2012 may be the year banks adopt prepaid card strategies to attract customers otherwise beyond their present reach. Research conducted by the Center for Financial Services Innovation in conjunction with MasterCard Worldwide concluded that a majority of banks are either investigating implementation of prepaid card programs or already plan to in the next 12 months.
The findings, published in a CFSI-sponsored webinar entitled Banks and Prepaid Cards: Trends, Innovations and Public Policy, said 45 percent of the 25 largest banks and 60 percent of banks below the top 25 have prioritized general purpose reloadable products, combining for an overall 52 percent of banks that have made prepaid cards a priority.
Shekhar Sahgal, Vice President, Product Management, MasterCard Worldwide, said the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was one major catalyst for banks to get into prepaid, as reduced revenue from debit card interchange fees has forced banks to look for other ways to make money.
But Sahgal also said banks noticed the success of prepaid card companies, such as Green Dot Corp. and NetSpend Holdings Inc., in reaching consumers that banks either turned down for basic banking services or viewed as users of check cashing services.
According to the research, banks are intent on four different categories of customers for prepaid cards:
The underserved/turned-down (unbanked) segment is the "overwhelmingly unanimous target" of banks, Sahgal said, with 54 percent of banks surveyed making the unbanked their top priority. But almost 85 percent of bank respondents are targeting more than one of the above categories.
Jeff Gibson, Senior Managing Consultant, MasterCard Advisors, said banks' "appetite for prepaid" depended on their customer turn-down policies. Banks with higher demand deposit account turn-down rates, who thus tend to have more conservative risk policies about extending banking services to certain customers, are more interested in implementing prepaid card strategies.
According to the webinar, banks have two ways to implement prepaid card programs. Banks can either implement a program in-house or outsource it to a third party. The former approach is more time intensive but potentially more lucrative for the bank, while the latter offers banks a speed-to-market solution that may, however, lack customer service integration with the bank.
The research showed that, overall, banks were evenly split between the two approaches, with the largest 25 banks tilting toward in-house (58 percent) while smaller banks favored speed-to-market (60 percent).
"For some speed-to-market is a priority," said Gibson. "They want to get it out the doors, see if it works and whether it justifies an investment to make it in house." But other banks recognize that outsourcing the program risks creating an "incongruous, inconsistent customer experience," he added.
However, the researchers found most banks aspire to running their own in-house prepaid card solutions that are integrated with their other banking products. 
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