Prepaid is a $2.6 Billion Opportunity for Banks and Credit Unions

Prepaid debit cards are changing the way many people bank and manage their finances. It’s not just the unbanked and the under-banked, either. Prepaid debit card users include a wide swath of Americans, all with one common goal: to take control of their finances. They see prepaid cards as a tool for achieving that control.

That’s why prepaid debit is an in demand product; millions of Americans are choosing prepaid cards over checking accounts. Those financial institutions that ignore this fact are leaving a lot of money on the table – an estimated $2.6 billion in potential revenues from the cards alone.

An estimated 12 million adults (representing 5% of the population) use prepaid cards at least once a month, according to a recent survey. That survey – conducted by the Pew Charitable Trusts – also revealed that most prepaid cards (46%) are purchased at retail stores while just 9% of prepaid users get their cards from banks or credit unions.

The Pew research uncovered other insightful details about prepaid cardholders. For example, nearly half (49%) are homeowners, one out of four earns at least $50,000 a year and 47% have attended college. Most, if not all, also carry mobile phones and like the notion of using mobiles to manage their financial lives on the go. That’s what makes prepaid debit card programs with mobile access a winning proposition.  This is a message I delivered last week at the NBPCA Power of Prepaid conference, where I participated in a panel discussion on creating stickiness and value in prepaid programs.

Prepaid debit cards are not a one-size-fits-all product set. In fact, there are at least half a dozen different use cases, said Chris McClinton, a panelist from the American Bankers Association. McClinton and Bill Norwood of Heartland Payment Systems discussed some of these, including campus prepaid card programs with local merchant acceptance and mobile tools.

Consumers choose to use prepaid cards for any number of reasons. Some are smart money managers; others are trying to make up for past financial mistakes. Still others have left banks for less expensive alternatives. Most require a variety of products and service providers to get the job done, however, from check cashing establishments to payday lenders. The Pew research found that 38% of prepaid cardholders have used a check-cashing store; 21% have taken out payday loans.

Loads to prepaid debit cards more than doubled between 2009 and 2012, driven primarily by a desire for better control over spending, debt and fees, according Pew. Cardholders aren’t very loyal, however.  The typical consumer uses a prepaid debit card for an average six months before ditching it for another prepaid card, or another payment method (like cash or money orders), according to the Federal Reserve Bank of Philadelphia. That’s because consumers are looking for more than just another way to pay for things. They want and need tools that help them manage their lives, on the go. This includes products and services that help them manage their financial lives, like prepaid cards with instant good funds for check to card loads, balance inquiries, bill pay, and remittances.

Prepaid debit cards are transforming the ways people bank and manage their finances. Being able to access their cash and perform other basic financial management activities anytime, anywhere, using their mobile phones and their prepaid cards will further improve the lives of modern consumers. The payoff for financial institutions will come in the form of stickier cardholders, new fee income opportunities and non-interest paying deposits. It’s a winning proposition all the way around.

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About The Author

Terri Ferrise

Terri Ferrise is a VP of Financial Services at Cachet, focused on the alternative payments industry. Terri has worked in the financial industry for the past 18 years.
Cachet Financial Solutions is a leading provider of remote deposit capture solutions for financial institutions, credit unions, and financial service organizations.