With the announcement that Chase hasintroduced a Prepaid Financial Services (GPR) product calledLiquid, several financial analysts have predicted that this newcompetitor puts Green Dot and Netspend at risk. In MercatorAdvisory Group’s opinion, this demonstrates a misunderstanding ofthe size of the prepaid market, the current penetration of theprepaid market within specific target markets, and ignores the manyways in which consumers adopt and use prepaid products.
The Chase Liquid product, as with the US Bank product and others,will primarily focus on sales to existing Chase account holderscombined with a few low and moderate income individuals that liveclose enough to the bank branch that this product represents aviable option. While this a strong opportunity for banks, it doesnot represent much of a threat to incumbents such as Green Dot,Netspend, and Western Union.
Mercator has mapped bank branch and ATM locations for Bank ofAmerica and compared these to Green Dot retail locations and ATMslocated in three low income Stockton, Calif. zip codes. Theresults, placed on a transit map for Stockton, highlight a banksinability to compete when card sales are conducted in-branch. WhereBank of America has just two ATMs and one branch, Green Dotcardholders have access to five MoneyPass ATMs and eight retailoutlets, which include Walgreens, K‐Mart, 7‐Eleven, Rite Aid, andQuick Stop Markets. There are no credit union branches or ATMs inthis neighborhood.
The forecast shown here was created by Mercator Advisory Group in2010. It identifies the contribution expected from existingplayers, new entrants and financial institutions. We expect the2011 benchmark that is underway today will largely confirm thischart, showing that new entrants, including American Express,InComm, Blackhawk, Western Union, BB&T, Regions, US Bank andnow Chase will be primarily additive.
There are a number of reasons for this prediction, but suffice itto say we think financial analysts have interpreted the Chaseannouncement incorrectly. Chase will move existing account holdersto Liquid and will even win new customers, but the market forprepaid is largely untapped. Consumers continue to find new usecases for these products that the industry never considered andusers with substantial income are finding prepaid productsextremely valuable – further increasing the size of theopportunity. While Green Dot, Netspend and others operate in anextremely competitive and challenging market where some event couldhave a significant negative impact on their market position,Mercator does not expect bank products like Liquid to be thecatalyst.
