Credit unions that efficiently manage reloadable prepaid debit cards have the potential to make it a profitable service that also can attract more members, contends a report from PSCU Financial Services.
In the white paper “Achieving Profitability with Prepaid Cards,” the provider of financial services to credit unions advises such organizations to add reloadable prepaid cards to their product offerings to create new revenue, especially from financially underserved consumers (
Indeed, Mercator Advisory Report predicts load volume into open-loop card accounts to hit $292 billion in 2012, at which point it would eclipse the total value loaded into closed-loop card accounts (
Though reloadable prepaid debit unlikely will become a primary revenue generator, the cards “can be a reliable profit center for credit unions that take the category seriously and approach it properly, especially from the perspective of [profit and loss] management,” Denise Stevens, PSCU vice president of new product development, warns in the report.
Reloadable network-branded prepaid cards have additional profit opportunities compared with nonreloadable open-loop gift cards, which credit unions traditionally sell, the report notes. For example, monthly maintenance and reload fees can help bring a profit to institutions.
Credit unions that decide to issue cards should set fees that “strike a balance between charging enough to ensure a profitable return while making sure fees are not so prohibitive they discourage continued use,” Stevens writes.
The card’s fee structure “should be designed to maximize reload volume and lifecycle, since the longer a card is used the more profitable it becomes for the issuer,” she adds.
The report cites a 2009 study by the National Community Investment Fund that found community financial institutions such as banks and credit unions can use prepaid cards to earn new business, meet client and member needs, and bring the financially underserved into the financial mainstream. The organization found that unbanked prepaid cards users eventually become bank and credit union members, but those institutions must develop long-term strategies to gain them as customers.
Credit unions that choose to issue or offer reloadable prepaid debit cards should view the service as a legitimate business and profit center and develop a comprehensive marketing plan, the report says.
“The success of your reloadable prepaid card program depends heavily on the marketing effort you put behind it,” Antonio Hill, PSCU vice president of marketing, writes in the report. “Buy-in from all credit-union employees–from tellers to the executive team–is critical. Because reloadable prepaid is still a relatively young product, you must educate your members on its benefits, strategically placing your message in-branch, on your website and in your advertising–and be sure to include social media.”
General-purpose reloadable cards sell best when positioned as an alternative to debit or credit cards for potential credit union members not qualifying for traditional payment cards or those struggling with insufficient-funds fees, the report suggests.
Nonreloadable gift cards should not get lost in the mix because they still represent a good fit for the holidays and special-event marketing, the report says.
PSCU advises credit unions to begin marketing the cards in October because more than half of prepaid gift card volume is generated in the final two months of the year.
What do you think about this? Send us your feedback.
