2012: The Year Of Prepaid Cards?

Here are three trends to expect with products that draw consumers to pay up front, even when they have to pay more.

 
 

Whether your credit union offers a non-predatory prepaid option or steers clear of them, the fact is that a growing segment of members are pursuing simpler and more transparent financial channels.

Only 13% of consumers have used prepaid cards, according to Oliver Wyman, a New York City-based management consulting firm. But an astounding 90% of them had an existing checking account, indicating prepaid is no longer just a service for the unbanked. Credit unions should examine the following factors driving use to better understand how they can provide a prepaid option.

More Banks Focus On Prepaid

J.P. Morgan Chase and its subsidiary Chase  are among the larger institutions launching prepaid options as a serious product line. Wells Fargo, U.S Bancorp, and Bank of America are also offering prepaid cards.

The difference between credit unions and what J.P. Morgan and some others banks are seemingly trying to achieve is that cooperatives that offer prepaid cards aren’t trying to segment less savvy or wealthy members out of real banking relationships. Rather, they’re trying to bring them into one.

Consider transition programs like Amex’s Make Your Move Program. This campaign lets some prepaid users who frequently use their card, refill their balances when they are low, and have never had a credit card previously,  transition from their Amex prepaid to a basic credit card product.

Prepaid’s Social Stigma Is Fading

Prepaid cards are increasingly used for social benefits in the government sector and in the educational sector for student meal plans, IDs, and financial aid. For the affluent, prepaid cards can be marketed as a secure option for the international traveler, or a spending segmentation tool for those looking after the finances of a child or elderly parent, says Tim Murphy, chief products officer of MasterCard Worldwide.

Mobile Wallets Embrace Prepayment

Prepayment is a common funding strategy for many current and upcoming mobile wallet solutions for reasons that include security/loss mitigation. This approach has a duel effect of opening up underserved markets, while expanding prepaid practices to even the most affluent and tech-savvy consumers, who will be another majority of early adopters.