More Challenges Than Opportunities For Prepaid Cards Outside U.S., Report Says

Legal, regulatory and cultural differences may prevent United States open-loop prepaid card programs from being profitable succeeding in international markets, concludes a report released last week from the Mercator Advisory Group inc., a Maynard, Mass.-based consultancy. Open-loop prepaid cards are facing strict regulations outside the U.S. and laws vary from country-to-country, which makes compliance a complicated process, Terry Xie, director of Mercator's international advisory group, wrote in the report. Some countries are attempting to set limits on prepaid card load amounts, reserves, disclosures and expiration dates, the report said. "Some regulators go further to regulate fee levels on prepaid cards and acceptance," Xie wrote. Fees associated with general-purpose prepaid cards have prevented them from gaining popularity in international markets, Xie told ATM&Debit News, a CardLine sister publication. The fees are forcing "prepaid card managers to issue closed-loop prepaid cards [in international markets] so that the merchant picks up the cost," according TO Xie. One such example in the Octopus card in Hong Kong. That scheme enables consumers to make retail and transit payments with a contactless closed-loop prepaid card. Unstable worldwide economic conditions also may prevent prepaid card programs from succeeding, Xie wrote. "Many believe that Europe's recession will be profound and protracted, even worse than the case in the U.S.," Xie wrote. But there are opportunities for prepaid card growth worldwide, the report says. Similar to the U.S., "the reduction in credit/debit revenues is forcing financial institutions to look for opportunities to diversify revenue streams," Xie wrote. Also, governments are seeking ways to use prepaid cards to distribute unemployment benefits and move from paper to plastic, the report says.