As the world moves inexorably away from the slow, paper-based economy and toward the fast, electronic-enabled one, limitations of time and space are becoming more and more irrelevant. And prepaid cards are facilitating that change. Through global remittance and microlending programs, Interactive Transaction Services Inc., the prepaid card issuing and processing subsidiary of the Central National Bank of Enid, Okla., is taking advantage.
"We're in a town of 50,000 people, in one of the smaller states in the Union, so we have certain geographic and capital restraints," said Brud Baker, President of CNB. "But the prepaid business is national and international. And there are no capital restrictions on the growth of it."
Interactive targets unbanked populations, such as Hispanics and Haitians living in the United States, with cross border remittances. According to Tania Warnock, Marketing Director at ITS, 45 million Hispanics from Latin America and the Caribbean reside in the United States; 40 percent - roughly 18 million - lack bank accounts.
Traditionally, the unbanked wire transfered funds through Western Union Co. or MoneyGram International outlets to family and friends in home countries. (Warnock said Western Union has about a 70 percent market share.) But prepaid cards can provide cross border remittances more inexpensively, Brud said.
He claims the opportunity to market prepaid cards for remittance purposes to the Hispanic unbanked is wide open. "I think a very small percentage in total of that population is aware not only of prepaid cards, but of the capacity for prepaid cards to handle remittances," he said. "Not very many do."
Therefore, with appropriate marketing through its ISO partners, Baker expects the use of Interactive's remittance product by the Hispanic unbanked to grow. "You have a very tiny percentage of market share," he said. "But just a little increase in percentage has a huge increase on your bottom line."
In March 2008, ITS, in partnership with Haitian microfinance lender Fonkoze, rolled out remittance services for Haitian immigrants in the United States. Fonkoze markets the cards in cities where Haitian communities are strongest, such as New York City, Miami and Philadelphia. Primary marketing channels within those communities are hospitals and retirement homes, where many Haitians work, Brud said.
Additionally, funds loaded on ITS prepaid cards enable Fonkoze to make small loans, typically of $1,000 or less, to entrepreneurs in Haiti. A Haitian entrepreneur may be a seamstress who uses a microloan to hire two other women to make dresses, Brud said.
"The idea is to build the infrastructure of these third world countries from the inside out rather than from the outside in the way the U.S. government does it," he added.
Other groups ITS has considered targeting for remittance include Chinese, Filipino and Vietnamese immigrant populations in the United States. "We're a melting pot," Baker said. "And we send more money out of this country than any other 10 countries combined."
The role of cross border remittances in stabilizing foreign countries cannot be overlooked. In 2006, remittance represented the fourth largest percentage of Mexico's gross domestic product, Baker said. "It's even more important to some of the Central American countries as a percentage," he added. "Costa Rica, Guatemala - it's very important. And, truthfully, this recession will hurt those countries because it will reduce remittances."
Nevertheless, the money will keep flowing. Warnock acknowledged that though immigrants may not be able to send as much money home due to the recession, family is important to them. "Even though they're feeling the recession as well, they're still committed to sending that money back home," she said.
Another ITS initiative is a mobile payments system launched in January 2009 in collaboration with Atlanta-based ISO Denarii Payments Inc. Baker said the service is only available to send money via mobile phone to recipients in Guatemala, but that the program will be expanded.
Baker sees m-payments targeted toward unbanked individuals as a huge opportunity for the prepaid card industry. "I am less personally excited about it in the traditional banking space," he said. "But, in the prepaid space, [mobile phones are] the form of communication for these people. Almost none of them have land lines. Very few of them have Internet access. They all have cell phones. I think it's going to be very important."
But serving unbanked populations is not all ITS does. It also designs customized card programs for university applications. Over 10 universities with between 3,000 and 10,000 students have signed up with ITS, including Slippery Rock University in Pennsylvania. On a scale of one to 10, Baker ranks ITS as a 1.5 in its importance to the overall financial health of the bank. "But if you rank it as what we see as potential, it's 10," he said. That potential rests in the myriad uses and environments in which prepaid cards can be effective.
"I personally think the whole prepaid world - and now I'm not just talking about the unbanked but anything from gift cards to loyalty cards to corporate cards - is just exploding," he said. "It's at the very beginning of its explosion."
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