Prepaid Market + Consumers Insights
Learn about the latest consumer and prepaid market trends.
Implications for Prepaid Industry and Financial Institutions
The rapid migration of prepaid from a niche product for the underserved to a mainstream financial product has changed the face of the prepaid industry. When the relatively young prepaid industry started at the turn of the century, the emphasis was on category marketing - in other words, explaining to everyone what the product was. As the industry matured and there was more awareness of what prepaid cards were and how they worked, the focus turned to brand and product marketing. As the product grew rapidly, competition intensified and we find ourselves today in a period of product proliferation.
There are literally hundreds of prepaid cards on the market today, sold by retailers, check cashers, internet marketers, celebrities, and, oh yes, even some financial institutions. The good news for financial institutions is that with product proliferation comes a value shift from product to distribution. As the cards themselves become more commoditized, or at least differentiation becomes more challenging, the role the distributor plays in making the sale rises in value.
For reloadable prepaid cards, financial institutions represent a superior distribution network to most of the other distribution channels for prepaid cards today. Here is how things work today for many prepaid cards sold outside of financial institution channels:
Financial institutions offering prepaid cards can and do so much better. Knowledgeable banking office personnel help customers select the right prepaid card based on their need. These staff perform basic servicing functions in branches, like loading money onto cards, checking balances or ordering secondary cards. The consumer gets the information they need to buy the right prepaid product and the service to stay happy with it.
* * * * *
If your financial institution is interested in learning more about how to add prepaid cards to your product line, please give TransCard a call 1.800.504.3126 or email sales@transcard.com. You can also visit our website at www.transcard.com.
There are literally hundreds of prepaid cards on the market today, sold by retailers, check cashers, internet marketers, celebrities, and, oh yes, even some financial institutions. The good news for financial institutions is that with product proliferation comes a value shift from product to distribution. As the cards themselves become more commoditized, or at least differentiation becomes more challenging, the role the distributor plays in making the sale rises in value.
For reloadable prepaid cards, financial institutions represent a superior distribution network to most of the other distribution channels for prepaid cards today. Here is how things work today for many prepaid cards sold outside of financial institution channels:
- Reloadable prepaid cards hang on racks in grocery, retail and big box stores. The packaging is shrink-wrapped for security reasons, providing the consumer with little information about the prepaid card or how to compare it to other cards.
- When the consumer needs to load money to a prepaid card other than by direct deposit, they either buy a money pack and go online to register it, or stand at the service counter and fill out a form for a clerk who is also selling Lotto tickets and exchanging spoiled meat.
- When service is needed by a cardholder, it's always provided through a 1-800 number to a call center -
a call often not answered in this country.
Financial institutions offering prepaid cards can and do so much better. Knowledgeable banking office personnel help customers select the right prepaid card based on their need. These staff perform basic servicing functions in branches, like loading money onto cards, checking balances or ordering secondary cards. The consumer gets the information they need to buy the right prepaid product and the service to stay happy with it.
* * * * *
If your financial institution is interested in learning more about how to add prepaid cards to your product line, please give TransCard a call 1.800.504.3126 or email sales@transcard.com. You can also visit our website at www.transcard.com.
WHY YOUR FINANCIAL INSTITUTION SHOULD TAP
INTO THE PREPAID MARKET
There’s a lot of buzz about prepaid debit products these days. But the prepaid debit card is not a new phenomenon any more. Walmart, Green Dot, NetSpend, and Western Union have all offered prepaid debit products for years. These companies led the way in providing other options beyond traditional checking accounts and credit cards. Their business model was simple: charge the customer high cardholder fees. It worked, but it also created a sentiment among potential customers that the prepaid debit product is just too expensive.
The Old Days
The prepaid product evolved almost 15 years ago out of a new form of demand deposit that was accessible via credit card. The benefit of that technology — moving money in real time — marked the beginning of an innovative product and a new industry that we now know as prepaid.
