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Observers have suggested that if EMV or chip-and-PIN cards were required throughout the U.S., a recent $45 million fraud that involved some U.S. ATMs would have been prevented. A closer look at the incident suggests this may not be so.
May 22 -
As 2012 progressed, one thing became strikingly clear: the card networks do not want to be left behind as new digital payment methods threaten plastic.
December 31 -
Better security deployed by the card processors, the banks and the ATM operators could have detected and thwarted the complex scheme in which millions were stolen from two Middle Eastern banks.
May 10
While it's hard to deny that chip cards are more secure than magnetic stripe cards, it's equally hard to deny they cost more, too.
When it comes to debit and credit cards, Visa and MasterCard argue the expected fraud reduction from moving to chip-and-PIN make that extra unit cost worthwhile. However for prepaid cards, the story may be different.
While the opportunities are big a
For example, research by the
Regulation, such as the Durbin amendment to the Dodd-Frank Act, has made the prepaid market start to look more attractive to banks since the restrictions on imposing high charges don't apply to prepaid cards. However, the additional $1 or more a card that chip cards cost to manufacture will eat into margins already lowered by the CARD Act of 2009, which laid down changes in disclosures, fee structures and expiration dates.
For prepaid products like one-time-use rebate cards, that extra $1 could really cut into margins. For employers that use payroll cards, checks may start to make sense again.
Of course it depends on who ends up paying for the additional plastic cost, but for products that already have a relatively short life span as the Philadelphia Fed figures show, passing on additional cost to the customer may further reduce the utility of the product and hence revenues.
There appear to be two possible ways out of this. Either prepaid will move to mobile or prepaid will have to be repositioned toward a more value-added proposition.
The star example of mobile prepaid today is the Starbucks app. According to
Although the Starbucks app links to the Starbucks prepaid card, there's no reason a simple bar code or QR code on a mobile phone could not work for one-time-use prepaid products, cutting out a whole layer of plastic-related cost. For longer-life prepaid products, near-field communication technologies could allow mobile prepaid to be read by the same point of sale devices as contactless EMV credit and debit cards.
In addition, while it's easy to cut up or put away a prepaid card and stop using it, people don't stop carrying their mobile phones. Research last year by the mobile analytics firm
In addition, with the number of mobile devices globally set to overtake the world population, according to forecasts by the telecommunications giant
Another possibility, which is energized by the addition of mobile, is to move the perception of prepaid away from serving the underbanked toward value-added propositions that customers are happy to pay higher fees for. The MasterCard report predicts payroll and government benefits will together account for $369 billion of the forecasted $822 billion market in 2017. That leaves more than half of the market opportunity for value-added products.
One possible example of such a service is the
However, note that here, the card is a partner product to mobile prepaid.
Indeed, as payments in general start moving toward mobile Visa expects that by 2020 half of its overall volume will come through mobile why will prepaid be any different? Maybe it's time to use that extra $1 cost as the impetus to start that shift now.