MasterCard International (NYSE: MA) presented today at the Goldman Sachs (NYSE: GS) US Financial Services Conference. In the MasterCard presentation, MasterCard made it clear: Prepaid debit is a critical area of focus of MasterCard in the U.S., particularly in the short term.
While credit and other products were a big part of the presentation, prepaid debit cards and debit transactions were discussed at length.
The presenter, Tim Murphy, MasterCard Group Executive, Core Products, made it clear that prepaid debit is a very significant part of MasterCard’s short term strategy.
Here are a few notes from the conference.
Debit card transactions (and their share of overall spend) are certainly increasing. However, debit card transactions are not necessarily displacing credit card transactions. Instead, debit cards are eating into the transaction volume of cash and checks. For example, in the supermarket or grocery store category, debit card usage increased 18% (over the years 2007-2009), while credit card volume stayed flat in that category.
Cash’s share of transactions in grocery stores dropped by 14%, and checks dropped by 5% (the entire drop taken up by debit card usage). Similar drops were experienced in other merchant categories, and debit exhibited strong growth along all merchant types.
MasterCard’s product line targets three general classes of users: emerging users, core users and affluent users.
Emerging users are at the beginning of the credit cycle, and include the underbanked, the unbanked, students, and other young adults.
The key product line for emerging users are prepaid debit cards. As MasterCard puts it, “Prepaid starts the relationship”. MasterCard’s objective is to make prepaid cards a relationship instead of just a transactional account.
Traditionally, financial institutions saw prepaid products as transactional accounts (with gift cards being a prime example – the cards were simply used to facilitate specific transactions).
Today, MasterCard believes prepaid is entering the mainstream as a relationship account for U.S. consumers.
MasterCard is investing in reload networks, payroll programs, and other products where the prepaid cards have attributes of a functioning deposit account (where money goes in as well as out of the account), giving users the added benefit of having a relationship with a trusted financial partner.
MasterCard discussed opportunities in prepaid, particularly with the U.S. Hispanic market. Hispanics are the fastest growing population in the U.S., and also have the fastest growing spending power.
That’s why MasterCard and Univision recently partnered to introduce a prepaid card focusing on the Hispanic population.
As consumers move along the path to credit, MasterCard is providing financial partners with information to help them offer credit to those consumers more responsibly (based on their prepaid debit card spending patterns). MasterCard is also working to develop entry level credit programs to help bridge the gap from no credit to credit.
MasterCard noted that “the biggest opportunity for near term revenue growth for us and our issuers is clearly in the prepaid space. … Prepaid is very significant. Prepaid in the U.S. is the largest in the World.” and noted that “U.S. prepaid is a critical area of focus for us [MasterCard].”
The conference replay (and presentation materials) are available here.