Regulatory pressures represent the top challenge facing the prepaid industry, followed by market awareness and concerns expressed about fees from consumer advocacy groups and the media, a new report suggests.
Aite Group LLC based the findings noted in its report on interviews conducted last month with 24 prepaid-industry executives attending the Prepaid Expo USA conference.
That regulation was the top concern was not surprising, given that discussions over pending and potential state and federal prepaid regulations were prevalent throughout the conference
“There is a lot of uncertainty and apprehension” among prepaid executives, Adil Moussa, the report’s author and Aite analyst, tells PaymentsSource.
Any pending consumer financial-protection regulations were top of mind with executives Aite interviewed. It remains unclear how the Consumer Financial Protection Bureau will address prepaid card fees, for example, but executives are under the assumption the watchdog agency will address the industry in some form.
The market should be able to dictate prices, Moussa believes, noting consumers have a choice and competition already has forced prices to drop. However, the now-defunct Kardashian Kard caused enormous upheaval among consumer-advocacy groups and the mainstream media last year, prompting the card’s demise (
Consumers had less-expensive alternatives available to them, Moussa notes. “Nobody forced anyone to buy” the Kardashian Kard, he says.
At least three executives Aite polled indicated existing and pending state regulations make it difficult for companies to adopt a single nationwide approach to implementing programs. Indeed, some 38 pending bills exist across the nation that in some way could affect prepaid cards.
“The state regulations are going to be a big game-changer in the industry,” Moussa says. “It’s going to be a nightmare to coordinate properly.”
Market awareness among consumers and legislators also is a problem the industry recognizes, and prepaid providers realize their products are not as well known as those in the credit and debit card markets, the report notes.
Part of the problem is how issuers and providers name and present their products to consumers outside the underbanked and unbanked segments, Moussa says.
“If you get a [health savings account] card from your employer, you’re calling it an HSA card and not a prepaid card,” he says.
Legislators present a different challenge because prepaid executives believe politicians are not well informed about the true costs of running prepaid programs, the report notes. And the Kardashian Kard did the industry no favors in dealing with concerns from consumer-advocacy groups and the media regarding prepaid card fees.
The charge for the card was $59.95 for six months or $99.95 for a year, and the price included the card’s $7.95 monthly fee and an initial load fee of $5. Though the card’s monthly fee structure was somewhat similar to other offerings, the initial fee caused sticker shock among many watching the industry.
“Any kind of negative press is going to hurt the industry,” Moussa says. “The industry needs to get positive messages out there” in terms of who is using the product in different situations. Hurricane Katrina in 2005 represented one such opportunity, he adds.
Government agencies specializing in disaster relief used prepaid cards to distribute benefits to consumers living in areas the storm affected. The American Red Cross said at the time card distribution helped with relief operations (
