The premise of this article is that the unbanked and underbanked need a more secure solution than the traditional open-loop General Purpose Reloadable (GPR) prepaid card. The argument provided is that GPR cards are insecure because they directly contain the funds whereas debit and credit cards only contain theoretical funds that if stolen or subjected to fraud, the owner is able to cut them off at the source of their bank.
In actuality when properly executed the GPR account is almost exactly the same as a debit account and has similar protections; Zero Liability under card network regulations and the same dispute requirements under regulation E.
Of course additional safety is a good thing and biometrics can deliver that. The problem here is that compared to credit and debit accounts, GPR products have notoriously thin revenue and very high account abandonment once the initial funds are depleted. This short lifespan makes it critical that the initial cost of delivering the product be kept as low as possible.
Adding a fingerprint reader will increase card costs, increase activation costs, and reduce the mean time between failures, which will require re-issuance. GPR providers have focused instead on AI tools that protect the account and the cardholder from fraud, which increases costs somewhat on the backend but keeps issuance costs low:
“But as many of these demographics make their first concerted entry into the modern financial world, there is likely to be one aspect of card usage that they treasure most – the need for security. And in this respect, prepaid cards just don’t offer the level of security users need and desire; they need biometric intervention.
A stored-value card contains money already inputted to the product itself, rather than it being housed and stored in a bank or large financial institution. As such, they are more than just an alternative to traditional payment options. They are an innovative bridge for those demographics to gain simple financial control and conduct transactions in a modern way.
As many as two billion people around the world are currently unable to access modern or digital services because their data and financial histories are held outside of the new digital infrastructure. Introducing an accessible ‘pay-as-you-go’ type model to such a vast population is a great way to make card payments more inclusive than ever before.
Convenience doesn’t equate to security
Inclusivity is the keyword here, and it has helped to launch the prepaid market quite dramatically on a global scale. The sector is expected to grow to $4.1trillion in the next year, and it’s already dominated by some of the most renowned and reliable names in finance, including the likes of Visa and Mastercard. However, this inclusivity can’t come at any cost.
For this rapidly scaling market, customer convenience doesn’t always equate to security. And when the likely demographic of user may just be finding their feet with a card-based solution, this presents an issue.
The insecurity derives from the fact that while debit and credit cards contain theoretical funds, that if stolen or subjected to fraud, the owner is able to cut them off at the source of their bank, or – at worst – ensure that no further funds are allocated to the card. With prepaid cards, their convenience means that the money is already stored on the card, bought and paid for. It creates a hassle-free option for a potential misuser, where their newly ‘acquired’ asset becomes an instant goldmine.”
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group