With the industry came a new role — program managers were born and began working with banks to manage their prepaid programs. The financial insititutions would hold the deposits, worry about compliance, and sponsor the product. The program managers would do the marketing and take care of operations and customer service. And so, in sense, the FI was removed from the customer. But it became easy to find prepaid programs at many community financial institution locations across the country.
The old prepaid cards issued by financial institutions listed the issuing FI's name on the back of the card, but the balance of revenue earned by the product was tilted towards program managers and customer service contractors.
The New Evolving Model
Today, regulation in the prepaid market demands that issuing banks assume more control over their prepaid product. Using multiple third party processors is a thing of the past.
Financial institutions now have the ability to determine their brand, their pricing, and design. New prepaid leaders are taking the place of old third-party processors and giving banks the control that they need. With new leaders like TransCard, financial institutions can own the association BIN and they are responsible for their customer (even if customer service is contracted).
New Technology Opens the Door to Revenue
New technology and new laws have allowed for prepaid debit to evolve in the most unique ways. The Durbin Amendment to the Dodd-Frank Bill in 2010 put a limit on debit interchange fees, with one notable exception: prepaid debit. Those fees were not regulated, and banks started noticing.
Because of the prepaid debit advantages, financial insitutions are now realizing that there is a lot of untapped potential in the unbanked demographic. The tides of prepaid are shifting, and many financial institutions realize they can charge more than their traditional products with prepaid, attracting new customers at the same time. Some are even creating special loans at higher rates for the prepaid demographic.
Chase’s Liquid® prepaid product is part of the new evolution we are seeing. Chase Liquid® can be found at many local branches, with no fees to open or activate — just a $25 initial load to get started. It allows customers to load cash and checks at any Chase Deposit Friendly ATM, load checks using Chase QuickDeposit or Direct Deposit, or transfer funds from accounts — all with no fees and of course no overdraft fees. And as a customer, you can do all of this with Chase’s online banking tool.
How do they make money? One flat, monthly fee of $4.95. U.S Bank’s Convenient Cash Card™ is another large-bank prepaid product. And American Express has issued a new prepaid debit card with no fees while also allowing a pathway for its customers to charge and credit cards, given a track record showing responsible card use.
Customize Your Prepaid Program
Another prepaid leader, TransCard, offers prepaid products with over 300 financial institution partners with their own unique fee structure. TransCard is now paving a new road in the prepaid product. It’s all about customization and choice for the bank and the customer with the TransCard product — TransCard offers customized color logos on their cards.
Hundreds of financial institutions across the United States are realizing that the prepaid demographic will be attracted to a new paradigm: no unexpected fees. And here’s the key: building a relationship with the unbanked may put those customers on their way to your FI's more traditional products, like savings accounts.
Research is demonstrating that targeting customers who use their prepaid cards as the destination for their direct deposits are more likely to continue with the financial institution as repeat customers. FIs might even think about waiving ATM and monthly fees while keeping transfer reload fees for their direct deposit prepaid customers. NetSpend, another prepaid provider who offers guaranteed approval without a credit check, allows its direct deposit customers to overdraw on their accounts, up to $100, with a $15 fee charged for negative balances over $10.
There’s lots of ways to get creative about prepaid. The best products make any fees clear and simple. Your financial institution's marketing advantage might be no overdraft fees. Perhaps you charge low or no monthly fees. Or maybe you stay away from balance inquiry fees or ATM fees.
Many financial institutions are beginning to understand that prepaid might be the new checking. Prepaid products have a very low cost-entry for community FIs. With the advantages that these cards can offer customers, it makes sense to explore this market.
The prepaid product evolved almost 15 years ago out of a new form of demand deposit that was accessible via credit card. The benefit of that technology — moving money in real time — marked the beginning of an innovative product and a new industry that we now know as prepaid.
With the industry came a new role — program managers were born and began working with banks to manage their prepaid programs. The financial insititutions would hold the deposits, worry about compliance, and sponsor the product. The program managers would do the marketing and take care of operations and customer service. And so, in sense, the FI was removed from the customer. But it became easy to find prepaid programs at many community financial institution locations across the country.
