First let’s talk about what we actually mean by “PrePaid Card”.
Oftentimes what we think of when we say prepaid card is something like that $50 Visa gift card you pick up at your neighborhood supermarket for your nephews birthday, but the term “prepaid cards” actually encompass a rather large group of loadable cards intended for use by various different people, companies and industries.
While gift cards are a form of prepaid card, they are one time use gift cards. There are also what is called GPR, or general purpose reloadable prepaid cards. These are credit card type cards that are issued under a name brand logo, such as Visa or MasterCard and have a wide acceptance at most retailers because of it. These cards are reloadable with cash and able to be kept and used much like a credit card. Payroll cards, cards loaded with ones government benefits, even travel cards are all ways that businesses successfully use prepaid card options to facilitate business and payments. In large cities the public transit systems have moved to prepaid card used to procure citizens everyday travel back and forth to work. These are all examples of the many ways we actually use prepaid card technology in our daily lives.
Business Insider Intelligence expects prepaid card use volume to grow to $396 billion by 2022.
This will largely be influenced by the availability of digital versions of these cards for use in mobile wallets as mobile technology advances and begins to replace physical cards. Prepaid card services have become a very suitable alternative to regular banking services for the underbanked of society. Studies have shown that up to 57% of prepaid cards purchased were for the customer’s own use. Using prepaid card services can offer unbanked consumers the convenience and security of a bank account but without the fees that often accompany them. Surprisingly, there are about 17 million adults who do not possess any kind of deposit account, which accounts for just over 8% of U.S. households, and another 20% are considered underbanked.
Prepaid card companies are starting to focus on offering many of the services one would enjoy with traditional banking. Card companies are offering customers the ability to apply for a companion card for spouse or children and provide the ability to set up services such as online account management, text message notifications and even a mobile app to help customers track expenditures as well as the ability to transfer funds from one prepaid account to another. All offer a safer option to cash only living and provide zero credit/bad credit consumers with a viable payment tool that ensures financial inclusion and allows them to function in a largely cashless society.
Many business models are also actually pushing the growth of prepaid cards as well. It’s not just consumer demand driving growth of prepaid credit cards, but also businesses looking for ways to lower costs, improve checkout speed, and reduce theft that are turning to cashless business models and driving customers to higher card use. Recently both the Atlanta Falcons Mercedes-Benz stadium (cashless by march 10th) and Major League Baseball’s Tampa Bay Rays both decided their stadiums will be completely cashless. For customers who may not have a credit card or ATM card at their disposal the stadium is equipped with cash accepting kiosks that sell Visa prepaid cards for use inside the stadium (and anywhere else Visa is accepted).
How will the rise in prepaid card use affect the merchant?
As a merchant you might be wondering how the rise of prepaid card use by the younger generation and the underbanked might affect your business. Depending on the type of business accepting more prepaid cards could actually benefit your businesses bottom line. Interchange fees that merchants are charged to accept prepaid debit cards are usually as low as the fees for regular debit cards, which is quite a bit lower than those for credit cards.
The rise of prepaid could mean lower interchange fees overall for merchants as long as your processor isn’t using it as a way to profit. For instance, with the Tiered Pricing Model the processor chooses which card types fall into each tier. This could allow them to assign a higher tier to prepaid cards and essentially keep the markup high and keep the profit. However, on Interchange Plus pricing the merchant would benefit from many of their accepted cards falling into a lower interchange rate and saving them money.
At Bankcard Brokers we are always looking for ways to help keep our merchants informed of the trends and advancements being made in the payments arena to make sure they are ready for what is to come. If you have any questions or would like to have one of our friendly associates do a competitive analysis for you, give us a call today and see what it is like to experience the “Bankcard Brokers Difference!”