Long after their introduction to the marketplace, general-purpose, reloadable prepaid cards became perceived as products for unbanked and lower-income consumers. These days, however, prepaid cards are considered more mainstream and are utilized by a diverse array of fully-banked individuals representing average to above-average incomes.
According to a study from the market research firm Phoenix Marketing International (PMI), the prepaid market is growing substantially, with a diverse consumer base that crosses multiple demographics. Among its findings, PMI found that:
- Cardholders of all ages and income commonly view prepaid cards as playing a positive role in financial management.
- Users showed a high co-ownership of prepaid cards and traditional banking products, suggesting that they saw the former products as a convenience rather than a necessity.
- Age rather than income appears to be the trait most related to adoption.
While it does show differing usage patterns between low- and high-income holders, PMI’s research revealed similar attitudes toward prepaid cards, despite age, income, background and education. Still, these products are far more popular among millennials and younger generations. In fact, PMI identified what it calls a “power users” demographic, which includes 18- to 48-year-old cardholders with yearly incomes of $50,000 or more. In addition to highlighting a prime market for prepaid products, this revelation also shows the potential that lies within underdeveloped markets consisting of older consumers, who are just starting to view prepaid cards in a new light.
The Role of Security
In the past year, financial institutions have drastically shifted their attitudes toward chip card implementation, thanks in large part to the shock of data breaches at Michael’s, Target and other retail stores. According to the 2014 debit issuer study commissioned by PULSE, 78 percent of community banks and 83 percent of credit unions have set 2015 as a deadline for EMV migration.
Still others are taking security even further, citing shortcomings in EMV™. Led by The Clearing House Payments Company (TCH), whose owners include JP Morgan Chase, Capital One, Citibank and Bank of America, this group is calling for broad adoption of payment card technology (called tokenization) to combat what it calls gaps in the EMV standard involving online mobile transactions.
Whatever the case, financial institutions are scrambling to enhance security, thanks to consumer reaction over high-profile data breaches. At the same time, these data breaches have led many consumers to view prepaid cards as safer alternatives, since they aren’t connected to their checking accounts.
Still, at least one major provider is going even further to settle ragged consumer nerves. Recently, Visa set new requirements that extend the same fraud protection and dispute resolution protections from debit and credit cards to its prepaid cards. Many financial institutions are also planning to extend chip card protection to their prepaid cards, starting with those that hold the largest balances.
Worthy of Attention
As their market expands and diversifies, prepaid products are demanding considerable attention from financial institutions, which have a lot to gain by making these cards more attractive to consumers. According to a recent study from Mercator Advisory Group, Inc., consumers loaded $76.7 billion onto prepaid cards last year and the organization predicts that number to exceed $168.4 billion by 2015. That makes it the fastest-growing non-cash method of payment in the United States.