The old prepaid cards issued by financial institutions listed the issuing FI's name on the back of the card, but the balance of revenue earned by the product was tilted towards program managers and customer service contractors.
The New Evolving Model
Today, regulation in the prepaid market demands that issuing banks assume more control over their prepaid product. Using multiple third party processors is a thing of the past.
Financial institutions now have the ability to determine their brand, their pricing, and design. New prepaid leaders are taking the place of old third-party processors and giving banks the control that they need. With new leaders like TransCard, financial institutions can own the association BIN and they are responsible for their customer (even if customer service is contracted).
New Technology Opens the Door to Revenue
New technology and new laws have allowed for prepaid debit to evolve in the most unique ways. The Durbin Amendment to the Dodd-Frank Bill in 2010 put a limit on debit interchange fees, with one notable exception: prepaid debit. Those fees were not regulated, and banks started noticing.
Because of the prepaid debit advantages, financial insitutions are now realizing that there is a lot of untapped potential in the unbanked demographic. The tides of prepaid are shifting, and many financial institutions realize they can charge more than their traditional products with prepaid, attracting new customers at the same time. Some are even creating special loans at higher rates for the prepaid demographic.
Chase’s Liquid® prepaid product is part of the new evolution we are seeing. Chase Liquid® can be found at many local branches, with no fees to open or activate — just a $25 initial load to get started. It allows customers to load cash and checks at any Chase Deposit Friendly ATM, load checks using Chase QuickDeposit or Direct Deposit, or transfer funds from accounts — all with no fees and of course no overdraft fees. And as a customer, you can do all of this with Chase’s online banking tool.
How do they make money? One flat, monthly fee of $4.95. U.S Bank’s Convenient Cash Card™ is another large-bank prepaid product. And American Express has issued a new prepaid debit card with no fees while also allowing a pathway for its customers to charge and credit cards, given a track record showing responsible card use.
Customize Your Prepaid Program
Another prepaid leader, TransCard, offers prepaid products with over 300 financial institution partners with their own unique fee structure. TransCard is now paving a new road in the prepaid product. It’s all about customization and choice for the bank and the customer with the TransCard product — TransCard offers customized color logos on their cards.
Hundreds of financial institutions across the United States are realizing that the prepaid demographic will be attracted to a new paradigm: no unexpected fees. And here’s the key: building a relationship with the unbanked may put those customers on their way to your FI's more traditional products, like savings accounts.
Research is demonstrating that targeting customers who use their prepaid cards as the destination for their direct deposits are more likely to continue with the financial institution as repeat customers. FIs might even think about waiving ATM and monthly fees while keeping transfer reload fees for their direct deposit prepaid customers. NetSpend, another prepaid provider who offers guaranteed approval without a credit check, allows its direct deposit customers to overdraw on their accounts, up to $100, with a $15 fee charged for negative balances over $10.
There’s lots of ways to get creative about prepaid. The best products make any fees clear and simple. Your financial institution's marketing advantage might be no overdraft fees. Perhaps you charge low or no monthly fees. Or maybe you stay away from balance inquiry fees or ATM fees.
Many financial institutions are beginning to understand that prepaid might be the new checking. Prepaid products have a very low cost-entry for community FIs. With the advantages that these cards can offer customers, it makes sense to explore this market.
ENGAGE STUDENTS WITH RELOADABLE PREPAID CARDS
77% SEVENTY-SEVEN PERCENT Of STUDENTS ARE INTERESTED IN A CARD THAT HELPS THEM BUY WHAT THEY WANT OR NEED WHIlE STICKING TO A BUDGET.
Recent regulatory changes make it difficult for issuers to serve college students profitably, and many issuers have decided to abandon the market. However, the segment’s long-term profit potential coupled with students’ new appetite for fiscal responsibility may provide the perfect environment for prepaid cards.
