BOSTON-Prepaid cards is a rapidly growing market, but one analyst fears most credit unions are letting the opportunity slip by.
"We expect the prepaid market to double over the next three years, both on general purpose reloadable as well as on payroll card products," said Madeline Aufseeser, senior analyst in retail banking at Aite Group. "But I think credit unions are not taking to this product like banks are, and as a result they are missing a valuable opportunity."
Missing The Younger Market
Besides an additional revenue source that also grows debit transaction volume, Aufseeser reminded that virtually all credit unions enjoy a higher interchange rate than banks above $10 billion in assets. But what's keeping CUs from taking full advantage of the prepaid market, surmised Aufseeser, is the history and reputation of prepaid that she feels many credit unions do not see meshing with CU philosophy.
"Frankly, credit unions are still gun shy about the prepaid market," offered Aufseeser. "The prepaid market has evolved over a long period, and it does have a ragged history. When the market first arrived, some companies popped up that did not disclose all the facts about the product and were targeting the under-banked as opposed to the mass market. That created a great deal of negative sentiment among consumers around prepaid. "
Aufseeser, who recently completed a study on the prepaid market, said that when credit unions don't offer prepaid they are also passing over a product that appeals to a younger market segment. "The younger market does not have the same affinity toward banking that older adults do. They don't all want checking accounts, and prepaid has a great deal of appeal to them."
Prepaid is not for every credit union, acknowledged Aufseeser, who said credit unions must first make an internal assessment of what the credit union needs, the makeup of their membership and what the CU wants to do with the product. "They should look closely at how much marketing initiative they want to provide, how many cards to put out and how they want to distribute the product-do it on their own or leverage other distribution channels, such as the web or through a retailer."
The Big Question
The big question, according to Aufseeser, is whether to go with a hosted solution, where the FI manages much of the details and decisions around the product , or a turnkey solution, where the business is managed largely by a third party.
"There are entities, such as TransCard and NetSpend, that offer a prepackaged program and product already designed that can just get launched with a few joint decisions from an issuer and processor."
Aufseeser says it takes size to go with a hosted solution and that the majority of credit unions are best served with a turnkey product.
"Small issuers and program managers that do not want to market widely are better served by partnering with a turnkey solution provider," Aufseeser said.
