On June 14, American Express announced the release of a new prepaid card without monthly or maintenance fees, saying in a press release that this new product will provide “a smarter spending and budgeting payment option to millions of consumers, while creating an unprecedented standard in the prepaid category.”
The American Express Prepaid Card eliminates the costly fees that characterize most current prepaid card offers, with the only fee it does charge being a $2.00 ATM withdrawal fee after the first monthly withdrawal. It also allows authorized users 13 years of age and up, though an adult must purchase it.
In terms of limitations, it does not allow for direct deposit or online bill pay and has a maximum balance of $2,500 at any point in time.
American Express is positioning this card as a viable option for consumers uninterested in using traditional charge cards or credit cards for their daily spending and as a spending vehicle for youths. What’s more, the company says that this card is, simply put, an improved-upon prepaid card option.
“We created a simple, transparent and easy-to-use everyday payment card to address a real pain point that consumers have with existing prepaid products in the market that are laden with fees and confusing terms including monthly and maintenance fees,” Dan Schulman, president of American Express’ Enterprise Growth Group, said in a release. “We believe giving consumers freedom from fees with a best in class option from American Express will set a new standard for the $36 billion … U.S. prepaid industry.”
Some industry experts see things differently, however. Odysseas Papadimitriou, founder and CEO of the credit card comparison website Card Hub, feels that Amex’s newly released card is actually lacking some fundamental features.
“People interested in prepaid cards have two distinct needs,” he said, “a checking account alternative and a way to allow their children to spend responsibly. This card’s lack of online bill pay and direct deposit as well as its $2,500 balance cap begs the question: How can someone use it as an alternative checking account?”
Without direct deposit, consumers have to find some way to load their paychecks. Amex currently allows money loading from checking and savings accounts (not an option for people looking to replace such accounts), other American Express cards (paychecks cannot be loaded on credit cards and charge cards) and cash through the purchase of the GreenDot $4.95 MoneyPak (requires both the use of a check cashing service and the MoneyPak, defying the whole purpose of using a prepaid card).
“It seems they have created an extremely competitively priced prepaid card that lacks some basic features, which renders it worthless for the main need that drives prepaid card use,” Papadimitriou said. “It does, however, seem to be a good option for kids since their parents will be the ones providing the funding from their own bank accounts.”
The card does allow users to check both their balances and their transaction history online free of charge, making it a good financial literacy teaching tool. Its lack of monthly and maintenance fees also make it relatively cheap to use for young people, who presumably do not require the ability to pay bills or withdraw money on a frequent basis.
Suitability for children is not the only reason prepaid cards are gaining traction in the market, however. Experts like Papadimitriou feel this is just the beginning of a big push to prepaid cards thanks to the impending enactment of the Durbin Amendment on July 21. This legislation gave the Federal Reserve the power to cap the fees banks charge merchants each time a debit card is swiped at their businesses, and according to a Card Hub interchange fee study, is set to cost banks $14 billion annually. In response, they are expected to push for products like prepaid cards, which are unregulated, as replacements for traditional checking accounts and debit cards.
So, if there are any kinks to be worked out with Amex’s new product, it appears there will be time to do so.