The prepaid industry is maturing, and leaders are providers that have maintained product flexibility and innovation and married it with the processes, technology, compliance and user experience that is needed in todays dynamic marketplace.
The level of bank participation in the market does not affect this growth. Prepaid is now mainstream and has been adopted by a large swath of the population because it is a cost-effective, flexible and easy-to-use payments tool for consumers, governments and businesses. According to the Federal Reserve, prepaid cards are the fastest growing form of non-cash payments. Gift card spending has grown from $40 billion in 2003 to more than $100 billion in 2014, according to the Mercator Advisory Group.
Businesses that specialize in prepaid are better equipped to deal with the unique nature of this burgeoning industry than other industries, especially in confronting the three largest cosmic shifts we are seeing in the space today:
Rapid and consistent product innovation. Prepaid cards provide consumers, businesses and governments with the efficiency, security and flexibility of payments through a non-credit option. Businesses improve efficiencies, and experience cost savings with this fast growing form of payment. Prepaid is such a flexible tool that it has manifested itself in many ways, such as gift cards, e-gift cards, general spending cards, payroll deposit cards, employee incentives and government benefits delivery. This type of consistent innovation has traditionally been better left to companies dedicated to the industry, not small departments of large financial institutions.
The impact of regulation. The prepaid industry is no stranger to regulatory change. The CARD Act of 2009 resulted in certain product changes and the industry is now facing additional changes with new rules for certain prepaid products from the Consumer Financial Protection Bureau.
The prepaid industry has invested heavily in liaising with regulators and legislators in order to ensure strong consumer protections and consumer access to these products. Where businesses that arent fully committed to prepaid may see challenges with regulatory oversight, companies focused on prepaid see opportunities and are committed to doing the hard work to make the products better for everyone.
The changing tides of mobile, digital and virtual payments. There is a sea of change occurring in the payments space with the mass adoption of Apple Pay, the EMV shift in liabilities, mobile payments, virtual currencies, the list goes on and on. All of these technological innovations, such as migration to mobile wallets and e-gifts, are important to prepaid and will define what products look like five and 10 years from now.
Prepaid-oriented companies are doing the best job of weeding out the substance from the hype and finding ways to nimbly migrate these new offerings to benefit consumers. Again, this is not a task well suited for a too-big-to-fail company that counts prepaid as a rounding error on its balance sheet.
The success of the prepaid industry is well-established. According to a recent survey by GfK Research, 60% of the US population uses prepaid across a full range of ages and income levels and consumer satisfaction is a steady 70%, with 69% believing that prepaid is an equal or greater value to checking accounts. In addition, a report from the Federal Reserve Bank of Philadelphia found GPR card usage skews heavily to young consumers, a growing market segment. Additionally, The National Retail Federation reports that prepaid gift cards have topped the list of most requested gifts for the last eight years.
Prepaid is now a household name. There is an exciting future ahead for the industry, which will be led by the strongest players who can be nimble and remain dedicated to improving the prepaid experience. I am particularly excited about where the prepaid industry is headed in 2015 and beyond.
Talbott Roche is president of Blackhawk Network.
