Julia Cheney of the Federal Reserve Bank of Philadelphia and Sherrie Rhine of the Fed's New York bureau describes the characteristics of closed-system and open-system pre-paid cards and their attraction to banks and consumers.
Of particular interest is a class of open-system programmes that offer a set of features similar to conventional deposit accounts using card-based payment applications. Using these cards, consumers can pay bills, make purchases, and get cash from ATM networks. At the same time, consumers who hold pre-paid cards need not secure a traditional banking relationship nor gain approval for a deposit account or revolving credit.
The authors contend that by offering pre-paid cards, issuing banks may meet the financial needs of consumers who may not otherwise qualify for more traditional banking products and these banks may do so with a card-based electronic payment application that essentially eliminates credit risk for the bank.» Download the document now 145.4 kb (Adobe Acrobat Document)