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2006: A look back - A look ahead  
  Debit card usage surpassed that of credit cards in 2006 as the industry continues to promote new card programs.
 Credit cards
 Personal finance calendar  Personal finance calendar 

On the plastic horizon in 2007

Prepaid cards, contactless payment options and new rewards programs will be the major areas of change in 2007. While these products have been around for a while, the card issuers are retooling them and marketing them more than ever.

Prepaid, or stored value, cards have been adopted by both gift givers and receivers, and sales will most likely hit another record this holiday season. If you got a gift card for a store where you never shop, though, you may be able to trade it for one from a place where you do. A new Web site, www.plasticjungle.com, is a trading place just for gift cards, where you can buy, sell, trade or donate gift cards. Plastic Jungle charges a $3.99 fee for a 90-day listing; for an additional dollar, you can get your card featured on the site.

The major growth in reloadable stored value cards, though, may be to deliver benefits for health care, insurance, payroll, social services, child support, tax refunds and customer rebates. For payroll cards, the fees charged at ATMs are lower than those at check-cashing stores, and they are a safer alternative for employees who cash their checks on payday and then carry cash until the next one. If a card is lost or stolen, most issuers have a toll-free number where the card can be reported and a new one issued, minus a reissue fee. The Mercator Advisory Group, a consultancy that covers the credit card industry, projects the payroll-card market to grow to 14.2 million in 2008.

The popularity of prepaid cards goes beyond their ease of use; there's a bottom-line reason for companies and governments. "Once the infrastructure is in place, the payback is quite quick, depending upon the volume," says Dan Horne, an associate professor at Providence College and an expert on prepaid cards. "Especially when you have recurring transactions, for example, benefits transfers, the cost to reload a card are minimal compared to sending a check. Look for the biggest benefit provider of them all, the federal government, to start moving to prepaid cards in the next couple of years. Think about how many vets' checks go out, Social Security checks, Medicare -- it boggles the mind, and if they can save even a conservative quarter on each" that's a huge savings.

The major card issuers -- Visa, MasterCard and Discover -- have added reloading capability to their prepaid cards, which can be used at many types of businesses and stores. These are known as "open system" cards. However, the Financial Crimes Enforcement Network, or FinCEN, a division of the U.S. Treasury Department, is concerned about this development; it fears reloadable global access cards will enable money launderers to hide "dirty" money. Proof of identification is not needed to purchase a stored-value card, so FinCEN fears that they will be used to move large sums of money globally. The card industry will most likely be proactive in finding a solution to potential problems.

'Access' rewards
In the last half of 2006, all of the credit card issuers rolled out new rewards programs, all of which featured special access to events arranged by concierge services. Want to get great seats for a Dave Matthews Band concert and VIP parking? Call your Citi/AAdvantage Card Private Pass concierge. As credit card issuers strive to keep affluent cardholders, expect them to compete with ever-more elaborate rewards programs in 2007.

Credit card issuers at crossroads
Debit card usage outpaced credit card usage in 2006, which means the credit card companies didn't make as much money as they did in 2005. Where will they find that new source of revenue? Prepaid cards may be the next area of growth for them, since they can charge all kinds of fees -- if not interest -- for initiating a prepaid card, reloading, dormancy and so on.

-- Posted: Nov. 1, 2006
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