Seventy-seven percent of students (college-bound high school seniors through college sophomores) who participated In a recent MasterCard study indicate that they need a convenient way to pay for college expenses. For the majority of students, that method is plastic. Between half and three-quarters of the students surveyed report using credit or debit cards to pay monthly expenses in categories including books/supplies, clothing, entertainment, restaurants, groceries, and gas.1
In 2009, a Sallie Mae study found that 84 percent of undergraduates had at least one credit card.2 However, the Credit CARD Act’s restrictions on issuers’ ability to offer credit cards to consumers under 21 require a shift in strategy. While debit cards are one alternative, the typically low balances associated with student checking accounts, combined with recent limits on fees, can make it difficult to serve this segment profitably.3
Yet many of today’s college students will be tomorrow’s affluent consumers. A prepaid product may be the best way for issuers to comply with new regulations, meet students’ needs, and begin forming relationships with individuals who have significant long-term profit potential.
RECOMMENDED ACTIONS FOR ISSUERS
1. Market Prepaid Cards that Help Students Control their Spending.
Prepaid cards can enable students to stick to a budget and learn to manage their finances. Eighty-one percent liked the idea of a card that works like a debit or credit card but cannot result in overdraft fees or interest charges. Sixty-five percent said the same about a card positioned as a smart way to learn to manage money.4
2. Emphasize the Convenience of Reloadable Cards.
The ability to reload a card online through account transfers and paycheck direct deposits as well as through grants or scholarships has great appeal to students. Three-quarters of study participants report interest in a prepaid card positioned as easier to use than cash and checks. An equal number say they would likely sign up for a card that that offers convenient and immediate access to funds without the possibility of spending more than they have.5
3. Offer and Promote Safety Features.
Issuers should offer prepaid cards that, when registered, offer the same zero liability protection provided to users of credit and debit cards. Eighty-three percent of students say they would be likely to sign up for a prepaid card that protects them from unauthorized purchases if it is lost or stolen.6
Seventy-seven percent of students (college-bound high school seniors through college sophomores) who participated In a recent MasterCard study indicate that they need a convenient way to pay for college expenses. For the majority of students, that method is plastic. Between half and three-quarters of the students surveyed report using credit or debit cards to pay monthly expenses in categories including books/supplies, clothing, entertainment, restaurants, groceries, and gas.1
In 2009, a Sallie Mae study found that 84 percent of undergraduates had at least one credit card.2 However, the Credit CARD Act’s restrictions on issuers’ ability to offer credit cards to consumers under 21 require a shift in strategy. While debit cards are one alternative, the typically low balances associated with student checking accounts, combined with recent limits on fees, can make it difficult to serve this segment profitably.3
Yet many of today’s college students will be tomorrow’s affluent consumers. A prepaid product may be the best way for issuers to comply with new regulations, meet students’ needs, and begin forming relationships with individuals who have significant long-term profit potential.
RECOMMENDED ACTIONS FOR ISSUERS
1. Market Prepaid Cards that Help Students Control their Spending.
Prepaid cards can enable students to stick to a budget and learn to manage their finances. Eighty-one percent liked the idea of a card that works like a debit or credit card but cannot result in overdraft fees or interest charges. Sixty-five percent said the same about a card positioned as a smart way to learn to manage money.4
2. Emphasize the Convenience of Reloadable Cards.
The ability to reload a card online through account transfers and paycheck direct deposits as well as through grants or scholarships has great appeal to students. Three-quarters of study participants report interest in a prepaid card positioned as easier to use than cash and checks. An equal number say they would likely sign up for a card that that offers convenient and immediate access to funds without the possibility of spending more than they have.5
3. Offer and Promote Safety Features.
Issuers should offer prepaid cards that, when registered, offer the same zero liability protection provided to users of credit and debit cards. Eighty-three percent of students say they would be likely to sign up for a prepaid card that protects them from unauthorized purchases if it is lost or stolen.6
The Appeal of Reloadable Prepaid Cards for Students:
Safety, Security, Control, and Convenience
Likelihood of Students Signing Up for a Card with Specific Benefits
83% If card is lost/stolen, not responsible for unauthorized purchases
82% Cannot overspend—no overdrafts and no interest
81% Looks and works like a debit/credit card without overdraft or interest
77% Can purchase what you want/need, while staying within budget.
