Why parents favor prepaid and P-to-P

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Consumers who use person-to-person payment apps are twice as likely to hold a prepaid card, but the two payment methods are not always interchangeable.

Parents are most likely to use a prepaid card or P-to-P service to pay babysitters, landscapers and dog-walkers, or to leave money for their kids or babysitter to use, according to an Auriemma Consulting Group report on prepaid and P-to-P users.

"I was personally struck by the utility that both products provide parents," said Jaclyn Holmes, editor of the report and senior manager of payments insights for Auriemma. "In the past, parents would typically turn to cash, checks or open a joint checking account if they needed to provide their kids with money."

Of respondents who were categorized as parents, 50% said they were prepaid cardholders and 56% said they used a P-to-P app. In that group, 62% said they had used both payment methods. The results are based on web interviews with 800 U.S. debit card users in March.

Thirty-six percent of cardholders have used a reloadable prepaid card, with 16% saying they are currently using one. And they tend to use the cards on a regular basis, as 70% said they use their reloadable prepaid card at least once a week.

But other than the appeal both prepaid and P-to-P can have for certain cardholder segments, the two solutions are not closely linked in their use.

On the P-to-P payments side, most users at 60% linked a debit card to the service, while 40% preferred linking a credit card. Those numbers are consistent with respondents' overall card preferences, suggesting that many P-to-P users are linking their top of wallet card for these payment services, the report said.

Overall, P-to-P users are younger, more affluent, educated and urban than debit and prepaid cardholders, the report noted.

P-to-P payments tend to extend far beyond a user's inner circle, the report suggests, as many use it to pay or receive money from people in distant locations and from those they do not know personally.

In that regard, those types of transactions indicate an increasing comfort with P-to-P payments and "further distinguishes the method as a viable alternative to paying with cash or by check," the report said.

On the prepaid side, forty-four percent said they felt using a prepaid card and not having to link it to a bank account was a key benefit, while 35% pointed to the prevention of overdrafts as the top benefit. Another 33% felt prepaid cards were the most secure payment method, while the same number consider the cards a key budgeting tool.

While the prepaid card or P-to-P users in the research are a subset of debit cardholders, their behaviors don't stray far from the typical debit cardholder population, Holmes said. "They tend to use these products as tools to enhance their payment experience and remove points of friction," she added.

Satisfaction amongst prepaid card users was telling, with 82% saying they were overall satisfied with the product they were using. Eighty-five percent said they were happy with the number of merchants accepting the cards and 83% were satisfied with the card features.

Detractors provided various reasons for why they would not purchase a prepaid card. Thirty-six percent said the main reason was that they simply didn't need one, while 30% said they were happy with debit or credit cards. Seven percent preferred not to pay a fee to obtain a card, and 10% felt there were too many fees attached to prepaid cards.

The report indicates that both prepaid and P-to-P products continue to have a lot of potential for growth, Holmes said.

Many in the payments industry felt prepaid would be an alternative to traditional banking and a solution for the unbanked, Holmes said. "But we've found that consumers use their prepaid card for a variety of purposes and the product appeals to a wide demographic of consumers."

P-to-P development has garnered much attention, and consumer adoption has been steadily progressing despite "a considerable amount of noise in the space" that could confuse consumers, Holmes said. "While it's unclear when we'll see greater consolidation within the market, I don't foresee P-to-P adoption slowing anytime soon."

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