Demand from the state and federal government has helped power a major growth in prepaid credit card sales. Consumers made a total of $65 billion worth of credit card transactions last year compared with $48 billion in 2009 and the government is credited with generating about $1 billion in transaction fees for card issuers. The increased revenue from credit card sales is great news for banks who are looking to replace the $25 billion in projected lost revenue expected from credit and debit card reforms. While the majority of the prepaid market includes cards sold directly to consumers at retail locations, contracts with government agencies are seen as a great opportunity for continued growth. Using prepaid cards would also help the government out since using cards instead of writing and mailing checks is expected to reduce costs in some places by as much as 75%.
Banks collect three different types of fees from prepaid cards. They get money from the payment networks that charge retailers swipe fees, they charge users for certain ATM transactions, and they make money off of overdraft fees just as they do with debit cards. While regular prepaid cards may include a transaction fee to make a deposit or to upkeep the card, the government works on such a large scale that banks are able to negotiate their way to a deal that costs consumers and tax payers very little money. California was just one of the latest states to get in on join the prepaid credit card bandwagon.
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