This blog is based on our brand new report Prepaid and Gift Cards in the U.S., 5th Edition (published Sept. 2016), available at http://www.packagedfacts.com/Prepaid-Gift-Cards-10308053/.
It’s hard to grow a market while a huge regulatory cloud hangs over its participants, obscuring the view. That the prepaid card market continues to grow even while it continues to wait for Consumer Financial Protection Bureau final prepaid card rules is a testament to product innovation, favorable pricing and (for issuers) the lure of healthy interchange fees. And with banks having little financial incentive to actively market low-cost, no overdraft Model Safe Accounts, prepaid cards continue to own the space for lower-income consumers traditionally disenfranchised from traditional banking.
But the cards are also making inroads among younger consumers. Packaged Facts’ research suggests that Millennials are not leaving commercial banks in droves, and that they value branch banking. But these younger consumers are naturally less inclined to be banked in the first place. Just embarking on their financial services lives, many of them are likely not unbanked in the sense that they are disenfranchised from traditional financial services, but rather in the sense that they may not yet have (or believe they have) significant use for those products and services. Prepaid cards are an ideal vehicle to provide these Millennials with a low-cost, mobile- and tech-forward payment instrument for everyday use—a strategy not lost on market participants seeking to broaden their user base.
- In this light, it’s no surprise that during 2014-2016 prepaid card usage penetration among 18-24s has risen.
- And while some 15% of general-purpose reloadable prepaid card users are unbanked and 30% are underbanked, card users age 18-29 are more likely to fall into both categories.
But a wildcard to growth concerns the degree to which consumers trust prepaid cards as foundational financial services instruments. The impact of recent "usage outage" events concerning Green Dot cards and the RushCard should not be underestimated. The real damage comes from customers concluding that prepaid cards are simply not reliable and trustworthy enough to perform the very functions they are intended to perform. When these events result in card holders not being able to access the sole source of funds to pay for life's necessities (medication, gas to fill up the car), and not being able to obtain quick redress, the industry cannot expect cardholders to continue using the cards—or be surprised to face additional regulatory scrutiny.
-- By David Morris