“You can't get rich by spending all your money” is the refrain from financial planners, investment advisers and frugal types.
That advice really caught on during and after the Great Recession, when many folks learned hard lessons about spending money they didn't have. Financial institutions have not been ignorant of this shift, the credit card industry included. Many had to evaluate their business models in the wake of the recession. In fact, nearly 70 million people in the U.S. don't use banks or don't use them much, according to AmEx — even more reason for a financial institution to evaluate its business model.
But, to use another saying: “If you can't beat ‘em, join ‘em.” In the case of credit card issuers, that means many have leapt into the prepaid card business.
Enter American Express's flagship prepaid card, Serve. It has added 4,100 Wal-Mart stores to its cash-reload network, making it the largest free cash-reload network in the U.S. That means people can ask cashiers to reload their Serve cards at 19,500 Wal-Marts, CVS pharmacy stores, and 7-Eleven stores in the United States. Once a customer adds cash to his or her Serve account at the store's cash register, the money is immediately available to spend anywhere that takes American Express.
Prepaid cards are a lot like gift cards. They hold a cash balance that can be used anywhere. Simply transfer money to the card, and then use the card to pay for things. They have found popularity among people who don't have or want bank accounts, but want to be able to buy things online. Some consumers also use them as budgeting tools: Once the funds on the card are used up for the month, the spending has to stop.
Critics have jumped on prepaid cards, though, primarily because they charge fees that can eat away at a customer's balance. Proponents say the fees are lower than overdraft fees on a checking account and that if a few fees on a prepaid card are all it takes to keep people from digging themselves into a credit hole, so be it.
Either way, they're popular. The Consumer Financial Protection Bureau estimates that consumers loaded $57 billion onto prepaid cards in 2011, and that the prepaid market grew by a whopping 42 percent from 2010 to 2014. And regardless of the controversy, credit card issuers such as American Express are embracing the trend.
In the case of Serve, the cards sell for $1.95 at Wal-Mart, though the fine print says you can also buy the Serve card at Duane Reade, Family Dollar, Fred's Super Dollar, Office Depot, Sheetz and Walgreens (those stores aren't mentioned in the company's press release about the expansion of its network).
There are, as with all things money-related, a few rules and pitfalls. First, Serve is only for people over 18, so it isn't a way to control teen spending.
There is a monthly fee of $1, but you can get out of that if you add direct deposit to your account or if you add at least $500 to your account per month.
If you plan to just use the cashier as your bank teller, you should know that you can only add up to $500 to your account for free. The minimum you can add to the card at the cash register is $20.
You can also link your debit, credit or bank account to the Serve card and then use those accounts to load cash onto the Serve card via your mobile phone. Of course, if you use your credit card to fund your Serve card (and borrowing money to fund a prepaid card is usually a bad idea), your issuer might charge a cash-advance fee (making it an even worse idea).
You can also pay bills online for free and deposit checks to your account for free if you use the mobile check-capture feature. ATM withdrawals are also free if you use a MoneyPass ATM. The company says there are at least 24,000 of those ATMs in the country; if you can't find one, you can still use another ATM, but it'll cost you $2 plus whatever the ATM operator charges.
One perk: If you get into a dispute with a vendor over something you bought with the Serve card, AmEx will help you out via a refund or return, though its coverage is limited to $1,000 per occurrence and can't exceed $50,000 per account per year. Also, American Express says it might ask you to send it the disputed item (the company says it'll pick up the shipping tab).
Another cool perk is the free access to AmEx's 24-hour Roadside Assistance Hotline (of course, you still have to pay for “any goods or services provided”). But, you can't use the hotline for rental cars, motorcycles, taxis, “unlicensed vehicles,” tractors, or trucks over 10,000 pounds in gross weight.
Prepaid cards aren't new, but Amex's push to create the largest network for reloadable prepaid cards is a sure sign that the company sees this as a market niche with a lot of potential. As those financial planners, investment advisers, and frugal types would say, you have to spend money to make money.