The prepaid card industry needs to shed its
get-rich-quick image and focus more on innovation and educating
customers about its advantages. So says Fiona Duncan, head of
prepaid at Visa Europe, who shared her thoughts about the state of
the industry with John Hill.


Fiona Duncan, Visa EuropeWhen prepaid exploded in the US and started to move into
Europe, many thought the concept was a sure-fire winner in the UK.
Consultancies made inflated predictions of where the UK market
would be in five and ten years’ time, and many look likely to have
significantly overestimated.

As the head of prepaid at Visa
Europe, Fiona Duncan, has a better understanding of the state of
the UK market than most, and admits prepaid has not lived up to
expectations. A lack of government usage of the products and an
attitude among prepaid issuers that the products were nothing more
than “get-rich -quick” opportunities to charge exorbitant fees have
turned consumers off.

“What we’ve seen is a lot of
stopping and starting in some markets, especially with the recent
economic changes and a tough climate,” she said.

“What this has meant is that a lot
of restructuring in banks has slowed things down and changed many
priorities and programmes within these organisations.

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By GlobalData

“Despite this we’ve seen steady
growth, although what we’ve seen probably hasn’t met our
expectations over the last two years because of this


The dominance of

Europe has always been a prime location for prepaid, although
the presence of different payment systems in different countries
within the Eurozone has meant growth and development has been very
country-specific. Italy is one of the countries that has adopted
prepaid with relish, and still looks likely to be the market leader
for some time.

“Our biggest market is Italy and
has been for a long time,” said Duncan.

“It’s going to be quite some time
before other markets catch up; Italy is a long way ahead of the
game. The UK is starting to take off now, although it is certainly
one of the most stop-start markets. In fact the O2 Money prepaid
programme has been one of the most phenomenal in the UK because
it’s actually helped people understand what prepaid is all

“They’ve made a point of not
marketing it as a credit card which can be a dangerous thing to do
with prepaid. For the issuers and banks this has brought into
relief the fact that prepaid is not a get-rich-quick scheme and
it’s not about the fees.

“To this extent there are some that
believe a lot of the problems in the UK were related to some of the
programmes coming out with very high fees. For instance, on the
money comparison websites there are about 20 different products,
some of which could be seen as extortionately high for people to
get into.

“What O2’s done for the UK industry
is that it has shown innovation is very important but has also
shown the importance of value. People look for something that will
add value, and if it adds value to them then they will be prepared
to invest in it further.”

Visa’s product offering in the UK
started in commercial fields, with insurance cards, incentive cards
for employees and travel cards to replace traveller’s cheques.
Consumer prepaid has struggled because there remains a lack of
availability of everyday general purpose cards. Those that are on
the market tend to have high fees, putting off prospective

“As well as this, banks in the UK
weren’t as keen on prepaid,” added Duncan.

“It didn’t hit with the credit
market and didn’t hit with the debit market. Also, because banks
were restructuring, they were under a lot of pressure [during the
financial crisis]. It’s a big investment to get prepaid up and
running and it wasn’t going to give them the sort of returns they’d
get from the rest of the market. So for the UK the difference is
getting the big brands involved as well as getting the smaller

“I think the UK will continue on
that basis for a period of time; it’s a different kind of market,
while if you look at places like Italy and Poland they started from
a different customer base and were looking for different


Quote from Fiona Duncan, Visa EuropeGovernment

Both Italy and Poland’s prepaid markets started off with
government programmes which issued benefits and aid to citizens on
cards rather than through vouchers or cash handouts. This has
become the benchmark for pushing prepaid products because it means
consumers are forced to use the products and learn about their
features. They then become more likely to buy other consumer
prepaid products offered by commercial card issuers for spending
categories, such as online and travel currency cards.

“In Poland we’ve had a scheme out
for about four years now with the Polish government – one of the
first ones out there – and the UK government is also starting to do
quite a bit too,” said Duncan.

One of the best-known schemes in
the UK is Lewisham County Council’s partnership with Citibank. When
youths under the scheme leave care and live by themselves for the
first time, they get an allowance.

“What used to happen was they all
used to come to a defined location every week and the government
worker would then have to take cash out to that location and pay it
out to those who needed it,” said Duncan.

