Prepaid cards have become an important strategic tool for financial institutions seeking to expand beyond traditional credit products and reach new customer segments. While profitability is often measured on a product-by-product basis, prepaid programs can generate long-term value by introducing consumers to broader banking and payment services. As competition from fintech companies and alternative payment providers increases, issuers continue to evaluate how prepaid offerings fit within their overall growth strategies.
American Express’s decision to refocus portions of its enterprise growth division prompted questions about the future of its prepaid business. However, the company’s continued commitment to prepaid and alternative payments suggested that these products remained strategically important, even as the organization streamlined its innovation efforts.
An article in Blooomberg Business details how the company has started taking apart is enterprise growth division, and implicates prepaid in the decision.
The lender is dismantling its enterprise growth division, created to develop additional sources of revenue, lure new customers and help fend off Silicon Valley startups. Several top executives have left in recent months, including Neal Sample, its leader, and the unit plans to cut about 170 jobs in New York and Florida. The company canceled a product launch in Mexico, scaled back research efforts, folded parts of the business into other divisions and is closing its office on the edge of Manhattan’s Tribeca neighborhood. The unit’s centerpiece, debit cards for people unable to open bank accounts, remains.
Analysts quoted in the article say that American Express needs to go back to focusing on wealthier customers, who have been its traditional customer base. The article has sparked discussion about the future of the company’s Serve platform, but it is too soon to say that American Express has failed at prepaid.
“Within the enterprise growth business, there are some things that worked and some things that didn’t,” said Leah Gerstner, a company spokeswoman. “We’ve scaled back our experimental work and are focusing on our prepaid and alternative payments business.”
Prepaid was a strategic move for American Express. Prepaid cards allow American Express to offer a debit-like product at a time when debit cards are gaining in popularity as a preferred form of payment. Prepaid cards also allow American Express to reach into new markets. It is easy to say that American Express should focus on high-net worth individuals, but there are only so many of those people around, and with a shrinking middle class and aging populations, American Express and other financial services companies need to think about where their next generation of clients will come from.
The article says that “people with knowledge of the matter” say that prepaid cards are ‘profitless’ for American Express. From a narrow P&L statement, this may be true. But if prepaid is a strategic tool that is winning the company more charge and credit card customers, then the service may be more profitable that it seems at first glance. Only a deep dive into the business would reveal the necessary data.
American Express has been making changes to its prepaid cards to adjust its portfolio. The evidence points to a strategy of realigning its offerings, which would make sense at this point in its development. The big questions for American Express are will it continue to invest in the product to make it grow into a profitable business line, and will Wall Street pressure it to give up too soon?
Prepaid cards should be evaluated not only by their direct financial performance but also by the broader customer relationships they help create. For payment providers, prepaid products can serve as entry points to additional services, including credit, rewards, and digital payment solutions. As financial institutions continue refining their product portfolios, the long-term strategic value of prepaid cards will likely remain an important consideration alongside traditional profitability metrics.
Overview by Ben Jackson, Director, Prepaid Advisory Service at Mercator Advisory Group
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