Money Buzz 05/04
From AAA to Starbucks, businesses are jumping on the prepaid plastic bandwagon. Whether it's giving prepaid debit (aka stored value) cards to employees to cover travel expenses or selling them to customers for use at the register, disposable plastic is fast becoming a credit solution for business owners.
About 50 million U.S. adults don't have a credit card, and nearly 10 million households don't hold bank accounts, says The Pelorus Group, an aggregator of market research products. The cards offer these consumers-as well as their employers and the stores where they shop-the convenience of electronic transactions.
"For the customer and the store employee, it can streamline the process over cash and credit," says Colette Courtion, director of Starbucks' Global Card Services, who reports that the prepaid Starbucks Card accounted for 10 percent of all store transactions in fiscal year 2003.
For merchants, branded stored-value cards also have a side benefit: improved customer loyalty and the chance to court new prospects. "The card is a great way to introduce Starbucks to new customers," says Courtion, who says 80 percent of the cards are given as gifts.
With FDIC insurance limited to $100,000 per account, investing a larger sum of money in CDs has always meant opening multiple accounts at different banks or going uninsured. But not anymore. The Certificate of Deposit Account Registry Service (CDARS), launched in January 2003, offers investors a way to stash up to $5 million in fully FDIC-insured CDs without opening 50 separate accounts.
CDARS is basically a swapping service that lets banks trade CDs, divvying up your money into multiple CDs, each of which is less than $100,000 and fully FDIC-insured. "For investors, it's extremely simple-no different than buying a single CD from a bank," explains Mark Jacobsen, president and COO of Promontory Interfinancial Network LLC, which runs CDARS. "But it's not invisible. Investors are informed about where their money is and have the option of specifying any banks where they don't want the money to go."
Beyond the security FDIC insurance offers, CDARS holders also benefit from greater convenience and more clout when it comes to other banking matters-such as a business line of credit. "It means you can do a lot more business with one bank, which is easier and also makes you a more valuable customer to that institution," notes Jacobsen. To find banks offering CDARS, visit www.cdars.com.
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Liane Cassavoy is Entrepreneur's "Hot Disks" columnist.