Three reasons prepaid products will be hot in 2014

Even as new ways to pay bills and make purchases are springing up nearly every month, consumers continue to love their plastic. The average American consumer has several cards in his wallet where the collection is a mixture of credit and debit cards – and increasingly, reloadable prepaid cards.

MasterCard predicts the global prepaid opportunity to rise above $820 billion by 2017. Naturally, that’s attracting providers from all corners of the market to this hot plastic product. Evidence of this can already been seen in the entry of everyone from Walmart to Justin Bieber into the prepaid space.

Driving much of the predicted growth are three market forces. First, prepaid is gaining in popularity among mainstream consumers. Second, consumers are looking for more security in their daily transactions. Lastly, more financial institutions, including credit unions, are beginning to understand the value of offering a prepaid option.

Not Just for the Underbanked

Just a few years ago, most of the talk around the value of prepaid to issuers was the ability to serve an entire population of consumers you may otherwise have to turn away. It was a value that resonated particularly with credit unions because they are in the business of helping people. Today, however, we are seeing that prepaid is also of value to banked consumers. In fact, Pew Charitable Trust found that nearly 60 percent of prepaid cardholders also have at least one checking account. In an effort to round out the member relationship, more credit unions will want to prevent members from turning to big box retailers—or worse, pop stars—for the financial tools they need.

Breach-Weary Consumers Want Security

Target, Neiman Marcus, Michaels – this list of retailer breach victims is expected to rise over the next several months and likely even years. Consumers are naturally nervous about paying with plastic that, once compromised, opens up their entire checking account to the bad guys. Prepaid cards, on the other hand, only expose loaded funds – which are able to be recouped in the case of confirmed fraud.

For credit unions forced into reissue mode by card compromises, having an inventory of instant-issue prepaid cards on hand not only allows them to offer an immediate solution to impacted cardholders; it’s also an ideal way to get a new product directly in the hands of a member who may not otherwise have been exposed to the convenience, safety and user-friendliness of prepaid.

Issuers See the Light

One study estimated that 50 percent of all U.S. financial institutions will have a prepaid option in their payments product suite in 2014. Our company alone experienced a 97-percent increase in the number of clients offering prepaid products between 2012 and 2013. That’s because credit unions and other financial institutions have recognized five distinct benefits of offering the products:

  • Prepaid attracts new customers
  • It’s an easy cross-sell
  • Select Employee Groups and business partners also see potential in prepaid products
  • Prepaid has built-in fraud protection
  • The products generate much-needed revenue in three ways: retail, interchange and consumer-friendly fee income

For credit unions, prepaid products offer yet another way to help members achieve personal financial success. The budgeting, convenience and safety innate to the products attract more than the underbanked member (although this continues to be a powerful market from both a profit and philosophical standpoint). And when priced appropriately, prepaid products are another touchpoint reminding members why to continue playing a part in the overall credit union movement.


Konrad Christensen

Konrad Christensen

Konrad Christensen is retail payments product manager for payments processor The Members Group (TMG). He can be reached at Web: Details