Mercator Perspectives

Implement a Prepaid Budgeting Product to Fend Off American Express and Avoid a Core Integration Effort

A significant percent of the total cost of launching a prepaid product for a financial institution is associated with the integration of prepaid into the ATM network, teller systems, online account management solution, and customer support environment. If these systems were already prepaid enabled, then the cost of deploying prepaid would be greatly reduced.

But there is a prepaid market opportunity that avoids the cost of core integration. Mercator Advisory Group consumer research (the CustomerMonitor Series) indicates that 46.6 million Americans have used prepaid products as a budgeting tool. Determining how many deposits have left your financial institution is a relatively straightforward effort – study your ACH records and identify the volume of funds that have gone to Green Dot, Netspend, Account Now, American Express, and other prepaid card providers.

Consumers move their funds to a prepaid card specifically because these cards are not tightly coupled to their bank account. The effort it takes to move the money to the prepaid instrument is a bonus, as is the separate card that keeps the funds isolated in the consumer’s wallet. These funds are used to budget for a hobby, dining, shopping, and many other purposes. While there is insufficient research to categorize all of the predominant use cases, each use is clearly highly relevant to that specific individual or family or they would never have taken the time, effort and expense required to set up a separate prepaid account. Understanding these use cases, and tuning products both from an operational and marketing perspective, is a significant opportunity for product managers.

Financial institutions can easily establish a prepaid program that enables account holders to establish a separate prepaid budgeting card, because this product should not be integrated into the core system or the bank’s traditional processes – this is simply an easy way to profit from the funds that are already leaving the institution. If you want to know the size of the opportunity, go search your ACH records.

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