FEDERAL RESERVE BANK OF PHILADELPHIA

How Do Consumers Use Prepai

FEDERAL RESERVE BANK OF PHILADELPHIA

*: The views expressed here are those of the auth

those of the Federal Reserve Bank of PhiladelpReserve System. No statements here should be 

#: Do not cite or quote without permission of th

www.philadelphiafed.org/payment-cards-center

Robert M. Hunt, Stephanie M. Wilshusen, & Ja

Payment Cards Center, Federal Reserve Bank o

Rachel Schneider

Center for Financial Services Innovat

FDIC Advisory Committee on Economic Inclusion (C

December 1, 2011
Preliminary Results from Our A

Prepaid Card Transactio

Note that the results presented here are subject to Transactional data require considerable cleaning, interpretation and we have not entirely completed For the latest version of the results, please contac
A Few Basic Questions We Can Begi

• How long do consumers use their network branded pre• How frequently do consumers transact with their cards?• How often do they reload their prepaid cards?• Do consumers schedule repeated reloads of their cards• How frequently do consumers withdraw cash from their • Where do consumers use their prepaid cards?• How much revenue is earned from consumer fees?• What is the frequency and composition of consumer fee• What share of prepaid card revenues comes from interc
Data

• Furnished by Meta Payment Systems.• The data set contains:

– More than 300 million anonymized prepaid card transac– Made on more than 3 million cards– Issued in over a dozen different prepaid card programs

• But most of the transactions occur on cards in the p

– The composition of the card programs and transactions 

representative of the prepaid market as a whole.

• Transactions were conducted across the U.S. over a 

encompasses the most recent business cycle.

– But most transactions occurred in 2009-2010

• Data include transaction date, type, amount, and mer

• But we have no demographic or financial data for car

– However, we do have ZIP Codes indicating where the card 

Preliminary results
Program Types

15 card programs are grouped by program type and en

Card Program Type (number of programs)

Program 

Launch Year

Enrollment 

Method

Retail GPR (6)

2004, 2005 (2),

2007, 2008, 

2009

Via retailer 

Web GPR (3) 2005, 2007 (2) Via web FI GPR (1) 2007 Financial institutions Payroll (3) 2007 (2), 2009 Via employer FSA (1) 2005 Via employer Transit (1) 2009 Via employer 

Preliminary results
Program type Median length of activity* in days

Retail GPR 65 Web GPR 187 FI GPR 269 Payroll 154 FSA 516 

Card Activity 

Table 1. Median length of card activity, by p

*Defined as the number of days between a card’s first and last trans

Preliminary results
Program type

Maturity of 

programs 

(quarters)

0 – 5 

purchases

(% of 

cards)

6 – 10 

purchases

(% of 

cards)

11 – 25 

purchases

(% of 

cards)

26 – 50 

purchases

(% of 

cards)

pu

c

Retail GPR 4 – 25 54.50 12.19 13.78 7.99 

Web GPR 11 – 24 32.07 11.80 17.12 12.13 FI GPR 16 42.60 14.37 20.22 10.98 

Payroll 3 – 13 32.86 8.38 13.93 12.06 FSA 21 55.00 9.04 18.45 12.13 

Purchase Activity 

Table 2. Total number of purchases over the life of the ca

Preliminary results

*Volume means dollar value. Note that the card programs are not equally mature in terms of the number of the data set and this might contribute to differences in intensity of card use acr
Program 

type

Maturity of 

programs 

(quarters)

0 - 1 

loads

(% of 

cards)

2 - 3 

loads

(% of 

cards)

4 - 5 

loads

(% of cards)

6 - 7 

loads

(% of 

cards)

8 

Retail GPR 4 – 25 50.55 19.64 7.24 4.40 Web GPR 11 – 24 37.23 18.34 8.58 5.66 FI GPR 16 33.02 33.33 10.31 5.46 

Payroll 3 – 13 26.83 13.34 8.78 6.85 FSA 21 36.07 53.90 3.97 0.56 

Load Activity 

Table 3. Total number of loads over the life of the car

Preliminary results

*Volume means dollar value. Note that the card programs are not equally mature in terms of the number of the data set and this might contribute to differences in intensity of card use acr
Purchase and Load Activity on Cards with and with