This caused a number of problems.
First, all the youths had to pay for travel to pick up their

Another issue was security, which
is a common theme in prepaid. Carrying cash can make people
vulnerable. This is particularly true when the youths were carrying
cash from the benefit pick-up point. Moving these transfers on to
prepaid cards allows benefit recipients to have cash paid straight
on to their cards, and means that even if the cards are stolen,
they are able to recover the funds.

Duncan said the biggest schemes
were in Turkey where there is a large government benefit programme,
Poland where there is a government benefit programme, and Italy,
which is just starting out with a benefit scheme.

“I think benefit schemes help
prepaid as a source of social inclusion because firstly it enables
people to be one of the mainstream – having access to cards as a
payment method,” she said. “The second thing is that it really
helps people to manage money.”

Prepaid opportunity: Market sizing – personal consumption expenditure (2008)


The prepaid market has always been a hub of innovation, with
many issuers seeing the platform as a way to launch a multitude of
different consumer cards, from foreign exchange to credit-building
products. This approach was seen as attractive in the opening
stages of prepaid development, when issuers were trying to
establish which products were most attractive to consumers.

The onset of the financial crisis
changed this emphasis on frequent product launches for two reasons.
Firstly, prepaid cards require heavy marketing and, as issuers
profit margins became squeezed, budgets were cut.

Secondly, the financial crisis has
created a new focus on transparency in the financial industry that
was not well served by offering consumers card portfolios with 10,
20 or even 50 different products. There has been a trend towards
more focused, clearer product offerings for consumers.

“It has been really interesting in
prepaid over the last few years, and what we’ve found is that
innovation is really starting to catch on,” said Duncan.

“There is no longer the attitude
that you can simply put cards out there, forget about it and
they’ll work for you. Prepaid products have to have investment and
innovation behind them.”

Educating consumers about prepaid
is an important part of driving usage. Prepaid businesses are using
a number of initiatives to try to achieve this. Duncan believes
that integration with mobile phones is one of the most

“I think integration with mobile
phones is one of the key ones,” said Duncan. “The reason for this
is that when people use their mobile phones to pay (for example the
O2 scheme in the UK) they get used to seeing how much money they
have when they load up the prepaid card on the phone or spend money
with the card, and they can also check the balance at any time.

“This is especially important in
helping people manage their money and then also provides a similar
experience to cash.”

Prepaid is comfortably the fastest
growing payment form in the markets where it has been introduced.
The opportunity for prepaid spend is in the ‘multiple trillions’,
according to some estimates, in terms of gross dollar volume.
Separate research, produced by Visa Inc, showed global personal
consumption expenditure was $23trn, excluding Europe. Cash and
cheques represented 41% of this, giving a crude cardable
opportunity of $9.5trn.

Of more concern to the banking
industry is the potential for prepaid products to cannibalise
revenue from credit and debit cards. Credit cards in particular
have higher margins for banks and some are concerned the offer of
prepaid cards could cause consumers to switch to prepaid.

Duncan said she saw prepaid as a
substitute product, rather than one which is vying for
share-of-wallet spending with credit and debit.

“Importantly you can use prepaid in
places where you can’t use debit or credit, and I think that’s why
it’s important,” she said.

“Things like paying benefits,
incentive payments and all those sorts of things – you wouldn’t do
them on a debit card and you wouldn’t do them on credit.

“I think it could replace cash in
some instances, but it’s going to be a long time before it
penetrates all of cash… and people are different.

“Take spending on the internet.
What prepaid does is it allows people to define the amount on the
card they want to spend on the internet, particularly if they don’t
have access to debit or credit.

“It may also be because they don’t
feel comfortable using debit or credit online.”


Quote from Fiona Duncan, Visa EuropeBetter financial

With advantages such as financial inclusion, security and the
ability to help consumers manage their finances better, prepaid
should be able to gain traction in markets throughout Europe.

If governments, prepaid businesses
and card associations start to educate consumers better about
these, the industry should have a bright future, and make up some
of the lost ground over the last few years.

“What we’ve found in the last 18
months is that everything is taking off again,” said Duncan.

“We are seeing a major acceleration and we are expecting our
growth next year to be double what it has been in the last two