On March 1, research firm Bretton Woods Inc.and the Network Branded Prepaid Card Association released thereport “Analysis of Reloadable Prepaid Cards in an Environment ofRising Consumer Banking Fees.” The report compares the costs toconsumers of using reloadable prepaid cards versus bank accountsand operating in the cash economy through the use of check cashersand other alternative financial services.
The report makes the point that prepaid cards, especially in thewake of rising bank fees, can be less expensive for consumers. Italso offers some guidance on how prepaid card providers can maketheir cards a better deal for cardholders, and thus win morecustomers and avoid regulatory hassles. The report quotes a BostonConsulting Group (BCG) report that says the total value of brandedprepaid card opportunity in the United States was $120 billion in2009 and will grow to $40 billion by 2017. Mercator Advisory Groupanalysis shows that BCG’s numbers are conservative at best. In its2010 Forecast report, Mercator notes that the total amount loadedonto open-loop prepaid cards across 18 segments was $124.6 billion.Mercator estimates that the total market will grow to $421 billionby 2013.
So, the prepaid card opportunity is extremely large by anyone’smeasure. But in order to take advantage of that opportunity, theindustry must do several things, as noted in the report. First, G.Michael Flores, the author of the report makes the point thatdisclosures must be clear and conspicuous, both so that customersknow what they are getting and also so that the regulators arecomfortable with them. Second, he makes the point that prepaidcards must be compared against appropriate products when decidingwhether or not they are a good deal for consumers. Mercator agreesthat appropriate consumer behavior models and their access tofinancial products must be taken into account.
In addition, Flores makes the point that certain features should beadded to card offerings, such as financial literacy, creditbuilding, and savings accounts. One of the important issues aroundthis is whether or not the features truly deliver value forconsumers. Credit building features that report things like billpayment to the major credit unions are good add-ons, provided thatthe credit agencies actually factor this data into account forcredit scores.
Also, card program managers need to make sure that the offering issuitable for the customer. If a bank wants to develop long-termrelationships with customers who may eventually become loancustomers or traditional account customers, then they need to planfor how they would transition that customer from a prepaid card toother financial services.
Finally, although we recognize that prepaid cards are good for manyconsumers, we need to also recognize that one bad actor can sullythe business. The Kardashian card incident shows how the entireindustry can be painted with one broad brush. It is important forthe industry to develop a policy of openness about itself so thatconsumers, clients, and regulators understand the nature of thecards and their benefits.