Want to know what's in store for the U.S. prepaid card industry in 2009? Who better to ask then Paul Tomasofsky, Executive Vice President and Chief Operating Officer at the Network Branded Prepaid Card Association.
SellingPrepaid: Given the economic turmoil, what do you see for the prepaid card industry in 2009?
Paul Tomasofsky: Clearly prepaid purchase volume has not increased as much as predicted prior to the downturn. And we're waiting for gift card numbers to come out for the fourth quarter [of 2008]. But I think you're going to see them being less of a growth as anticipated, and some products may be even a negative growth. But I don't think that's a long-term trend. I think that the prepaid business is still really at its infancy. And the breadth of products it has and the market reach of products and what it's really trying to accomplish, I still think there's a very bright future there.
SP: One consumer group targeted for prepaid cards is the unbanked. Do you think their ranks will swell because of the recession, and will prepaid demand increase?
PT: I don't know if the size of the unbanked market is going to rise. But I do know that, in difficult economic times, consumers and businesses will look for different ways to do things that maybe are less expensive. Take, for example, something like money transfer. Traditionally, money transfer is an important feature of the unbanked, especially for the immigrant population.
The lion's share of money transfers right now are occurring in the person-to-person [arena], where someone walks up to a facility that does a money transfer, hands over cash, and then the receiver walks into that similar agent or facility outside of the country and receives cash.
This is an example where consumers might say, "Hey, you know what, if I can save a few dollars here, maybe I'll try this card-to-card thing that I heard about, that my neighbor was telling me about." I think that's where we're going to see more and more adoption because of the need to kind of economize on these types of transactions.
SP: Do you see the expansion of closed-loop gift cards used as personal budgeting tools?
PT: You know the old saying is once you break the twenty, it's gone before you know it. And you don't know where it went. So, prepaid cards, especially if you want to use it in the terms that you are talking about, where I'm going to put x dollar amount on a card at the beginning of the month and that's it - and I'm not going to do it again until the beginning of the next month - clearly that's a self-regulating budgeting system right there. Intuitively, I think it makes a lot of sense that we would see these products be used in that way.
SP: What about the budget saving aspect of prepaid cards for schools and government agencies?
PT: School budgets, whether in the public or in the private sector, are going to have to tighten their belts in many ways. You want to avoid cutting things like teacher salaries. ... You want to avoid making cuts in that area. But then you look at some of the ancillary services that you're providing and you say, "Hey, can we do these more efficiently?"
And companies have been calling on schools to try and put these systems in place and illustrating how they would save money in the long run. And now the schools are going to take another hard look at that and say this is a way to save budget money so that I can continue to keep my mission going. I think the urge to go electronic and get rid of the paper cash will take an uptake in these times. And it will continue even after the recovery because it is just smart business.
SP: The same holds true for government payments?
PT: Well, every government needs to be looking at being as efficient as possible. And when it comes to processing payments, electronic payment is better than paper. But there is only a certain amount of the population that has a checking account or has some type of a product that would allow you to do something electronically via ACH [automated clearing house] or some other debit card, et cetera.
So what do you do about that population that isn't banked, that's underbanked, and you still want to go electronic? Prepaid cards are the answer to that.
SP: As the economy worsens, fraud is expected to increase. What should prepaid companies do to prepare for this?
PT: There's a lot going on with fraud. First of all, you have to understand the aspects of fraud. You have to have risk mitigation procedures, policies in place. You're bringing out new products. You have to make sure that you vet them against the risk mitigation model that you have. So risk mitigation has to be part of your entire company.
You need to be able to have a business model for fraud that invests in keeping fraud down to the point where you're comfortable with it. So that's one aspect of fraud and risk mitigation. But the other aspect is what do you do about the catastrophic? I mean the stuff that nobody thought of. You need to keep an eye on that, keep involved.
You can't make an investment in something when you don't know if it's ever going to happen or the odds of it happening are very small. If it does happen, you need to have thought about it enough so that you can employ new solutions. It's not just about the company either. It's the whole industry. Fraud and risk mitigation covers everything. It covers the regulatory structure. It covers the brand business and what they're doing in that regard. It covers data security. So it's a whole continuum.
SP: How should ISOs and merchant level salespeople go about selling prepaid card programs in the current economic climate?
PT: They need to look at what their merchants' needs are - depending upon what the ISO's mix of merchants is - if they're smaller merchants, medium, what types of businesses they're in, face to face or retail versus non-face to face. And then ... what type of industry they're actually in: retail, products or selling.
Understand what the unique needs are of those businesses. And then find a processor ... that meets those needs at the price point that makes sense to do.
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