PayPal Inc. is spreading its wings even further into the prepaid card market at a time when more underbanked consumers are viewing such products as being favorable to using cash.

NetSpend Holdings Inc. will distribute and process payments for a new PayPal Prepaid MasterCard available to interested consumers, the Austin, Texas-based provider of general-purpose reloadable prepaid debit cards announced Feb. 14. A PayPal account is optional, though having one provides access to various additional benefits.

The number of unbanked American consumers using prepaid cards continues to grow, making PayPal’s timing for a prepaid card ideal, industry analyst Todd Ablowitz, president of Centennial, Colo.-based Double Diamond Group, LLC, tells PaymentsSource.

“We’ve now hit the power curve for prepaid card use,” Ablowitz says. “The debit card was the vehicle in the 1990s and 2000s, but the prepaid card is the vehicle moving forward.”

PayPal, a unit of San Jose, Calif.-based eBay Inc., bolsters its chances for success by adding its trusted online payment reputation with that of MasterCard Worldwide and NetSpend, Ablowitz suggests. “NetSpend is a leading company in prepaid, and they are partnering on a product that enters a market that has hit its time,” he adds.

The PayPal Prepaid MasterCard must be linked to a PayPal account to enable cardholders to have full access to the card’s payment options and services, such as online payback rewards, an optional savings account, immediate account alerts and online budgeting tools, Dan Henry, NetSpend CEO, tells PaymentsSource.

NetSpend will encourage those interested in the card who are not PayPal accountholders to open a PayPal account to get the full benefit of the card, Henry adds.

Cardholders who do not have a PayPal account will be able to make purchases and withdraw money from participating ATMs, according to the PayPal website.

NetSpend will market the card to existing PayPal users through the PayPal website but use its direct-mail database to provide information to general consumers, Henry says.

In addition, NetSpend continues to negotiate with retail merchants to possibly sell the PayPal Prepaid MasterCard in stores, much in the same manner NetSpend sells Visa prepaid cards at 5,000 7-Eleven locations throughout the country (see story).

As the card processor, NetSpend is handling all transaction authorizations, data security and standards compliance, Henry notes. The Bancorp Bank, a subsidiary of The Bancorp Inc., is issuing the cards.

PayPal charges consumers a $4.95 monthly fee for the card. They also pay $1.95 per ATM withdrawal. PIN-debit transactions are routed over the Cirrus and Pulse electronic funds transfer networks.

Consumers may load funds into the card account through direct deposit or at more than 100,000 NetSpend reload locations throughout the U.S. Reload fees vary by location, ranging from free to $3.95. Loading funds from a PayPal account is free.

Besides completing online transactions, cardholders may make purchases at any retail locations accepting MasterCard debit cards, Henry adds.

“This is a tremendous partnership and opportunity to fill a void in this country for those unbanked or underbanked and still using cash,” Henry says of the partnership.

Offering a general-purpose reloadable card with trusted brands issuing the product resonates well with the millions of consumers still using cash, Henry contends. “This card may be a way to get those consumers to start using electronic payments,” he says.

Those who apply for the prepaid card would activate the account with a PIN and use it in the same manner as any other PIN-debit card. The magnetic stripe card does not have a microchip for EMV or Near Field Communication technology, Henry says.

Asked why it has taken so long for a company to create a trusted prepaid card in a market with as many as 60 million consumers unhappy with traditional bank accounts, Henry says it comes down to trust.

“You have to establish tremendous trust and awareness, and in partnering with the PayPal and MasterCard trusted brands, it really makes it possible to make a substantial statement in this market,” he suggests.

PayPal representatives were unavailable for comment.

PayPal and MasterCard launched another initiative last week in the United Kingdom, offering a PayPal Access Prepaid MasterCard that provides merchants access to funds in their PayPal accounts without going through a bank to make a funds transfer (see story).

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