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Neil Dugan, vice president of prepaid products for the Americas at MasterCard Worldwide, discusses with Prepaid Trends where he sees prepaid products heading and the trends that may have the biggest impact on the industry.
Prepaid Trends: When MasterCard thinks prepaid, what does that include?
Neil Dugan: MasterCard views prepaid as an emerging payment category. We've broken it down between commercial and consumer. Consumer includes gift, travel, retail and reloadable products. On the commercial side, you have corporate and government programs. Under corporate you have payroll, corporate incentives, rebates and those types of products. On the government side, you are seeing a wide range of uses for check replacement in payments for public-sector benefits–both state and federal disability benefits payments, Social Security, railroad retirement–those type of areas.
PT: What part of that market has the fastest growth?
ND: The fastest growth area in the past couple of years has been government payments. State and local governments have identified prepaid cards as an effective and an efficient way to replace check-payment mechanisms and to reach consumers they have had difficulty in the past reaching or need to reach with repetitive payments. A great example of that is the Direct Express program in which the U.S. Treasury Department partnered with Comerica and MasterCard to reach out to Social Security recipients. On the consumer side, a lot of efforts have been placed around reaching the underserved community that ranges into the millions who need financial services and have high use for prepaid cards.
PT: How big is the prepaid card market? Can you say how many cards are out there or what the load is per year?
ND: I don't think we can make any statements about the load or the number of cards in the market. We know that the industry, depending on the public sources that have done a lot of research on this, has been growing at least at double digits, and in some cases has triple-digit growth. How that translates into number of cards and loads per year, I couldn't comment on.
PT: Where do you see prepaid growth coming from in the future?
ND: For the near term, there is plenty of growth within the government and commercial sectors. In replacing check payments and continuing to find efficiencies, we have made some great strides but by no means have tapped or reached financial inclusion. We will continue to educate the public on how these products help fill a need, and you are going to see continued growth there. As you start to look forward, the emerging of technologies and payment instruments start to provide a whole new market. Look at transit, for instance, where MasterCard has had some pilots running that converge transit and mobile. You have a whole other application to use for everyday spend that provides a tremendous area for growth.
PT: What technologies are going to drive the future of prepaid?
ND: Mobile is high in that area, not only from a prepaid standpoint but also from the money-transfer side. When you start to merge that with contactless payments, you start to see the ability to use common everyday things such as mobile phones to help pay for goods and services. That advances a whole other channel.
PT: Will we see increased adoption of contactless?
ND: The adoption of contactless versus other markets around the world is probably going to be slower in the U.S. There is an infrastructure-replacement play. We'll continue to see investment there and use in that market.
PT: Are we going to see prepaid moving more away from cards over time, to things such as virtual prepaid, one-time use numbers?
ND: You have to look at it from a broad perspective. Prepaid has a number of categories, and there will be plenty of applications for card products and card programs in and around prepaid. There will be applications that will need prepaid to take different shapes and forms. In transit, you could see turnstile payments happening with a different form, but it doesn't mean there is not a prepaid application or it's not a prepaid program, just that the form and substance of how that transaction gets conducted may not be done through a piece of plastic, but shared across other technologies.
PT: What are the pieces necessary for a prepaid program to be successful?
ND: You've really got to understand the audience you are trying to reach–what is your core business objective–and then really look at the programs that are going to best fit that need. Then establish an operating model around it that is effective for the cardholder experience as well as the distribution for that type of program. And it has got to be cost efficient. You've got to do a balancing act between creating the right service model and creating an efficient operating model for it. You've got to support the program with a strong communications channel, either directly or indirectly through partnerships, and be able to continue to manage it. Without good management-information systems tools, you'll really have difficulty knowing whether you're being successful at achieving the objectives you're trying to set.
PT: Are there areas that haven't been tapped into where prepaid cards would fit in well?
ND: One is getting a closer partnership between the public and private sectors in terms of transitioning folks from public-sector applications to private sector uses. An example of that is today a person maybe part of a state welfare or food-stamp program where they're receiving benefits on a card operating on a debit network. Tomorrow that person goes and obtains a position and is getting a paycheck. They have now shifted from a highly efficient payments stream to an inefficient one. We could do a better job of marrying those industries.
PT: Will there be a rise in portable payroll and benefits cards that can move from one place to another?
ND: Portability is a growth area. More and more companies are starting to explore that and the challenges that presents. The consumer reloadable initiatives and financial-inclusion strategies that are opening up across merchant applications and being able to use cards for direct deposit is going to foster that. Whether that is a push from the corporations offering portability or consumers driving that by finding products that fit that need for them, by default there is a need to have broader use and broader utility for the payment programs, particularly as the level of education deepens.
PT: Will there be a universal reload networks in the future, or will there be major reload brands like we have major card brands now?
ND: I am not so sure you will get to a ubiquitous reload environment. I do think that you'll end up with a core set of networks that will support the reload of these card programs.
PT: Will there be a consolidation of the prepaid space?
ND: The number of players that are within the market continues to fill needs for specific payment applications. There will be a need for program managers, processors and issuers to bring together creative prepaid programs to the markets, particularly across the different distribution channels. You may see consolidation as smaller players continue to look for ways to take advantage of not only their own investments, but also look for a way to partner more closely with others to offer a broader suite of services. One of the exciting things about prepaid is smaller players can come in and add some very strong value.
PT: What are the risks to prepaid?
ND: One risk is making sure there is strong amount of information and education in the market from a governmental level, regulatory level and to all the partners in the market as to what prepaid is and isn't to avoid prepaid getting painted with a broad brush that creates undue regulation or hardship that prevents the industry from growing.
PT: Any examples of controls that should be brought in?
ND: I don't want to speculate about regulation. In the past there has been discussion about anti-money laundering regulation and Regulation E. Those are appropriate discussions to have about where those are appropriately applied around prepaid and making sure the interpretations fit for the industry. I am not suggesting there are others that should be applied at this point.
