Credit Card Co's Focus on Prepaid Product

They are so-called prepaid cards -- plastic cards with money already loaded.

Also known as gift cards, they are a bright spot in an otherwise crowded market for card issuers American Express Co. <AXP.N>, Visa USA and MasterCard International, research firm TowerGroup said in a report.

"Prepaid products offer the next significant market opportunity to grow the business," the report said.

Last year, payments on prepaid gift cards were estimated at more than $30 billion, and they are projected to exceed $73 billion by 2007, TowerGroup said.

For years, retailers have offered gift cards but typically for use only in their stores. Card issuers are now edging into the market.

Visa and MasterCard offer their gift cards through partnerships with member banks, with offerings such as the Bank of America Visa Gift Card and KeyBank's Elvis Presley prepaid MasterCard. They can be used anywhere a Visa or MasterCard debit card is accepted.

While Visa, MasterCard and American Express declined to give specific numbers, all said the cards are selling well.

"The market really took off and it continues to take off," said Todd Brockman, vice president of prepaid products for Visa USA. "Last holiday season...we saw a four-fold increase in the number of cards sold."

American Express gift cards can be purchased online in amounts ranging from $25 to $500.

"We launched the American Express gift card in late 2002, and we've seen just phenomenal growth year-over-year in that product," said Randall Beard, American Express senior vice president, global marketing and product management.

To fuel use of the cards, and in turn their own profits, companies are making sure consumers have no problem finding them.

"The way that the market has exploded is because of the different channels through which consumers can now get these cards," said Bill Mathis, senior vice president, member relations at MasterCard International.

American Express said it is finalizing agreements with 10 to 20 major banks and retailers to distribute its gift cards this year.

"Within the next six months, you should be able to buy it all over the place, not just online and via phone," Beard said, adding that American Express is focusing on offering the cards in grocery stores, drugs stores and malls.

While the cards may be advertised as a good alternative to giving cash for a gift, they are not free.

Upfront fees when the card is purchased and more fees man be assessed if the card isn't used immediately. For instance, if an American Express gift card is not used for 12 months, a $1.50 servicing fee is applied. Those costs have caught the eye of consumer groups and politicians, who claim the cards should be as good as cash, with no penalties.