Table 4. Purchase and load activity over the life of the card: reta

Preliminary results

*:These are cards with at least 2 value loads at weekly or bi-weekly intervals for an amount n

Retail GPR: 

Cards with

Direct Deposit 

Activity*

Retail GPR:

Cards without 

Direct Deposit 

Activity

Web GPR: 

Cards with 

Direct Deposit

Activity* 

W

w

D

Percent of Direct Deposit Cards 4.0% 16.0% Percent of Transactions on Direct Deposit Cards 30.5% 53.6% Median Length of Activity in Days 385 60 340 Median Number of Purchases 110

4 139

Median Purchase Volume $3,033.67 $103.66 $4,404.06 

Median Number of Loads 20 1 19

Median Load Volume $7,967.41 $200.00 $8,813.02 
Preliminary Results for Estimated 

The following slides present our first attempt to calcuearned over the active life of prepaid cards in our datThese estimates are subject to change as we refine oand continue to analyze these data.For the latest version of the results, please contact th

Preliminary results
Specifics of Our Revenue Meas

• These estimates reflect only fees charged to consumers by 

– These don’t include interchange revenues or costs (in process – Interchange is a significant source of revenues derived from PO– Interchange paid to ATM owners are a significant cost to prepa

• Estimates are based on all but the most recently issued pre

– We exclude very new cards we expect will remain active into 2

• We may miss some information at card origination

– An account opening fee (we can correct using fee schedules)– The first value load on the card

• We exclude some fees on cards that occur after

– The last consumer initiated transactions AND

– The estimated balance falls permanently below -$300– This occurs on about 1 percent of prepaid cards that were ever 

– We exclude those fees because we don’t think consumers actu

*: For example, the preliminary estimates don’t include ATM surcharges the con**: We exclude cards in each program that become active within a period at the 

than the median active life of cards in that program.

Preliminary results
Table 5. Fee revenue earned on cards, by pr

1st Quintile 2nd Quintile 3rd Quintile 4th 

Program Type

Median 

revenue 

per card, 

over life of 

card

Median 

monthly 

revenue

Median 

revenue 

per card, 

over life of 

card

Median 

monthly 

revenue

Median 

revenue 

per card, 

over life of 

card

Median 

monthly 

revenue

Median 

revenu

per car

over life 

card

Retail GPR $0.75 $0.60 $5.90 $3.45 $13.50 $6.18 $28.70 Web GPR $10.00 $3.32 $31.95 $9.74 $51.75 $9.95 $89.55 FI GPR $0.00 $0.00 $3.00 $0.20 $7.95 $3.24 $18.00 Payroll $0.00 $0.00 $0.00 $0.00 $6.00 $1.25 $20.25 

*: Fees charged to consumers on all active prepaid cards NOT subject to trunca

interchange revenues or ATM surcharges incurred by consumers. charged after a card has become permanently dormant and the balance fa

These preliminary calculations may not reflect an account opening fee (if a

Preliminary results
Figure 6. Fees incurred on payroll cards, by fe

*:These are shares of fees charged in 2010 on all payroll cards in these progr

least a portion of 2010. These do not include any ATM surcharges the consumer may pay.

Preliminary results
Summary of Results from First Phase o

• A typical prepaid card exhibits just a few months of activit

– But there is considerable variation across cards, within the s

• Average behavior does not fully reveal the economics of 

– Profitability will depend on the entire distribution of transacti

– Because considerable resources are invested to acquire ne

• Direct deposit is important to prepaid card economics 

– Cards with regularly scheduled value loads are active for lon

more transactions and more value loads.

– In other words, they are likely to be more profitable.

– There is considerable variation in direct deposit rates across 

• Prepaid cards are used primarily for POS purchases 

– Both in terms of the number and value of transactions.

– Cash withdrawals are important, but most prepaid cards are 

cards.

• Cardholders are using cards primarily to purchase nondu

– Primarily for groceries, food away from home, and purchase

Preliminary results