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

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

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Consumer demographic segments

According to the study, prepaid card
products are popular not just among lower income and younger

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

“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

“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

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

“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

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.