ORLANDO — Large banks face some significant challenges in reaching low- or moderate-income consumers with prepaid cards, according to payments expert Tim Sloane.
To make his point, Sloane, vice president of client services and director of Prepaid Advisory Services for Mercator Advisory Group, showed a map of Stockton, Calif. to attendees at Prepaid Day during the 24th annual Card Forum and Expo. SourceMedia, publisher of PaymentsSource, sponsors the conference.
Bank of America Corp. has only three locations in the Stockton area, compared with Green Dot Corp., which has 12 locations there for consumers to obtain or reload prepaid cards, Sloane said.
That kind of lopsided exposure begs the question of where financial institutions want to place themselves in the prepaid card product-issuing game, Sloane noted.
So where do financial institutions start when it comes to taking advantage of the growing opportunities in providing prepaid card products for customers?
It depends on the size of the financial institution and what types of relationships they want to build with their customers, panelists addressing the topic suggested.
Larger banks are most likely to “enter an environment in which they already have relationships established” in pursuing corporate-funded prepaid products, John Barbella, senior vice president for The Bancorp Inc., told attendees.
“Insurance company or health services prepaid cards would be corporate disbursement opportunities, and banks should pursue that segment,” Barbella said.
Meanwhile, smaller banks are likely to turn to a third-party issuing partner in order to offer certain customers prepaid cards as a “price-compelling option” versus checking accounts, Barbella added.
However, retail financial institutions would be best advised to concentrate on open-loop general purpose reloadable cards and emphasize them as another “deposit account,” Hyung Choi, Visa Inc. head of prepaid products U.S., contended.
“It depends on the financial institution as to how they would go about it, but the message would be presenting products that meet the customer needs to solve certain financial needs,” Choi said.
Mostly, financial institutions must determine if they want their prepaid cards to be in the front of the consumers’ wallets, as the debate over the importance of issuing prepaid cards boils down to “competing wallet space,” Jim Ackerson, senior vice president, sales and marketing of payment processor i2C Inc., contended.
Panelists also discussed the ramifications of a consumer backlash to prepaid card fees and the potential difficulty consumers face in trying to “comparison shop” for the card that offers the best value to them.
“Disclosure of fees is much better than it was in the past,” Barbella noted. “The cowboys out there charging exorbitant fees can’t do that any longer.”
Ultimately, the consumer will make a decision after weighing costs versus benefits, Choi suggested. “The consumer will weed out those cards they consider too high-priced or not delivering what was expected.”
Ackerson asserted the idea that in order to be profitable, a prepaid card must generate fees because it is not otherwise a significant revenue-generating product. “The life of the account is a key aspect of prepaid cards,” Ackerson added. “You want to build a relationship and get the customers to buy other products at the bank.”
Panelists agreed that one way to drive prepaid card growth is persuading more consumers to accept payroll as a direct deposit onto a prepaid card.
Ultimately, prepaid card products offer issuers numerous opportunities for innovation in product development and marketing, Sloane said.
“If you look at mobile payment and prepaid cards today, there are more opportunities than we know of,” Sloane said.
“It’s just a matter of time before we see them all evolve in the industry.”
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