Prepaid Cards: The Next Profit Center

Bill Mathis, MasterCard Worldwide
November 20, 2007 | COMMENTS

The rapidly evolving payments industry is providing consumers with faster, more convenient and more secure access to funds than ever, while use of cash and checks continues to decline. Driving movement away from traditional paper-based transactions is the increasing popularity of prepaid cards, which have become one of the fastest-growing segments of the payments industry.

Today, prepaid cards permeate nearly every payment segment and are growing in use among consumers, corporate customers, and government agencies alike. According to the Mercator Advisory Group's “Prepaid Market Forecasts 2006 to 2009” report released in November 2006, the prepaid industry will grow from $165 billion in 2005 to $236 billion by 2009.

For credit unions, prepaid offers an important member relationship tool as well as a significant new revenue stream. Offering prepaid programs will allow credit unions to capture additional business opportunities such as the disbursement of payroll to corporate employees, social service benefits by government agencies, or even prepaid healthcare cards by insurance companies. Today's consumers are more reliant on electronic payments for everyday purchases than ever before, making the opportunities for prepaid cards nearly limitless.

To capture the amazing future growth predicted by analyst firms such as Mercator, credit unions need to start instituting prepaid programs now.

Revenue, Reach, and Relationships

By instituting prepaid programs, credit unions can generate direct revenue from fees, interchange, float, and breakage. By offering reloadable cards, a credit union can also continue to capture revenue every time members reload and reuse a card.

Prepaid cards enable credit unions to establish relationships with a wider variety and larger number of consumers. Once they establish a relationship, institutions have the opportunity to cross-sell additional financial services products such as mortgages, insurance, or loans.

How to Get Started

Credit unions can start by evaluating existing member relationships to identify how a prepaid program can benefit them. The following are samples of prepaid offerings for a wide variety of programs:

• Consumer-to-consumer: gift, general purpose, and travel cards
• Business-to-business: meeting, relocation, project, supply chain, and travel per diem cards
• Business-to-employee: payroll, incentive, and health care cards
• Business-to-consumer: insurance claim, co-branded, and promotion cards
• Government-to-consumer: child support, tax refund, workers' comp, and transit voucher cards

Placing the right prepaid card in the hands of the right member can help attract new members, and turn existing relationships into profitable, long-term relationships. At MasterCard, we help our issuers introduce new prepaid programs by evaluating their business needs, recommending an appropriate solution, agreeing upon performance metrics, and providing support through the execution stage to ensure best practices are met.

Prepaid is an important component of any profitable credit union card portfolio. To fully leverage this opportunity, credit unions should start taking the necessary steps today to develop programs and build expertise in the prepaid market. As this segment continues to grow at a phenomenal rate, those who are prepared--and have developed prepaid solutions and programs-will be able to compete for more of their members' business.

Bill Mathis is executive vice president, U.S. business development, for MasterCard Worldwide. This story first appeared at www.creditunionmagazine.com and is reprinted with permission.