United Kingdom based Starling Bank announced a new program to encourage account holders to create budgeted spending accounts. The program will utilize digital prepaid debit cards as a tool to provide customers with specialized cards for specific purposes. Tom Phillips of NFCW provides more details:
“Customers of Starling Bank in the UK can now set up dedicated ‘Saving Spaces’ for up to five different kinds of expenditure and then create a virtual card for each one that they can use to make payments online and in stores directly from the funds they’ve specially set aside.”
The move by Starling Bank highlights a key opportunity for financial institutions (FIs) to provide additional tools to customers. These tools encourage budgeting by taking advantage of easy to implement technology. And empower customers to have new options within their traditional accounts. Starling’s program allows customers to take advantage of their digital wallets and near-field communication (NFC) enabled devices. Customers can spend pre-allocated funds on each card without fear of over drafting. And they do not need to utilize credit instead of funds on hand. This theme highlights a key component of my recent Mercator Advisory Group Viewpoint. The viewpoint covers the many ways prepaid providers can utilize their strengths. They can use these as a way to help consumers maintain their budgets in this era of inflation.
In the Starling Bank program, customers can establish different themed spaces to fund and draw from those spaces to pay for the specific activity. The NFCW article explains further:
“Starling customers can have up to five virtual cards at any one time and can choose a different colour for each one, free of charge,” the bank says.
“Each virtual card is assigned to a dedicated Space in the Starling app that can be personalised to give customers more control over their budget. Payments can be made directly from a Space, such as a daily bus fare from a ‘travel’ Space or food from a ‘groceries’ Space, rather than coming out from the customer’s primary account.”
Encourage Smart Spend
This idea works well. Data shows that specific household costs for food (rising at 11.4%) and energy (rising at 23.8%) are driving changes. The overall consumer price index 12 month changes are up 8.3% as of the end of the summer. This is according to the U.S. Bureau of Labor Statistics. In addition, credit interest rates are increasing and occurrences of credit defaultsare growing. FIs benefit by encouraging customers to spend smartly. Providing card access through prepaid and digital cards allows FIs to be seen as thought leaders. They are seens as working to the benefit of their customers, helping shake the old connotations that they are looking to nickel and dime customers through fees and charges.
Combining prepaid digital card programs with increased educational information will also benefit FIs by creating better understanding of how customer should spend money. The customer benefits by being more financially educated while banks add opportunity to earn indirect interchange fees in place of the fees charged directly to customers.
Overview by Jordan Hirschfield, Director of the Prepaid Advisory Service at Mercator Advisory Group.