Attending this year’s Prepaid Expo, which took place in Las Vegas (March 12-14), it’s clear that issuers, program managers and supporting vendors within the prepaid value chain are finding themselves operating in a more complex and increasingly competitive environment.
While the shifting regulatory environment and unstable economy were part of many conversations at this year’s show, the real focus was on increased competition in the market as more banks and program managers enter and how technology like smartphones and social networks will change consumer behavior and the industry.
What needs to be understood is that market shifts, regulatory issues and new technology will all drive a greater level of complexity and will no doubt bring headaches for prepaid executives, but these changes also bring new opportunities. It’s important also to note, however, that the market will be more unforgiving. The increased regulations, competition, and even economic turbulence reduces the margin for error. So, it is critical now more than ever for prepaid card companies to take stock of their strengths, weaknesses, and markets in order to navigate in the coming year.
Regulations, and the populist cry for greater regulation, will affect the prepaid industry more than any other factor in 2012. Regardless of competition or the economy, prepaid card companies must comply with any regulations which apply to them and in doing so it will require members of the prepaid value chain to spend more time vetting their partners and making sure that regulatory requirements are met.
It’s true that the industry is becoming more competitive as new and existing companies enter the market and try to reach the same set of customers, often through different channels. As consumers adopt mobile and social networks, they also start to rethink the channels they consider relevant. Technology is shifting where and how consumers shop and who they trust to deliver financial services. One specific example –Mercator expects the introduction of mobile deposit capture of checks to prepaid accounts will impact how consumers interact with alternative financial services providers. Successful program managers will need to determine what channels will be most relevant to consumers in five years and lock those channels up today. This battle for the future is already well underway.
The rapid adoption of smartphones and social networks by consumers presents a number of challenges for both open-loop and closed-loop prepaid providers. These technologies have introduced new communications channels that have a very different set of capabilities than all current communications channels. Smartphone apps can be made context sensitive based on a wide range of attributes, including but not limited to, location, movement, consumer data (such a Qcode, camera scene, or keyboard input), or even activation of other applications. The process of identifying what features smartphone users will find compelling has only just begun, but it is clear that 2012 will be the year of the mobile app in prepaid.
The effort to discover compelling smartphone services takes on a sense of urgency as shown in Mercator research which indicates that consumers have a limited, albeit growing, capacity for the number of apps they will actively use. This suggests that there is a first-mover advantage associated with the early introduction of compelling smartphone applications. This application of smartphone aware context to existing marketing, promotions, incentives, and payments solutions will shake the market (as has already been demonstrated by Starbucks, which is just the tip of the iceberg).
Social networks also will be a critical factor in 2012 for many open-loop and closed-loop program managers as the industry learns how to use them to win new customers and better service existing ones. Social networks establish a powerful way for existing customers to refer a product to friends and family, however, accomplishing this and delivering the appropriate motivating factor for the referral remains more art than science.
More challenging due to the technological issues, however, is making a decision regarding how social networks should be integrated into prepaid products. It is unlikely that sharing information about recent purchases will prove compelling, but social shopping and similar social network enablement may become key market differentiators. As such, identifying what information cardholders wish to share and what social network features will increase the perceived value of the prepaid card to the cardholder are key issues that should be addressed in 2012.
A depressed economy means less spending for all payment types, and prepaid will be no exception. As shoppers and businesses work to reduce costs and increase savings, the drag will show on prepaid volumes the same as it will on other kinds of payments. There is, however, a potential upside in all of this for prepaid card providers. Spending that moves away from checks and credit and debit cards may gravitate towards prepaid, and if providers can demonstrate how governments, employers, and consumers can cut costs by using prepaid cards, then they stand the chance to win new business. In addition, prepaid cards can be shown to reduce fraud and speed the delivery of wages and benefits.
Mercator looks forward to writing research on these issues and working closely with our clients to develop the necessary understanding and strategy they will need to succeed in this market.
Please visit the Mercator Advisory Group Prepaid Library for a list of our reports. For information about membership to Mercator’s Prepaid Advisory Service, please email us at firstname.lastname@example.org or call us at 781-419-1700.