Prepaid programs continue to show strength in the current economy and runway for continued growth. Mercator Advisory Group research and complementary studies highlight growth in specific prepaid sectors that range from 3% CAGR to as high as 10% over the next 3 to 5 years. However, the industry needs to catch up to commonly accepted technology to encourage and enable the projected growth path.
Digital Technology Enhances Prepaid Cards
Libby Calderone, President and Chief Operating Officer at credit union service organization Envisant, highlights the challenges and successes of the advancement in Credit Union Magazine:
“Digital technology has done much to enhance the speed and security of prepaid cards. Virtual cards are making issuance even faster and more cost-effective. Tokenization adds another level of security and ease of use. Randomly generated tokens are stored by stores and e-commerce sites while cardholders’ private details remain in one secure database. This technology also allows shoppers to easily switch between online and in-person shopping through mobile wallets.”
The technology shift does not provide groundbreaking advancement for prepaid programs, but instead allows prepaid to be at parity with credit and debit cards as a significant resource in consumers wallets. Mercator research shows that prepaid cards represent 10% of U.S. household payment methods, however 35% of consumers utilize universal wallets to make payments, and 23% use a retailer-specific wallet. With these trends expected to rise, it’s imperative for prepaid programs to be a player in both the consumer facing wallet technology and the underlying aspects like tokenization.
Harness Technology to Delight Cardholders
While retailers have a clearer path to utilize their own wallets and closed loop stored value accounts, Calderone highlights that Credit Unions, and by extension other financial institutions, need to work to link their open loop products to universal wallets as a tool to stay relevant:
“Prepaid cards and technology can be a powerful way for credit unions to connect with current members and reach out to new markets. The most effective use of prepaid cards will harness the advantages that technology offers to delight cardholders and compete in an increasingly digital world.”
Prepaid as a Lead into Other Banking Services
The wallet space is critical in Calderone’s comment specifically in terms of customer acquisition. Our research indicates that more than 70% of millennials and 55% of Gen Z individuals will use a mobile device to research and buy products online. Combined with this generation’s greater proclivity to either freelance full-time or use freelance work as a moonlighting opportunity, there is significant runway to utilize prepaid cards, attached to the technologies as a primary method of payment, simplifying payment processes and driving usage.
FI’s that grasp this as an acquisition tool can help to bring those technologically savvy consumers into the fold by building meaningful customer interactions that start with prepaid but then extend into other banking services. The centerpiece in all this activity is the technology, especially the front-end apps and wallets that allow for a robust and long-term relationship.
Overview by Jordan Hirschfield, Director of the Prepaid Advisory Service at Mercator Advisory Group.