The Green Sheet Online Edition
June 22, 2009 • Issue 09:06:02
Prepaid, quite an opportunity
Bankerstuff.com's May 2009 virtual conference showcased the payment vehicle known as the prepaid card. In a webinar entitled "Prepaid card emergence," John Barbella, Senior Vice President of The Bancorp Payment Solutions Group, put the market opportunity in convincing terms.
Of the 225 billion transactions performed in the United States each year, electronic payments only facilitates 22 percent, he said.
So 175.5 billion paper-based payments are up for grabs. With $3 trillion spent in cash annually in the United States and prepaid cards being generally considered a cash substitute, "you can see that there is just tremendous opportunity in the marketplace," Barbella said.
As further indication of prepaid's potential, Barbella discussed how consumers are changing their spending habits. Citing statistics from Visa Inc. and MasterCard Worldwide, credit card usage is down 6.9 percent and 13.7 percent respectively. In contrast, debit card usage is up 5.6 percent at Visa and 5.3 percent at MasterCard.
The trend has been in evidence in the last three or four years, according to Barbella. "People are using less credit and really focusing on their debit usage, so that they are paying now for those purchases," he said.
As the role of debit - the "pay now" electronic alternative to cash - grows, prepaid as the "pay before" cash substitute will likely see growth as well, Barbella deduced.
Break it down
A BCG/PSE Prepaid Study commissioned by MasterCard in 2008 reports that the spending volume in the U.S. prepaid card market will reach $380 billion by 2015. Broken down into categories:
- $160 billion on public sector payments - benefits, disaster relief, payroll
- $135 billion on corporate payments - business travel, meal vouchers, et cetera
- $40 billion on "financial inclusion" - reloadable teen and campus cards
- $30 billion on consumer retail - gift and travel cards
- $15 billion on health care and insurance claim cards
Where to look
The main feature consumers expect in prepaid card products is choice, Barbella said. As evidence for this conclusion, he cited the 2007 Visa Prepaid Study that said the majority (88 percent) of rebate card recipients preferred open-loop, network-branded reloadable cards, which can be redeemed at numerous locations, to closed-loop, private-label cards that can only be used at the merchants that issued the cards.
Barbella believes the rebate card can be a centerpiece to the merchant-customer relationship. If a consumer is given a $200 rebate, but has only used $150 after several months, the service provider can reinforce the relationship by contacting the customer.
"It could be a way for the company or the issuer of that rebate to come back and visit with the consumer to make sure that purchase was a good one and they are reinforcing the benefit of that purchase," Barbella said.
Other hot vertical markets Barbella has identified are government-issued benefit payments, and health care and insurance payments.
But Barbella cautions that prepaid card programs are not appropriate for all markets. For example, insurance payments done by check for auto-body repairs "seems to work pretty well," he said.
"We don't want to try to fit a square peg into a round hole. Let's not go where those opportunities truly do not make the most sense."
While a few markets may not be a good fit for prepaid card solutions, many more are, Barbella noted.
"It's not one player that's going to be able to make it big in prepaid," he said. "There are many many opportunities for multiple players to be successful in prepaid. So the landscape is truly wide open."
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