Source: Turner Investments
It's estimated that the percentage of U.S. households without bank accounts may be as high as 26%. So what happens to the $1.1 trillion that those households take in each year? According to the latest Sector Focus commentary by Turner Investments, much of that money is likely to end up on prepaid cash cards over the next five years.
Turner, an investment firm based in Berwyn, Pennsylvania, publishes Sector Focus commentaries monthly as part of the continuing efforts of its five analyst teams to monitor the market sectors for its growth-stock portfolios.
Entitled Prepaid cash cards: the New Frontier of plastic, the piece was written by Turner's financial-services analysts: Amanda Black, portfolio manager/global security analyst; Pablo Echavarria, global security analyst; David Honold, portfolio manager/global security analyst; Mark Turner, president and senior portfolio manager; and Rick Wetmore, portfolio manager/global security analyst.
They anticipate that the market for prepaid cash cards may grow at double-digit annual rates between now and 2015. Two small prepaid-card vendors that appear to be well positioned to profit from that growth are Green Dot and NetSpend Holdings.
For the consumers averse to traditional banking who Green Dot and NetSpend serve, prepaid cash cards may hold three appeals:
* The cards can be a cheaper alternative to checking accounts. Consumers who are prone to overspending can't spend more than they put on the cards, so they aren't exposed to overdraft charges. Also, the increased checking-account fees resulting from new federal financial reforms are driving some consumers to the cards.
* The cards require no background check, unlike some checking accounts.
* The cards are convenient to load and use, enabling customers to take their paycheck to a retailer where they can have the money loaded onto a card and start shopping immediately.