This is an update to my previous post about American Express prepaid cards. I received the 3 cards I ordered. Although I originally went after the possible $75 bonus in gift cards, which aren’t due to arrive yet, now I’m thinking of keeping the prepaid cards instead of ditching them after using them just once on paying a utility bill.
Why? For one thing, the card looks and feels really cool. It may sound silly to judge a card by the look and feel, but there’s something to be said about visually and physically appealing products, as evidenced by the success of Apple. Just holding the card in my hand makes me think about all the hard work those American Express employees and vendors put in to create it.
The American Express prepaid card would be great for a kid’s allowance. Parents can add money to it at any time through a bank transfer. You can set up recurring transfers on a schedule and top up the balance every so often. Parents can also monitor where the money is spent. You can’t do that if you are giving cash.
There is no purchase fee, no shipping charge, no load fee, no monthly fee, and no chance for overdraft. As long as you don’t use it to withdraw cash from an ATM machine more than once per month, there is no fee whatsoever. It’s perfect for just spending the money a kid has on the card.
A prepaid card is also good for an adult when you don’t want to take your real card with you. Say when I go running I don’t take my wallet with me but I can take a prepaid card with a small amount of money on it. If I lose the card, I won’t have a big headache in changing all my automatic charges. I can still get a replacement card and dispute all unauthorized charges on the prepaid card.
What’s in it for American Express if it’s not charging fees the other prepaid cards charge?
Well first there is the fee they charge the stores, which is higher than the fee from a Visa or MasterCard prepaid card. If a kid uses only an American Express prepaid card, stores that want the business from those kids will have to accept American Express if they don’t do so now. Some adults who used to use a different card may shift to American Express when they see the store accepts American Express. In the end American Express gets more revenue from the stores. This is a classic two-sided market strategy: bribe the consumers (cool looks, convenience, no fees), charge the businesses.
Second, American Express earns some float. The prepaid balance does not earn interest. This is a minor factor today due to low interest rate in general, but it may become a more significant factor in the future. If you can change people’s habit when the interest rate is low, people may very well stay with the habit when the interest rate goes higher.
Then there’s the long-term investment in branding. If kids start using an American Express card when they are kids, they will be familiar with American Express for years already when they become adults. If they are satisfied by American Express, they will prefer to use American Express.
I think American Express did a great job in creating this product. They are able to say no to the short-term allure of fees when they go after the much larger long-term reward. That’s smart. Click on the card to learn more and get one for yourself and your kids.
Read also: New American Express Prepaid Card Is Light on Fees by Tara Siegel Bernard at NYT Bucks. Note the card graphics changed to a much cooler look now.