Rethinking Easy Money Through Prepaid by Jerry Uffner
August 17, 2018
Jerry Uffner | General Manager, Line of Business Executive Prepaid
Despite years of predictions about its demise, prepaid continues to gain momentum. Increasingly, millennials, Gen-Xers and those in new markets are turning to prepaid as a frictionless way to send, receive and spend funds, and as a way of eliminating the hassle of checks and cash. This success comes from the evolution of prepaid cards targeted at underbanked consumers with minimal access to traditional financial options to a product that anyone can use to make payments worldwide.
A Card for All Seasons
Simple, secure and accepted virtually everywhere, prepaid cards established themselves more than 20 years ago in the United States and Europe. Their success today largely comes from the rest of the globe, however. The debt-free cards resonate with the ever-growing population, particularly those hit hardest by the last recession, including millennials and Gen-Xers.
Often labeled risk-averse, younger generations have become even more cautious about avoiding overdraft fees, high-interest rates, debt and possible damage to their credit. To them, prepaid cards represent a key way to stay out of debt. They also offer consumers the ability to escape bank fees and seize control of their own finances.
One of the first businesses to be transformed by prepaid cards was trucking. As truckers are a disparate community, working away from home-base and being mobile, prepaid quickly became an ideal funds distribution solution for payroll and expense reimbursement, all managed remotely. Funds were quickly available to drivers for personal expenses, truck stops and gas stations without any need for check issuing or money transfers.
Prepaid cards also became the payment method of choice for employers with many underbanked employees. For such employees, prepaid cards work like bank accounts minus the bank – employees or contractors receive their pay instantly and don’t have to spend additional time and money to cash a check. Employers, meanwhile, save money by not printing and mailing paper checks.
The Adaptable Prepaid
Today, prepaid is much more than a mechanism for making payments to temporary or underbanked employees. Prepaid has become a solution to manage costs and eliminate many of the traditional problems with fund distribution and management.
That’s why government programs have seized upon prepaid as an ideal method to distribute funds, rebates and benefits. Prepaid cards can deliver funds easily, while also providing restrictions on the products and services they can be used to buy. The healthcare sector has also seen many innovative solutions whereby prepaid cards are used for HSA/FSA cards and for insurance companies to distribute claims instantly.
Prepaid cards also have become an ideal way to operate a digital money ecosystem within the boundaries of a closed site, such as a college campus or a business park. Funds can be quickly transferred, even offered as rewards or promotions, and used to generate loyalty so that they maximize use. Many sports and entertainment venues, and even some schools, now operate prepaid solutions where all vendors on-site accept a single card. Spot awards can be offered with funds loaded to winners instantly.
For businesses, prepaid cards are increasingly used as a simple and efficient way to distribute expenses and provide business travelers with the funds needed to complete a project or trip. Money can be transferred instantly without the need to raid petty cash or use a credit card.
As mentioned, one of the features of prepaid cards is that the funds on the card can be limited to use on certain products or to certain retailers. For example, many government benefit programs can stipulate that the funds received are used on food, medical or other essential product or services. This can cause a problem when cardholders need multiple cards to access different resources. To address this, we have seen the rise of “multi-purse” prepaid solutions.
Under these programs, a single card can contain multiple purses. Each sub-account or purse may or may not have restrictions on usage, and the cardholder can pull funds from different sub-accounts on the card as appropriate. These multi-purses can even hold a personal account where the cardholder can reload their own funds for general use.
This solution works because there is no impact on merchants’ point-of-sale (POS) devices. A multi-purse can verify merchants and even product lines to verify appropriate use. And there is no need for cardholders to collect paper receipts or upload photographs of paper bills for later reconciliation as everything can be done automatically.
While prepaid cards can be used at almost every merchant POS, virtual prepaid cards are increasingly being used for card-not-present purchases online. Virtual prepaid cards can be delivered directly to cardholders’ smartphones, and provide all the same benefits and flexible usability of the physical card. Such cards can be delivered in seconds for use anywhere, whether a physical location or online. These prepaid cards can then be loaded onto e-commerce sites as a user’s primary payment method. They also can be added into wallets or merchant apps, giving them top-of-wallet status.
The prepaid card industry is diversifying. Higher-end issuers and banks are now pushing prepaid to customers in response to consumer demand. These cards are seeing stellar growth in terms of spending volume, adding dynamism and healthy competition to the market.
The continuing evolution of the prepaid card has turned it into a viable product for both banked and unbanked customers – often as a cardholder’s preferred payment mechanism, and as the preferred funds distribution method for businesses. Prepaid has the potential to drive a radical shift from checks, debit and credit, and it will continue to challenge or complement these traditional approaches to banking and payments in the years ahead.