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Cash cards ride the credit wipeout

Three small companies are playing a role in a business that has been growing as the economy’s troubles have deepened — the business of prepaid cash cards.

business Updated: Mar 20, 2009 00:32 IST

Three small companies are playing a role in a business that has been growing as the economy’s troubles have deepened — the business of prepaid cash cards.

The cards, which have the Visa, MasterCard and Discover logos, act like portable checking accounts, though they are replenished with deposits made at retail outlets rather than banks.

Distribution and management of these debitlike accounts are handled by small service companies, prominently the Green Dot Corporation, the NetSpend Corporation and nFinanSe Inc. They provide computer servers and software as well as customer service to networks of retailers, typically supermarkets, drugstore chains and check-cashing outlets.

The number of “unbanked” and “underbanked” people is growing rapidly in the current economic crisis. The Mercator Advisory Group, a research service focused on the credit and payments industry, estimated in November that the volume of transactions on general-purpose prepaid cards totaled more than $4 billion in 2008. It forecasts an increase to $7.2 billion in 2009 and $10.8 billion in 2010.

“The rapid growth squares with what we see in the marketplace,” said Mark Troughton, president of cards and networks at Green Dot, “but we find the totals too low. We did more than $4 billion by ourselves last year.”

Jerry R. Welch, the chairman of another small service company, nFinanSe, said he saw Wal-Mart’s expansion as an indication of the potential for business growth. Wal-Mart “will bring the prepaid card business a new profile, new legitimacy,” he said.

Welch said he saw the business through the eyes of a store owner. “A retailer sees people coming in to load cash onto their cards and says, ‘These people are using me as a bank — and that’s good. I should sell them something while they’re here.’ ”

NYT