PSCU Financial Services, the nation’s largest Credit Union Services Organization, recently published two white papers outlining trends in the prepaid debit card industry and the opportunities that exist for credit unions in that market segment. The studies make an overwhelming case for credit unions to consider the potential of adding or enhancing prepaid debit cards in their product mix.
The two papers contain much of the same background information including dynamic industry growth statistics collected from several sources, many of which can be found on GetDebit’s Must Read Research Report section. Some of the most intriguing data comes from a 2009 Bretton Woods study that projects a 245% growth in prepaid card transactions for the 10 year period from 2002-2012.
Most prepaid product offered in the past by credit unions has fallen in the closed loop category. Closed loop cards can only be used inside the issuing entity’s network, such as a gift card that can only be redeemed at a participating merchant in the network. Conversely, open loop debit cards can be used almost anywhere that the card’s processing system is accepted, Visa or MasterCard for example. Both reports offer support from the Mercator Advisory Group, stating that while the closed loop segment has captured the lion’s share of the total market (over $290 billion in 2009), open loop dollar loads will surpass closed loop loads in the year 2012. Mercator estimates the 2012 combined total dollar load for both segments will be over $525 billion.
The PSCU A Case for Prepaid and Achieving Profitability with Prepaid Cards white papers give definitive marketing and “best practice” guidance for those credit unions considering the addition or enhancement of prepaid debit cards to their product stable. Some of the more salient potential credit union benefits cited in the PSCU Financial Services research include:
- An additional revenue stream – 80% earned from fees and 10% from card swipes
- Enhanced customer relationships through recurring member contact when reloading cards
- Access to new markets, especially the under-served that have been unable to open traditional accounts
- Target marketing to attract new members and satisfy existing ones
- Better service to existing members with online ordering and branch distribution of both gift and reloadable cards
- Reloadable cards not included in the new Credit Card Act that limit card fees
Prepaid cards continue to evolve as a financial tool in many areas and if implemented correctly, might provide financial service firms a gateway to the enormous market of underbanked/under-served consumers, as well as enhance the existing relationships of established customers.
Denise Steven, Vice President, New Product Development at PSCU states in the “Case for Prepaid Cards” paper:
“Prepaid cards offer a wide range of potential benefits to credit unions right now, and those opportunities are likely to increase in the coming years. Any credit union that has not yet launched a prepaid card program really should begin looking into it. There is just too much at stake to risk taking no action.”