Credit and Debit Card Ratings

Prepaid Card Fraud Controllable

A recent report by Mercator Advisory Group examines the vulnerability of prepaid debit cards to criminals.

by Chris Warren

Prepaid debit cards make it into the news a lot these days. A lot of the time stories are focused on the maneuvering of large financial services companies like Chase and American Express and the various strategies they’re implementing to grab a larger chunk of this ever-growing market.

But there has also been a steady stream of news recently about fraud involving prepaid debit cards. For instance, in mid-November six Yonkers, New York residents were arrested and charged with hacking into bank financial systems and swiping prepaid debit card information that enabled them to steal $45 million. There have also been frequent reports of criminals posing as utility workers, who threaten victims with shutting off their power unless they put money on a prepaid debit card.

While the use of prepaid debit cards by criminals is gaining notoriety, the scope of the overall problem may not be so dire. Indeed, according to a recent report by Mercator Advisory Group, a consulting company, fraud involving prepaid debit cards is much smaller than what takes place with debit cards. The report, “Prepaid Card Fraud and Risk Controls in the United States,” notes that criminals target credit, debit and prepaid cards alike simply because they all have some level of weakness that can be exploited.

Prepaid Card Fraud Controllable

In addition, Ben Jackson, the report’s co-author and a senior analyst at Mercator’s Prepaid Advisory Service, insists that further regulation of the industry isn’t necessary. “Prepaid fraud is a serious, but manageable problem, as long as the members of the prepaid value chain work together. There is nothing inherent to prepaid that makes it more or less risky than other financial products,” he says.

Furthermore, Jackson outlines a variety of best practices that can be implemented to thwart criminals. For instance, the report says that card issuers and retailers should not be hesitant to say “no” to customers who raise red flags. In addition, the report encourages companies and banks to ask for additional documentation in situations when they feel it’s warranted and also to create a list of problematic names, addresses and phone numbers.

Tag: American Express

  • Prepaid Card Fraud Controllable

    Prepaid Card Fraud Controllable

    A recent report by Mercator Advisory Group examines the vulnerability of prepaid debit cards to criminals.

    by Chris Warren

    Prepaid debit cards make it into the news a lot these days. A lot of the time stories are focused on the maneuvering of large financial services companies like Chase and American Express and the various strategies they’re implementing to grab a larger chunk of this ever-growing market.

    But there has also been a steady stream of news recently about fraud involving prepaid debit cards. For instance, in mid-November six Yonkers, New York residents were arrested and charged with hacking into bank financial systems and swiping prepaid debit card information that enabled them to steal $45 million. There have also been frequent reports of criminals posing as utility workers, who threaten victims with shutting off their power unless they put money on a prepaid debit card.

    While the use of prepaid debit cards by criminals is gaining notoriety, the scope of the overall problem may not be so dire. Indeed, according to a recent report by Mercator Advisory Group, a consulting company, fraud involving prepaid debit cards is much smaller than what takes place with debit cards. The report, “Prepaid Card Fraud and Risk Controls in the United States,” notes that criminals target credit, debit and prepaid cards alike simply because they all have some level of weakness that can be exploited.

    Prepaid Card Fraud Controllable

    In addition, Ben Jackson, the report’s co-author and a senior analyst at Mercator’s Prepaid Advisory Service, insists that further regulation of the industry isn’t necessary. “Prepaid fraud is a serious, but manageable problem, as long as the members of the prepaid value chain work together. There is nothing inherent to prepaid that makes it more or less risky than other financial products,” he says.

    Furthermore, Jackson outlines a variety of best practices that can be implemented to thwart criminals. For instance, the report says that card issuers and retailers should not be hesitant to say “no” to customers who raise red flags. In addition, the report encourages companies and banks to ask for additional documentation in situations when they feel it’s warranted and also to create a list of problematic names, addresses and phone numbers.

  • The Debate Over Green Dot

    The Debate Over Green Dot




    Analysts disagree about how much longtime prepaid debit card supplier Green Dot should worry about new competitors

    By Shane Tripcony

    Recently, (Green Dot Corporation- click for our review of their prepaid card) has been a source of debate and disagreement. A longtime issuer of prepaid debit cards, Monrovia, California-based Green Dot, is an established player in the industry, selling Visa and MasterCard branded prepaid cards both online and at tens of thousands of retail locations. In its most recent quarterly earnings report this past July, Green Dot not only declared that both its net income and revenue were 4 percent higher than the year before, but it also raised its full-year guidance.

    Not everyone is as rosy about Green Dot’s position in the prepaid industry. In mid-October, the company’s stock price took a tumble after Janney Capital Markets’ analyst, Thomas McCrohan, issued a client note (http://www.businessweek.com/ap/2013-10-16/analyst-cuts-green-dot-to-sell-on-competition) downgrading his rating of Green Dot from “Neutral” to “Sell.” McCrohan’s dimmed view on Green Dot’s fortunes were due to what he saw as stiffening competition from big financial players like American Express. In particular, McCrohan cited the low (or non-existent) reload fees available with cards such as AmEx’s Serve and newly introduced cards from retailers like Walgreen’s.




    In McCrohan’s analysis, Green Dot’s Wal-Mart MoneyCard, which has a $3 reload fee, doesn’t stack up well. “Paying a fee to reload cash onto a card is an irritant to most consumers, and retailers are beginning to turn to zero-fee reloads as a tool to drive foot traffic,” McCrohan wrote in his note to clients.

    McCrohan’s comments about Green Dot came during a stretch in which the company’s shares slid to three months’ low. Not everyone seems to share McCrohan’s dour view on Green Dot. On October 29, Piper Jaffray analyst, Michael Grondahl, (http://www.businessweek.com/ap/2013-10-29/green-dot-climbs-as-analyst-raises-rating)elevated his rating of the company from “Neutral” to “Overweight.” Grondahl said that the impact of increased competition on Green Dot’s business health was being overstated. He also noted that Wal-Mart is not pressuring the company to reduce fees on its card and is instead offering a larger selection of Green Dot cards.

    McCrohan, Grondahl and other observers of the quickly expanding prepaid industry will be able to quibble all the more soon. On October 31, Green Dot is set to (http://ir.greendot.com/phoenix.zhtml?c=235286&p=irol-newsArticle&ID=1865243&highlight=”) announce its third quarter financial results.

Credit and Debit Card Ratings