Consumers continue to show a growing preference for prepaying, new research suggests.

In the report “Consumers Provide Direction With Prepaid Under Scrutiny,” Mercator Advisory Group suggests some 49% of consumers purchased a prepaid card in a recent 12-month period ended in May, up from 45% who did during the previous yearlong period. The company based its findings on an online survey of 1,009 consumers ages 18 and older it conducted in May.

 “In general, we’re seeing that prepaid has held up pretty well during the recession,” says Ken Paterson, the report’s author and Mercator vice president of research operations. “Consumers continue to find new uses and new value in the cards.”

Despite the increase, however, Paterson in the report advises card issuers and program managers to educate consumers about recent regulatory changes regarding expiration dates and inactivity fees to ease fears about using prepaid cards. That could lead to more consumers being comfortable buying prepaid products, Mercator contends.

Respondents who had not purchased a prepaid card in the previous 12 months were concerned about the potential for cards expiring with funds left in their accounts and potential surprise fees the cards might assess, the survey data reveal.

“While consumers had these concerns, relatively few are having those things happen to them,” Paterson says. Publicity about regulatory changes likely played a part in what consumers thought were prepaid concerns, he adds.

More consumers purchased prepaid cards in the past year, but four out of five prepaid card categories saw fewer prepaid buyers from the previous 12-month period.

The leading card types purchased by prepaid buyers remained merchant-branded cards (69%) and network-branded gift cards (28%). Those numbers, however, are down from 76% and 39%, respectively.

Some 24% of respondents purchased gift cards for online services such as digital music and games, up from 18% who did in 2009.

General-purpose, or network-branded, prepaid debit cards are not gaining an overwhelming amount of repeated use from consumers, and the majority of consumers are not taking advantage of their reload feature, Mercator says. Some 57% of respondents were aware of the reload feature but had never used it. Additionally, some 31% were unaware of the card’s reload capability, which is down from 36% who were last year.

Some 70% of current and past users of reloadable cards reloaded their accounts only five times or fewer during the previous 12 months, which supports program managers’ concerns that there is “excessive churn” in that prepaid segment, Mercator says.

“The concern about churn with those cards is because they are designed for long-term use, and the cards are not living up to that potential,” Paterson says.

Consumers surprisingly are becoming more aware of restricted-authorization cards, the survey data show. Mercator described the product to survey participants as gift or prepaid cards valid at select retailers that share a common theme, such as stores at a mall or a select group of restaurants.

Some 68% of respondents were aware of the card type, and 25% either purchased or received such a card during the previous 12 months.

Gift card displays at supermarkets and big-box retailers are becoming the primary place where consumers buy gift cards, the survey data suggest. Some 49% of respondents purchased a gift card from a display rack compared with 45% who did in 2009.

“The high visibility of gift card display racks” helped contribute to the increase, Paterson says.

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