77% Convenient, immediate access to funds without concern about spending more than you have
75% An easier way to pay than cash or check
65% Smart way to learn to manage money
Source: MasterCard, Campus Prepaid Research, January 2010.
1, 4, 5 and 6 MasterCard, Campus Prepaid Research, January 2010.
2 SallieMae.com, “How Undergraduate Students Use Credit Cards: Sallie Mae’sNational Study of Usage Rates and Trends,” 2009.
3 MasterCard analysis.
© 2010 MasterCard. All rights reserved. Recommendations are based on proprietary and third party research, as well as MasterCard‘s opinions and insights, and are presented for your information only.
Likelihood of Students Signing Up for a Card with Specific Benefits
83% If card is lost/stolen, not responsible for unauthorized purchases
82% Cannot overspend—no overdrafts and no interest
81% Looks and works like a debit/credit card without overdraft or interest
77% Can purchase what you want/need, while staying within budget.
77% Convenient, immediate access to funds without concern about spending more than you have
75% An easier way to pay than cash or check
65% Smart way to learn to manage money
Source: MasterCard, Campus Prepaid Research, January 2010.
1, 4, 5 and 6 MasterCard, Campus Prepaid Research, January 2010.
2 SallieMae.com, “How Undergraduate Students Use Credit Cards: Sallie Mae’sNational Study of Usage Rates and Trends,” 2009.
3 MasterCard analysis.
© 2010 MasterCard. All rights reserved. Recommendations are based on proprietary and third party research, as well as MasterCard‘s opinions and insights, and are presented for your information only.
MYTH VERSUS REALITY IN CONSUMER RELOADABLE
PREPAID CARDS
68% SIXTY-EIGHT PERCENT Of PREPAID USERS HAVE CHECKING ACCOUNTS.
Many financial institutions are attracted to the high growth of prepaid cards but remain cautious due to long-held beliefs about the product’s use and functionality. MasterCard research shows that consumers are using these cards across many spending categories as a replacement for or complement to other payment types. This is quite different from what industry observers had previously seen or predicted. Understanding the gap between commonly held beliefs and current reality may provide financial institutions with a path forward as they evaluate opportunities in the prepaid business.
Myth #1: Only the unbanked use prepaid.
According to MasterCard research, 68 percent of prepaid users have a checking account. Although many are banked, one of the reasons they cite most frequently for prepaid card use is spending control, since the amount loaded is all they can spend.
Myth #2: Prepaid users are uncomfortable using banks for their finances.
In terms of financial attitudes, only 27 percent of consumers say that they are uncomfortable using financial institutions, and only 31 percent say that they prefer using an entity other than a FI for their financial services. Alternatively, 59 percent of consumers claimed that they like to keep things simple when it comes to money management.
Myth #3: Consumers think prepaid is less convenient than other types of cards. Eighty-eight percent of prepaid users claim that prepaid is convenient. The highest driver of dissatisfaction is high fees, not inconvenience.
In debunking these myths, it is evident that there are likely no substantive reasons why banks can‘t participate in prepaid’s growth. Consumers want a basic service: prepaid programs that are simple to use and understand, with fee structures that are transparent and comparably priced to other bank products. Financial institutions that offer such programs can appeal to new and existing customers.
RECOMMENDED ACTIONS FOR ISSUERS
- Enhance prepaid offerings with simple money management tools. Financial institutions can attract and retain consumers by offering mechanisms to view balances and avoid overdraft fees. Online and mobile channels are especially appropriate choices, given that 91 percent of prepaid consumers own a cell phone and 95 percent regularly access the Internet.
- Make fees transparent and comparable to other payment products. Many consumers believe that financial institutions hide product fees. Conversely, check cashers have high fees that they fully disclose. Financial institutions can emulate this transparency, enabling consumers to understand and plan for the costs, rather than being surprised.
Prepaid Users Value Smart Money Management
Financial Attitudes of Prepaid Users
70% I don’t like the idea of being in debt
59% I like to keep things simple when it comes to money management
58% It is important for me to have a budget and stick to it
48% I need to work on building a good credit rating
46% I don’t like to use financial places that require a lot of paperwork & documentation
43% I pay very close attention to fees for my financial transactions
34% I want to improve my credit rating so I can apply for a credit card
MasterCard, Reloadable Prepaid Research, April 2010.
