According to a survey commissioned by the New York-based International Quality & Productivity Center, over 30 percent of respondents have not been proactive in addressing the new and changing regulatory environment for the prepaid card industry. Lisa Marie Jackson, Program Director at the IQPC, called that statistic "alarming" and something that needs to be addressed.
The survey, conducted in advance of the 5th Prepaid Cards and Mobile Payments Conference and the 2nd Mobile Commerce Conference to be held concurrently June 2011 in Denver, received replies from almost 100 decision makers at companies in the mobile commerce and prepaid card spheres. Over 35 percent of the respondents have in-house legal departments working on understanding and complying with regulations.
But an equal percentage of respondents seek outside legal assistance or have not taken any action at all. Jackson called that last category evidence that the regulation of prepaid cards has become "the big elephant in the room for many organizations."
"All of the new regulations can be overwhelming and perceived to be a hindrance when many need to realize how much of an attribute these regulations can be," she added. "I hope that this conference can assist in further highlighting this issue."
In a IQPC podcast moderated by Chris Archer, Online Content Manager at IQPC, the complex regulatory landscape for the prepaid card industry was discussed, with attention given to the effect legislation like The Credit Card Accountability Responsibility and Disclosure Act of 2009 (the Credit CARD Act) and the Durbin Amendment to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act will have on the industry.
Carol Van Cleef, Partner at Patton Boggs LLP, said prepaid card providers are not subject to a regulation here and there, but instead must deal with an increasingly complex interaction of federal and state statutes. "The degree of regulation is redefining the prepaid card marketplace and players in the marketplace," she said.
Jim Tingey, President of the Electronic Banking Division of First California Bank, said processors, program managers and issuing banks "must understand the regulations thoroughly, must have proper counsel in regard to understanding those regulations and the intent behind the regulations more than just the regulation itself."
Tingey and Van Cleef, who will co-chair a panel discussion at the prepaid card conference on the new regulations, agree that regulation on the whole is a positive development for the industry, as it gives a standardized framework under which all prepaid card businesses operate and will thus spur economic growth for the industry.
Regulations provide a "specific functionality and structure that the regulators want to see in a product," Tingey said. "And if those items are in place, then the growth can be unrestricted."
However, with that framework comes increasing costs of compliance, which may result in less entrepreneurship, Van Cleef said. New entrants into prepaid must have the financial wherewithal to cover heavy compliance costs, eliminating underfunded start-ups from entering the industry, thereby "squeezing out some of the entrepreneurial spirit that we saw early on with prepaid cards," she added.
While it appears innovation will not be a casualty of regulation, IQPC's survey reveals that many businesses have not yet integrated prepaid services with mobile phones. Only 15 percent of survey respondents market prepaid products via the mobile channel, while 50 percent engage in website marketing. "This percentage was an expected occurrence because the e-commerce channel was considered the primary means of digital marketing prior to the current social media and emerging mobile commerce wave," Jackson said.
Of the respondents that have integrated mobile payments into their product offerings, short message services (SMS) text messaging comes in at 60 percent, followed by direct mobile and contactless (40 percent), and QR (quick response) codes at 30 percent.
"SMS as a payment method has been largely adopted by the commercial and retail industries over the last 5 years," Jackson said. "Since this form of method does not require a smart phone, any type of cell phone can use an SMS payment method.
"QR codes are limited currently as they require a smart phone and barcode-enabled application to function properly. However, the proliferation of smart devices is increasing the popularity of QR codes. Furthermore, QR codes are just beginning to be leveraged as a payment method tool."
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