Stored Value Cards as a Method of Electronic Payment for Unbanked Consumers

This paper aims to describe the stored value card market and to explain how unbanked customers use reloadable general spending and payroll cards to meet their financial transactions needs.

The paper states that:

• Greater consumer adoption and marketplace acceptance of stored value cards are facilitated by a mature credit/debit electronic infrastructure;
• This market is in the early phase of the growth cycle, with substantial expansion likely in the future.

The paper reports simulations that the authors undertook that compare the costs of four major financial services products - reloadable general spending cards, payroll cards, checking accounts and check cashiers - and finds that:

• Consumers' lowest-cost choice depends on the intensity of their financial services needs;
• The simulations cannot capture how consumer laws may affect the costs and benefits associated with these cards;
• The cards provide limited opportunity to save, earn interest and accumulate assets;
• The growth in the stored value card market has started a debate about the need for regulation in this area.

The paper concludes that:

• There is need for further research to clarify the type of regulatory framework that can best protect consumers' assets, while not inhibiting market innovation and growth;
• More analysis is needed to determine the savings behavior of cardholders and how stored value transactions relate to credit worthiness.

The paper recommends financial education programs that would help consumers make sound financial decisions.