ORLANDO–With the growing availability of prepaid card products, Visa Inc. wants to make sure its issuers are ready to participate with cards consumers consider valuable and secure for managing funds.
During last week’s Card Forum and Expo in Orlando, PaymentsSource sat down with Hyung Choi, Visa head of U.S. prepaid products, to discuss how issuers will market prepaid cards and how value-added services could make the cards more appealing to consumers in lieu of traditional payment cards or bank accounts.
Choi joined Visa in December 2007 as head of general purpose prepaid products after serving as vice president and payment network manager in the Card Services division of Wells Fargo & Co.
PaymentsSource: Wouldn’t banks issuing prepaid cards help to prevent customers just signing up for services from turning to Green Dot or another competitor?
Choi: It’s part of it because you would have to look at that segment of customer. What are their financial needs? If that customer does not need checks and does not want to initiate online payments with a credit card, then the prepaid functions and features might work for that customer.
PaymentsSource: It ultimately does boil down to choice, doesn’t it?
Choi: Yes. Thus far, you and I have been able to choose from flavors or variances of checking accounts, and that’s all that we’ve been able to choose from. Now a prepaid card represents another deposit account that is priced differently and has different features and functions.
You can have access to your money in different ways. If it meets your financial needs in terms of how you want to manage your money, with money coming in and money going out, [the issuer’s] going to make that available to you. That’s the way that some of the banks that have introduced reloadable prepaid cards have been thinking about this.
PaymentsSource: To look at it as a deposit account, would you position it differently to the customer from a standard checking account?
Choi: You have to have access to an underlying account, whether it is a checking account or what I call the new remotable prepaid as another deposit account. With a prepaid card, you would have access to those accounts to buy things anywhere Visa (or any other major card brand) is accepted, and you can get cash back at the point of sale and cash at the ATM. You can also shop online.
PaymentsSource: You could view it as having a prepaid account in addition to a regular checking account, but in this day and age, many people can’t afford both. Do you agree?
Choi: Again, it’s the banks and other providers such as Walmart and Green Dot and others who would be telling customers if they want financial control, this is a product that gives the ability to make direct deposit or to add funds easily, or make purchases online or in face-to-face retail environment with no overdraft fees. If it’s about you managing your money, here’s a product for you.
PaymentsSource: Is the consumer capable of making an educated decision and assessment of the different cards out there? The consumer groups claim that they are not.
Choi: It’s amazing how savvy the consumer is. Even before banks started to promote reloadable prepaid cards, the consumer had been asking why he should pay perhaps $2 to the ATM owner to get access to cash when he can get cash back when buying groceries (with a prepaid card). Consumers are very savvy.
PaymentsSource: Consumers with prepaid cards would have to be savvy about managing money, considering most would likely be in the mid- to low-income range?
Choi: These are consumers who have a finite pool of money every month. So every dollar that comes in, they know it to the penny, and they manage every transaction and understand transaction economics. They ask what is the best choice for them, relative to not only a pure economic decision, but also based on conveniences as well. They are very deliberate and very intentional about how they transact with respect to the product.
PaymentsSource: So if the card didn’t deliver what they wanted and needed, they would go somewhere else?
Choi: Correct.
PaymentsSource: What is the average life of a prepaid card?
Choi: It depends on who the consumer is. But if you just look at public companies issuing prepaid cards, the average life of a prepaid card is around eight to nine months. But again, it’s in the very early days of prepaid cards. It’s based on the set of channels through which that product is available today. So the question is, how does that dynamic start to change as banks and other players come onboard with prepaid card offers and the market continues to mature?
PaymentsSource: So the answer to that is to make sure you are offering them something that will keep that account alive for a long time?
Choi: Or just embracing it and teaching them the value of how this account can work.
PaymentsSource: The banks don’t profit much unless they get the fees from the cards being used for a longer period of time. It’s just not a revenue-generator for the banks, correct?
Choi: When banks talk about lack of revenues with prepaid cards, it could just be one issuer talking about a very narrow slice of what they actually see. It’s not always a macro or market view of prepaid cards.
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