The Changing Face of Prepaid Cards

Payments Leader

Posted on July 31, 2014

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The 1970’s brought us many payment trends, some of which have managed to survive into the present day and some which haven’t. One payment trend that still remains today is the prepaid card. Previously, prepaid cards were used primarily by college students, which allowed for controlled access to funds by students who lived away from home, but still relied on their parents as a source of income.

In the 1980’s, telephone companies were quick to capitalize on the success of these cards and soon, prepaid phone cards were in use everywhere. The 1990’s saw the prepaid card moving from student backpacks to gift boxes, where they remain a popular, year-long gift-giving choice for almost every occasion. As the new millennium opened, financial giants, payment networks, retailers, employers and more began offering branded prepaid cards.

Prepaid cards have become a key form of economic participation for a broad category of consumers known as both the unbanked and the underbanked. As the names imply, these are identified individuals of all demographic makeups who do not participate actively in the banking system. According to the 2011 FDIC National Survey of Unbanked and Underbanked Households, 20% of the country’s population are underbanked. There are many reasons this group had not conducted traditional banking practices: low or damaged credit, a lack of sufficient credit history, a desire to avoid bank fees, the inability to qualify for checking accounts and even a lack of proximity to traditional banking outlets. Someone lacking a checking account found that a prepaid card provided a handy means of paying utility bills or buying groceries.

As prepaid cards have continued to take off in popularity, celebrities and other eager entrepreneurs have begun taking advantage of the trend through high-profile endorsement strategies. Such examples, both famous and infamous, include legendary music producer Russell Simmons, Kim Kardashian, Hall of Fame NBA player Magic Johnson and financial guru Suze Orman to name a few. However, as with any payment option and products in general, consumers look for advantages beyond the novelty of possessing a certain card and only those cards offering them true value remain in use. In fact, by the end of July, both the Magic and Orman cards will disappear from the marketplace.

Future of Prepaid Cards

Today, prepaid cards are a popular choice, prompting the Federal Reserve to describe the cards as the country’s “fastest growing method of payment.” Still, the question remains: what is the future of prepaid cards in this country? According to many industry analysts, it seems that there’s no stopping its growth and it is slated to continue to rise year over year.

In fact, based on an Aite Group and U.S. Department of Commerce report, retail purchase volume from prepaid cards surpassed $200 billion in 2014. With more people using prepaid cards in more ways and in more places, it’s easy to see why the prepaid purchase volume is expected to increase. Yet, with its popularity and increased consumer demand, heightened competition will become a challenge for financial institutions wanting to break into this market. It is up to the financial institutions to show their consumers the value of prepaid cards and target certain market segments where it can be used.

Clearly, for prepaid cards, the future is brighter than ever. To discuss how prepaid solutions can help your company grow, please contact us. Whether your needs are focused on business or consumers, FIS Global offers best-in-class, reliable and scalable prepaid solutions, backed by our excellent customer care.

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Payments Leader

Payments Leader from FIS provides insights on credit, loyalty, fraud and emerging payments strategies through blog posts from our industry experienced authors.