American Express Co. on May 3 launched Pass, a reloadable prepaid card for parents to give their teenagers and young adult children as a safer alternative to carrying cash or having a credit card. The idea, however, is not new; AmEx is following a well-worn path blazed by competitors.

“With a credit card, young adults and teens can overspend,” Alpesh Chokshi, president of AmEx’s global prepaid business, said in a statement. “Parents are in the driver’s seat with Pass. Online tools help manage an allowance, track spending and receive alerts when balances are low.”

If a teen loses Pass, AmEx replaces the funds remaining on the card with a new card, Vanessa K. Capobianco, an AmEx spokesperson, tells PaymentsSource.

The card is vertical because it provides a new twist on the traditional horizontal card design, Capobianco says. American Express officials like the design because it makes the card look modern. The card also incorporates the border all American Express cards have.

AmEx issues it in four bright colors–blue, green, orange and purple–to appeal to young consumers, but the issuer only markets the card to their parents. “We conducted research with parents, and they told us this is how they want to give money to their teens,” Capobianco says.

Although AmEx issues prepaid gift cards, Pass is AmEx’s first reloadable prepaid card, Capobianco says.

AmEx’s entry into teen and young adult market follows its chief competitors, who already support similar products. Visa Inc. introduced its Buxx card for teens in 2005, and in February 2009 Discover Financial Services unveiled Current by Discover. And in February this year, Plastic Cash International LLC and MasterCard Worldwide announced a partnership to offer MyPlash, an open-loop reloadable prepaid card for teens due out this summer.

Parents can load funds into accounts tied to each of the cards and monitor their kids’ spending online.

“American Express is doing what everyone else is doing,” says Adil Moussa, prepaid card analyst with Aite Group LLC, a Boston-based consulting firm.

Despite issuer interest in prepaid reloadable cards for teens, the demographic market for teenagers is small, Moussa says. Issuers also face significant barriers persuading parents to apply for the cards and teens to use them.

“Teenagers don’t want their parents to know where they spend their money, and card issuers must educate parents why the cards are important,” Moussa says.  But there are long-term benefits. “If a bank or card issuer gets a 14-year-old boy as a cardholder, he is their customer for life, ”he says.

AmEx has an advantage over Visa, MasterCard and Discover because the year an individual becomes an AmEx cardholder is printed on the card. “It creates loyalty,” Moussa says.

Pass is available as a preview product to AmEx cardholders; it will be available to the general public this summer, AmEx notes in a statement. Parents must register for a Pass card online, and they can use their AmEx credit or charge card to load up to $2,500 into their Pass card account.

The issuer charges cardholders a $3.95 monthly membership fee, which it is waiving through June 30. Cardholders also pay $1.50 per ATM withdrawal, and they can pay a one-time fee of $9.95 to customize their card with the cardholder’s photograph, Capobianco says.

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