebird prepaid card, it seemed like the answer may now be more confusing than ever. With a prepaid card like this, a person could utilize nearly all of the features of a bank simply by requesting a free card in the mail.

How Prepaid Cards Work

In their simplest form, prepaid debit cards are sold on the gift card racks at many retailers and can be used at merchants who participate in a payment network such as Visa or American Express. Like merchant specific gift cards, customers can use them up and throw them away. Their more advanced relatives are reloadable prepaid cards which allow customers to add cash at retail locations, through direct deposit, or though reload cards available for purchase at some retailers. These reloadable cards such as the Chase Liquid and Wells Fargo Prepaid cards can be typically be used for purchases or cash withdrawals at ATMs and branch locations. For example, Chase Liquid cardholders can make purchases wherever Visa cards are accepted and withdraw cash at any Chase branch or ATM. The fee structure varies per card with most, but most products charging a flat monthly fee or other fees for various types of transactions.

The Advantages and Drawbacks of Prepaid Cards

Prepaid cards offer much of the convenience and security of a credit card without the inherent potential for debt. For example, prepaid cards can be cancelled and replaced if lost or stolen, but purchases are not subject to the more robust protections of credit cards. And unlike debit cards, there is no need to open up a bank account and maintain a minimum balance to avoid fees. At the same time, it is difficult to rent a car with a prepaid card, and these products will not offer the rental car insurance commonly offered by most credit cards.

Why Bluebird is Different

American Express Bluebird appears similar to their existing prepaid card, but it has some added features that haven’t been seen in competing products. For example, Bluebird cardholders can deposit a check into their account simply by taking its picture with a mobile phone. Cardholders can also pay bills electronically to any person or business in the United States using a web browser or a mobile app. In fact, Bluebird has features lacking in many traditional bank accounts such as the ability to create up to four subaccounts with separate spending limits, text/email alerts, and ATM access rights. Bluebird users can also transfer money seamlessly between each other’s accounts. And like a credit card, qualifying purchases made with Bluebird receive American Express Purchase protection services and cardmembers enjoy roadside assistance and emergency travel assistance services. Finally, Bluebird leverages its partnership with Walmart by allowing customers to add funds to their card at any Walmart location.

Who Are These Products For?

Reloadable prepaid cards can be a perfect solution for the unbanked (those who lack access to a traditional retail bank). Additionally, those who incur excessive fees when they are unable to maintain a minimum balance may find superior value in some prepaid cards. Products like Bluebird and Visa Buxx can be a low risk option for parents who want to ease their children into managing their own personal finances without the risk of incurring late fees or debt. Yet until Bluebird, prepaid cards did not offer users the ability to deposit checks or pay bills electronically. If this product lives up to its promises, it appears that the emerging prepaid card market is poised to become a disruptive force in the banking industry.