Thoughts on Prepaid Cards

Giving cash is in poor taste (except for bar mitzvahs). Prepaid cards, however, are acceptable. How strange.

Somehow, converting cash, which can be spent on anything, to a card that is good at a specific location only, adds value in the eyes of the gift giving (receiving) community. It is possible to buy a prepaid credit card (e.g., Visa, American Express), which can be spent on anything, but these cards command a stiff fee for the privilege.

How did this situation arise? I'd guess it was created with clever marketing by the merchants behind the cards, the same way that Valentine's Day was created by Hallmark. The companies benefit in many ways:

• capture - The money is captured, so it must be spent at the specific merchant
• float - The money is paid well before the merchandise is purchased, and the float is in the merchants' hands
• loss - Many cards are forgotten or lost, so the merchant keeps the entire value rather than the margin on the goods that would be purchased
• waste - Once a card is spent down to a few dollars, it is very hard to use the remaining balance, so the merchant captures some even if not all
• fees - Some cards sport hefty fees when purchased

These many reasons make prepaid cards quite profitable for the merchants. At one time, the merchants sold goods, but now they are financiers. (You thought GM made cars?)

The business is expanding. For many of the reasons above, it is now common for rebates to be paid using prepaid credit cards. (Technically, they are debit cards, but you are supposed to choose the "credit card" option when you use them.) You avoid the "capture" and "fees" factors, but the other factors are very much in play.

I have a solution to the "loss" and "waste" problems. When I receive a prepaid credit card, I use it to gift an Amazon gift card to myself, which I then deposit immediately into my Amazon account. That way, I won't "lose" it, and I have no "waste" problem. As well, I buy from Amazon frequently enough that the "float" problem is minimized.

In fact, it's ridiculous. I had one card (McAfee rebate Visa) with a remaining balance of $.04. (That's four cents!) I bought an Amazon gift card for $.04 and deposited it into my account. I wonder how much that transaction cost Amazon.