The prepaid card market is growing prodigiously but has become so competitive and complex that many of the smaller players will fade away or become targets for acquisition, according to a new Aite Group report.

Prepaid cards will expand by 20% annually from 2010 to 2016, as the number of cards growS from 9.7 million in 2010 to 29.2 million in 2016, researchers predict in the report .

“Those numbers may actually be conservative, because there really is nothing slowing it down,” says report author Madeline K. Aufseeser, senior analyst with Boston-based Aite.

The decline in free checking for low-balance consumers, combined with bigger brands entering the prepaid business, has fueled stored-value cards’ growth, the report says.

In addition, more card marketers provide consumer-friendly pricing and more employers use prepaid cards to pay employees.

The Aite data does not indicate that prepaid card fees, a sore point in the past with some consumers, would hold buyers back from obtaining prepaid cards, Aufseeser says.

“Some issuers are great at disclosing the fees, while others make it harder to get your hands around it and you have to read the 6-point type to get all of the information you need,” she says.

If the fee transparency issue remains significant or causes conflict, the Consumer Financial Protection Bureau would have to step in to establish guidelines, Aufseeser contends.

Green Dot, NetSpend and H&R Block dominate the prepaid debit market, according to the report.

Meanwhile, First Data holds sway in the payroll card market, the report says.

That power structure appears likely to remain in place for some time unless companies merge or are acquired, the report says.

Being bought up could prove attractive to some of the market’s smaller companies, the researchers maintain.

“Some small players will make it work and will survive and make money, but others will have to take advantage of what they have built up and present it to potential buyers,” Aufseeser says.

The prepaid market has become more complicated as a result of regulation and because of compliance issues, making it more difficult for a small company, entrepreneur or celebrity to create a prepaid card that would have staying power, Aufseeser says.

“You will still see well-known names and co-branded cards, but I think those celebrities will be going to an existing prepaid card company to develop a card with that person’s name on it, rather than starting from scratch,” she maintains.

Celebrities have indeed had a rough time turning their notoriety into cash by way of the prepaid card market.

The Kardashian sisters, for example, saw their 15 minutes of prepaid fame vanish as soon as their card was launched; Magic Johnson is promoting his second prepaid card, after a card he helped market in 2004 proved short-lived.

Celebrities aside, prepaid card marketers will benefit from technological advances, the report says. In one example, the popularity of remote deposit capture for other banking products could transfer to prepaid products when banks ensure a deposit is credited to an account as quickly as possible.

In another technical advance, using an ATM as a distribution channel for prepaid cards opens the doors as a new funding source for issuers.

Besides projecting volume, the report outlines recommendations to further strengthen the prepaid market.

In one example, the researchers maintan in the report that Discover Financial Services should buy NetSpend “to capitalize on the processing platform and the program management expertise” of the companies. As such, NetSpend would become part of a three-party network and be exempt from Durbin interchange caps.

Total System Services Inc. should buy Green Dot and either InComm or Blackhawk Network to add a bank, a portfolio, program management skills and distribution capabilities, the report suggests.

Prepaid companies are already aggressively pursuing partnerships. NetSpend has recently announced deals such as one with Intuit Inc. to handle tax refunds for TurboTax users on prepaid cards, and another deal with SCVNGR’s LevelUp to promote its mobile payment system among prepaid card users.

Aufseeser compiled the report from information collected this year between June and October from more than 125 interviews with industry leaders representing more than 50 companies that either offer or support prepaid debit and payroll programs. The report did not include data related to closed-loop or single-load prepaid products, nor did it include payroll card products such as health savings accounts or flexible spending plans.


Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry