When the prepaid card industry thinks aboutproviding services to people without bank accounts, thoughtsnormally turn to open-loop cards. Closed-loop cards, however,provide a number of opportunities for helping the cash-basedconsumer manage their money, avoid fees, and access electronicmethods of payment.
The Federal Government is probably the first to have recognizedthis. In its quest to get rid of paper checks, the government hasmoved from food stamps to electronic benefits transfer cards as away of helping the poor. While these cards are not purelyclosed-loop, and some may be used by recipients with bank accounts,they hint at the possibilities for closed-loop cards.
Utility companies have begun using prepaid cards for consumers whohave trouble making their bills, have poor credit histories, orlack funds to pay an opening deposit on an account. This use ofclosed-loop cards has reduced delinquencies and even energyconsumption for some power companies.
Transit is another segment that can be used to help cash-basedpeople. I was once a volunteer with a program that provided freetransportation to its clients. The primary way it accomplished thiswas by handing out transit cards. Prepaid transit cards could beused by educational, job hunting, and social service agencies tooffer benefits with less risk of fraud.
Finally, there is a place for closed-loop retail cards in helpingthose without bank accounts. As alluded to above, one example mightbe helping someone buy food and staples. This appears to behappening as Publix, a grocery chain in Florida, allows a gift cardbuyer to put a cosmetic filter on its cards saying that they cannotbe used for tobacco and alcohol. Closed-loop cards also enablemerchants to give shoppers who don’t have credit or debit cards away to buy online. An easy example of this is how gaming cardsallow kids to buy online games, but an Amazon.com gift card couldbe a powerful tool to someone without other electronic means ofpayment, given the variety of items Amazon sells.
As advocates and service program managers look to prepaid as a wayto help their clients, they should remember the possibilities ofclosed-loop cards and not neglect an entire side of themarket.
