Prepaid cardholders increasingly are being targeted for mobile-payment applications that allow money management and payment services similar to a traditional bank account.

In one of the latest illustrations of such a trend, Bank Freedom and Fidelity National Services Inc., or FIS, have agreed to a multiyear arrangement to allow Bank Freedom prepaid cardholders access to a smartphone payment application, the companies announced April 23.

The arrangement represents a natural extension of what Bank Freedom, a subsidiary of Newport Beach, Calif.-based PrepaYd Inc. and an independent sales organization of Bancorp Inc., has been attempting to offer, an industry analyst says.

“PrepaYd is a smaller wireless prepaid phone business looking to expand into prepaid money access,” Gil Luria, analyst with Los Angeles-based Wedbush Securities, tells PaymentsSource.

Because PrepaYd specializes in offering prepaid cell-phone accounts, the arrangement with FIS for payment processing of Bank Freedom prepaid MasterCards creates “a very interesting concept” in getting a consumer to use a prepaid card and a prepaid phone as a tool to manage or make financial transactions, Luria contends.

Plans for combining the PrepaYd wireless phone with the Bank Freedom prepaid card have been in the works since both companies were built two years ago, Bank Freedom and PrepaYd CEO Bruce Berman tells PaymentsSource.

“FIS developed the mobile application for us and will serve as our processor, and every phone we distribute will be preloaded with the Bank Freedom mobile application,” Berman says.

Major prepaid card companies, such as Green Dot Corp. and NetSpend Corp., have established their own specific niches, Berman notes. “Green Dot distributes through Wal-Mart, and NetSpend is strong in the checking-account area. But our niche is small wireless phone dealers,” Berman adds.

The PrepaYd “footprint in the industry” may not be as big as Green Dot’s, but combining prepaid phones and cards allows the company to establish a presence in an underserved market, Berman contends. PrepaYd customers tend to not have a bank account and have not established a credit history that is often needed to obtain a regular cell phone account, he adds.

Luria agrees with Berman about market presence, noting Green Dot’s purchase of Loopt Inc. served notice in the industry that connecting prepaid customers to a mobile-payment option would be the newest trend (see story). 

“It’s not really a high-end [income] or low-end phenomenon to give these phones payment capabilities,” Luria suggests. “We are going to see more development of these products.”

Berman hopes to do just that with PrepaYd and Bank Freedom, noting the companies have agreed verbally to work with small prepaid wireless and payments provider California-based Emida Corp. to distribute PrepaYd phones at its 15,000 retail locations.

Bank Freedom establishes the fees associated with the card or mobile payments, and PrepaYd sets up the phone plan fees, Berman noted.

A representative of Jacksonville, Fla.-based FIS was not available for comment to PaymentsSource.

Anthony Jabbour, executive vice president of FIS Financial Solutions Group, stated in a press release that FIS is prepared to provide “reliable and secure mobile financial services to enable PrepaYd to expand to an entirely new market.”

While analyst Brian Riley, senior research director and analyst with Needham, Mass.-based TowerGroup, agrees the arrangement provides a good service for prepaid cardholders, he does raise a red flag about this latest trend.

“This could spawn off more [federal] regulations of some sort because there will be a need for some tracking in there if mobile pay for prepaid cards continues to grow,” Riley tells PaymentsSource.

If regulators felt the need to get involved in prepaid mobile payments, it could change “what being unbanked is all about,” Riley suggests.

However, as prepaid cards loaded into cell phones become more mainstream, the trend does represent a first step in a natural progression for underbanked or unbanked consumers, Riley adds.

“After prepaid cards, the consumer can generally go into debit cards and then credit cards,” he says.

The new mobile pay application will operate on Apple Inc. iPhones, Google Inc. Android devices and Research in Motion Ltd. Blackberry devices.

Berman says the mobile application acts as a method to access and manage the prepaid account online, just as most consumers do with mobile banking applications. In addition, payments can be confirmed through text messaging, he says.

“In the future, the application will enable tap-and-go payments at point-of-sale terminals,” Berman adds.


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