As consumer usage of prepaid cards grows, solution providers need to think about expanding their proposition offerings, according to a new report from Javelin Strategy & Research. Selecting the right processor is also crucial as transaction volumes rise, as Charles Davis reports.
Prepaid cards are not just for teenagers and the unbanked, according to a new report from Javelin Strategy and Research that urges prepaid issuers to start thinking far more broadly.
The report discusses four key components of an effective prepaid processing programme, including managing the card, serving the cardholder, executing the transaction and getting the most from the platform.
A detailed discussion of each component provides decision-making guidance to prepaid issuers chartered with managing a programme.
The study also takes on several of the common misconceptions about the processor selection criteria, dispelling myths and setting the record straight based on perspectives from practitioners and current market trends.
“Consumers are becoming more reliant on prepaid cards as a primary payment method as the variety of prepaid products expands,” said James Van Dyke, Javelin’s president and founder. “This behavioural shift offers financial institutions and other prepaid issuers an opportunity to not only establish longer term relationships with account holders, but create additional revenue.”
Consumer demographic segments widening
According to the study, prepaid card products are popular not just among lower income and younger consumers.
Javelin found that usage is spreading among all age groups. Consumers across the age spectrum are recognising value in prepaid usage. While online usage trends more toward younger consumers, a substantial percentage of all consumers are using prepaid, with a relatively even distribution among age groups using prepaid only offline. This finding speaks directly of the viability of prepaid as a revenue-generating line of business.
“Broad-based prepaid issuance can reach a multitude of consumers in a variety of ways – via reloadable spending cards, payroll cards, gift cards, and health care savings accounts, among others,” said Bruce Cundiff, the report’s author and Javelin’s director of payments consulting.
The leverage that programme managers must attain in issuing multiple product types and reaching multiple consumer groups can be derived through the correct processor relationship.
“Consumer usage has spread relatively evenly among most income groups, with middle-income Americans demonstrating the highest usage of prepaid products both online and offline,” wrote Cundiff. “What is interesting to note is that the multi-channel nature of the prepaid relationship with middle-to-higher income consumers demonstrates the revenue stream capabilities that prepaid issuance provides.”
Opportunity to deepen relationships
The report said that historically, prepaid card products have been driven institutionally, with the focus on the issuing entity – a store-branded gift card, or a company payroll card, for example. As more consumers become reliant on the prepaid products as their primary payment vehicle, the opportunity for prepaid card issuers to establish deeper relationships with cardholders will increase.
Issuers would then take advantage of this behaviour evolution, which will result in an increase in the average lifetime value of the relationship regardless of product type.
“The payroll card deepens both commercial and consumer relationships,” wrote Cundiff. “Several large institutions and other players in the prepaid space are focusing on the payroll card as a primary vehicle for connecting with customers whom they would not otherwise reach, and expanding the relationship from that prepaid starting point. Similarly, general-purpose reloadable cards could prove to be a reliable lure as well.”
The combination of bolstering commercial relationships, as well as extending outreach to individual cardholders, may be thought of as crucial in the prepaid card evolution.
The report found that as the prepaid market evolves to encompass new products and a broader spectrum of active end users, prepaid programme managers must look to the prepaid processor for more than just the ‘nuts and bolts’ of transaction processing. The processor can provide guidance navigating the evolution of prepaid, and an effective relationship should be based on consultative, visionary aspects as well as transaction processing.
The stability of a platform and the ability for the processor to grow with the long-term needs of the prepaid programme should be key for programme managers. Specific product and marketing expertise that some processors possess must support the long-term goals of the prepaid programme.
Several programme managers that Javelin spoke to mentioned the trade-off that they have to make at times, based on the expertise that certain platform providers have. While large payment processors offer stability and transaction volume growth capability, they are not often flexible.
The report cited Springbok Services as an example of such a processor, which has developed a line of prepaid products focused on rewards and incentives – for customers, employees and a salesforce. Several programme managers cite this as specific, programme-related expertise offering all the pieces of the overall pie that they need.
Programme managers therefore have to consider the value of multiple processing relationships, and whether that warrants a trade-off between scalability in the complexity of the product line, and flexibility in the specific aspects of the prepaid products they seek to issue.
Finally, the relationship management components of the prepaid processing relationship cannot be overlooked. The prepaid processor is the conduit for the issuer to the trends and evolution of the prepaid arena. Success – or at the very least the degree of success realised by an issuer – is largely dependent on the processor’s ability to recognise trends and work with the issuer to expand and manage the programme. Programme managers must therefore carefully analyse the client service and consultative capabilities of the prepaid processor.