credit card

The new prepaid credit card from American Express breaks all the rules for reloadable cards by charging minimal fees to cardholders - a rarity in a credit niche that's known for hidden fees and charges. This new offer capitalizes on the rising popularity of prepaid accounts, but merchants may be footing the bill.

Prepaid credit cards are booming

Prepaid credit cards are a popular option for consumers who have little or no credit history. They function, essentially, like a controlled debit card that's not attached to a bank account, which makes them a smart budgeting tool. According to CNN News, 2010 saw $65 billion in prepaid credit card transactions, a whopping 35 percent increase over 2009.

The downside of these cards has always been the fees that get tacked on for just about every aspect of using them. Most prepaid credit cards charge a premium for opening an account, activating new cards, loading money, and even for replacing lost cards.

Not so with the new American Express prepaid card, however. Instead, American Express offers its prepaid card with no activation or monthly fee, no charge for foreign currency conversions, and only a minimal charge to reload the card.

Low card fees mean more cost passed to merchants

While consumers will pay less for the AmEx prepaid card, merchants can expect to be hit with steep fees. American Express is known in the industry for charging higher swipe fees on the best rewards credit cards than any other credit card company, which is why many retailers, restaurants, and other vendors don't accept AmEx. The new prepaid card is no different, offering a bargain to consumers while charging the difference to merchants.

This difference will become especially notable if and when proposed restrictions on debit and credit card fees come into effect. Prepaid cards are not subject to the cap on transaction fees charged to merchants, which could mean that these cards will become very popular with banks and card companies, but not so popular with retailers.