© 2010 MasterCard. All rights reserved. Recommendations are based on proprietary and third party research, as well as MasterCard‘s opinions and insights, and are presented for your information only.
70% I don’t like the idea of being in debt
59% I like to keep things simple when it comes to money management
58% It is important for me to have a budget and stick to it
48% I need to work on building a good credit rating
46% I don’t like to use financial places that require a lot of paperwork & documentation
43% I pay very close attention to fees for my financial transactions
34% I want to improve my credit rating so I can apply for a credit card
MasterCard, Reloadable Prepaid Research, April 2010.
© 2010 MasterCard. All rights reserved. Recommendations are based on proprietary and third party research, as well as MasterCard‘s opinions and insights, and are presented for your information only.
Latinos and Prepaid Cards:
It's About Over-banking, Not Under-banking
Latino use of prepaid cards seems to be less about being underbanked and not having checking accounts and more about avoiding being overbanked and falling prey to credit card debt.
Prepaid debit cards are growing in popularity among Latino Consumers. Packaged Facts' new report Consumer Payments in the U.S.: The Latino Market reveals that between 2011 and 2012 the number of Latinos using prepaid cards increased by 7.2%. At the same time, the total number of consumers using prepaid cards grew by only 1%, and use of prepaid cards by non-Latinos declined by 0.5%. Thus, Latinos drove the growth in prepaid card use during this period.
It might be expected that the popularity of prepaid cards among Latinos would be due to the higher propensity of Latinos to use cash, and relatedly to their lower propensity have checking accounts. The results of a survey of Latino prepaid card users published in 2011 by Washington, D.C.-based National Council of La Raza (NCLA) provide some support for this view. The NCLA study found that 26% of Latinos obtaining a prepaid card did so because “it was cheaper than going to a check casher.” Nearly half (48%) said that what they liked most about prepaid cards is that “I didn’t have to carry cash.”
However, NCLA found that the top benefit of prepaid cards as reported by Latino users relates to a desire to manage spending rather than a desire to find a replacement for cash. More than 60% of those participating in the study liked using prepaid cards because “I could only spend the amount of money that I had.” The fact that using a prepaid card “was convenient/saved time” was a benefit noted by 42% of respondents.
As our Consumer Payments in the U.S.: The Latino Market report notes, 20% of Latinos with checking accounts used a prepaid card in the last 12 months, compared to only 14% of Latinos without checking accounts. Therefore, Latino use of prepaid cards seems to be less about being under-banked and not having checking accounts and more about avoiding being overbanked and falling prey to credit card debt.
Source-Package Facts -Sep. 11, 2012
It might be expected that the popularity of prepaid cards among Latinos would be due to the higher propensity of Latinos to use cash, and relatedly to their lower propensity have checking accounts. The results of a survey of Latino prepaid card users published in 2011 by Washington, D.C.-based National Council of La Raza (NCLA) provide some support for this view. The NCLA study found that 26% of Latinos obtaining a prepaid card did so because “it was cheaper than going to a check casher.” Nearly half (48%) said that what they liked most about prepaid cards is that “I didn’t have to carry cash.”
However, NCLA found that the top benefit of prepaid cards as reported by Latino users relates to a desire to manage spending rather than a desire to find a replacement for cash. More than 60% of those participating in the study liked using prepaid cards because “I could only spend the amount of money that I had.” The fact that using a prepaid card “was convenient/saved time” was a benefit noted by 42% of respondents.
As our Consumer Payments in the U.S.: The Latino Market report notes, 20% of Latinos with checking accounts used a prepaid card in the last 12 months, compared to only 14% of Latinos without checking accounts. Therefore, Latino use of prepaid cards seems to be less about being under-banked and not having checking accounts and more about avoiding being overbanked and falling prey to credit card debt.
Source-Package Facts -Sep. 11, 2012
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