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Federal Reserve Bank of Philadelphia
Consumer Finance Institute discussion papers
Prepaid cards: an important innovation in financial services
Julia S. Cheney
Sherrie L. W. Rhine

This paper describes the characteristics of closed-system and open-system prepaid cards. Of particular interest is a class of open-system programs that offer a set of features similar to conventional deposit accounts using card-based payment applications. The benefits that open-system prepaid cards offer for consumers, providers, and issuing banks contribute to the increased adoption of these payment applications. Using these cards, consumers can pay bills, make purchases, and get cash from ATM networks. At the same time, consumers who hold prepaid cards need not secure a traditional banking relationship nor gain approval for a deposit account or revolving credit. By offering prepaid 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.

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Julia S. Cheney & Sherrie L. W. Rhine, Prepaid cards: an important innovation in financial services, Federal Reserve Bank of Philadelphia, Consumer Finance Institute discussion papers 06-07, 2006.
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Keywords: Payment systems
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