What is the role of Prepaid Financial Services within the prepaid industry?
Prepaid Financial Services (PFS) is a regulated and authorised e-money issuer and physical and virtual prepaid card supplier, based out of the UK with a programme presence in over 23 countries. We launched back in 2008 as a prepaid programme manager and expanded quickly to become an issuer and BIN sponsor in our own right. We develop all of our software and platform technology in-house and have just launched an acquiring division which means we’re able to offer a real one-stop shop solution which is unique in this space.
In terms of clients, we’ve capitalised on the growing demand for cashless payments in Europe and now have 100+ corporate clients including banks, governments, local authorities and councils as well as big brand clients such as Adidas, Fisher-Price, Lycamobile and Nikon.
We’re in the midst of considerable growth and have no plans to slow down yet – having just been listed in the top 25 for the 3rd year in a row as one of the UK’s Fastest Growing Technology Companies by the Sunday Times Tech Track 100!
Outside of the US, prepaid cards have not been as popular among consumers. What are the factors you believe are contributing to delayed prepaid growth globally and in Europe in particular?
There are a number of sectors where prepaid cards for consumers are immensely popular, notably multi-currency and travel cards. The core benefits of saving on foreign exchange costs combined with the security features of not having to use your main debit or credit card abroad mean these prepaid products have clear and demonstrable benefits, which is really the key factor to their success.
But, it is true that the simple and successful GPR model common in the USA hasn’t really transferred to Europe as yet. This is down to a lot of factors, but mainly because of cost.
GPR cards in Europe have suffered in comparison to other banking products because of the prevalence of the notion of ‘free banking’ as such across Europe. The headline costs will always favour the debit card compared to the prepaid card and this means that prepaid products aimed at the GPR market have a challenge on their hands to define their marketing message without the need of going into a complex in-depth comparison.
That being said, there are quite a lot of consumer prepaid success stories in Europe which prove that it is possible to convey a message successfully that will attract customers. A good example of this is the Poste Italia card in Italy, which has had substantial year on year growth. In the UK, we are observing that prepaid cards linked to a current account offers where the consumer has the ability to have all the benefits of a bank account, combined with the benefits of a prepaid card for example; control, budgeting, smart phone apps, contactless payments, restricted spend, turning on/off certain types of allowable transactions etc. In this scenario the value add is clear and demonstrable too.
I believe it’s going to be this convergence of banking facilities and smart technology-led prepaid cards that is going to be the success story of GPR in Europe as its providing consumers with the best of both worlds. As we now see ‘challenger’ banks or non-traditional financial institutions for example Post Offices move into the market, I think we’re going to witness a sharp turnaround in the uptake of GPR cards very soon.
What do you see as the most significant prepaid opportunities across Europe?
In addition to the growth in the main prepaid sectors such as corporate, travel, gift for example, we as an industry are benefiting from the E-Money directives being adopted across SEPA. This harmonization of regulation has been tremendously positive for prepaid in particular, as it has allowed issuers and programme managers to extend their offering country by country. Although of course there are still different regulatory rules per country mainly relating to AML and KYC requirements, the playing field is a lot more even than it used to be.
Furthermore, the drive for cost reduction and also the increased transparency in government payments and payouts has led to a boom in prepaid. PFS sees this as as a replicable model across the SEPA zone and today we’re providing government payment and disbursement cards in multiple countries which is driving forward the inclusion and enablement of unbanked populations as well as providing effective spending controls. This therefore, is creating a perfect environment for prepaid to become a mainstream solution, with the potential to one day be the default one.
Do you see the European prepaid landscape evolving significantly in the next 5 years?
I think we’re on the cusp of prepaid shifting away from being just ‘subprime’. PFS is currently issuing branded products that some of the world’s most famous sports stars carry, whether it’s for travel and multi-currency, or as part of their agreement with major brands. To these athletes this card is a status symbol, but the underlying prepaid product is the same as it is for say an asylum seeker receiving a payment in the UK.
This is the crucial aspect of the evolution of prepaid. Rather than being seen as an alternative to a banking product, we see it as complimentary. We believe that prepaid issuers, processors and programme managers will work in conjunction with banks to provide a holistic payment service, combining the best of the banking system, allied with new generation card payment technologies. We are very pleased to be in a position to already be working with many banks internationally and provide them with prepaid propositions. Again, this is just a natural evolution of prepaid and we see the combination of banking services and prepaid as being beneficial for consumers and for corporates.
What role do you see mobile and virtual cards playing in the European prepaid industry?
The battle for contactless, SIM based, HCE, Secure Element, SMS etc. is still ongoing but our belief is that HCE as a solution is the best fit for the payments industry generally. What we believe would aid this still further, is the ability in the European retail POS real estate to enable a mobile transaction and if it is over the transaction limit for contactless payments, to then go online to check the PIN at the host processor. Currently, the POS real estate configuration in France, UK and Ireland seems to preclude this, as the check for PIN code is conducted solely between the terminal and the chip. We have already run transactions above this in other European countries, where we can then go back to the processor to verify the PIN. I believe that this final step will be the beginning of the end for card payments, although there will still be a very long road to travel.
We see a long term future for virtual cards and tokens, where the card can either be produced instantly to facilitate a transaction so that you don’t have to commit your real card details to make a transaction and generally, the launch of Apple Pay and other innovative payment mechanisms is a huge boon for the payments industry. We are currently working on a project to enable contactless payments to be made from lipsticks and cosmetic cases. At last the idea of taking out a card that is made of plastic, to withdraw cash that is made from paper, to hand over to merchant, to receive a handful of non-precious metal by way of coins as change, to sit on one’s bedside table until safely deposited back into a bank at an unspecified later date… is beginning to look like a thing of the past!
How do you perceive recent European payments regulation and what impact do you expect it to have on the development of prepaid across Europe?
This is an interesting topic. The various forms of E-Money directives have helped shape the prepaid landscape and have mostly been enabling as opposed to restrictive. This common approach to payments has been massively beneficial to PFS as it has enabled a relatively small issuer and acquirer to expand across Europe, passporting under the freedom of services legislation.
Obviously, like most other issuers, we were disappointed by the new interchange rulings and would argue that the cost of issuing a payment service was partially covered by the receipt of interchange and any reduction in interchange is likely to be passed back onto the consumer by way of another cost levy. Many argue that the benefit of the reduction so far is only being enjoyed by the Acquirers, the PSPs and the merchants as we aren’t seeing much evidence of a reduction in cost being passed on to the consumer. In fact, the opposite is likely to be true, as issuers consider passing on fees to account/cardholders. So, whilst the regulation was well intended, the effect may well be the opposite.
However, in general I think prepaid has benefited from the European payment regulations and we see further change as likely to be positive.