2009 was a big year for prepaid debit cards, with a number of developments that will bring prepaid debit to a much larger market. Here is our list of the top 5 developments in prepaid debit in 2009.
2009 was a year of big changes for the prepaid debit card industry. Some analysts now predict that the total prepaid debit market will exceed $425 billion in 2011 (a number that exceeds analyst predictions from last year). The market is clearly growing quickly. We picked our top 5 developments to include what we think are the top developments that will allow the prepaid debit industry to grow. Here they are:
#1: Lower Fees For Prepaid Debit
The top development of 2009 was the trend to reduce fees. The trend was triggered by a February 2009 announcement by Walmart Stores, Inc. (NYSE:WMT) in which they reduced the monthly fees on their prepaid debit cards. Walmart issues (through GE Money Bank) the Walmart MoneyCard. In February 2009, Walmart announced “Operation Main Street: Money Management,” a program which included a $3 reduction in price on the Walmart MoneyCard.
This announcement triggered a wave of reductions by other prepaid issuers and ISOs, including reductions by GreenDot, nFinanse, and others. As a result, by the end of 2009, the average network branded prepaid debit card has a much lower fee than the end of 2008. Lower fees will lead to greater adoption of prepaid cards. In fact, many prepaid debit cards (including the Walmart MoneyCard) have lower fees than typical starter checking accounts offered by most banks.
#2: More Reload Options
For prepaid debit cards to become more widely accepted, cardholders will need a wide variety of reload options. At the start of 2009 there were plenty of options available (from direct deposit, to cash loads at reload service provider locations such as Western Union and MoneyGram, etc). Throughout the year, a number of new ways to make it easier to load cards with value were introduced.
For example, during the year, NetSpend announced several reload partnerships with companies like Incom, MoneyGram, Vesta, and a number of distribution agreements with companies like Check City, ACE Cash Express, Winn-Dixie, etc. The result? It’s easier to obtain NetSpend cards as well as to reload them. Other prepaid issuers and ISOs announced similar deals.
We expect to see even more innovation in the reload area in 2010, as reload options and convenience are critical to the continued growth of prepaid debit.
#3: Legislation Affecting the Banking Industry
2009 was a banner year for regulations affecting the financial services industry. Some of the regulations may give the prepaid industry a boost. For example, one of the hottest banking topics in 2009 was the overdraft practices of banks. In November, 2009, the Federal Reserve Board published final overdraft rules that prohibit financial institutions from charging consumers fees for paying overdrafts on automated teller machine (ATM) and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.
The loss of this fee income will be significant to banks, and we expect that banks will seek to recoup some of the lost overdraft fees with higher monthly fees for “starter” or “second chance” banking accounts (the type of accounts that are traditionally marketed to underbanked or unbanked consumers – the same consumers who frequently choose prepaid debit card accounts). Higher fees for these bank accounts will likely make prepaid cards even more attractive.
Further, in attempts to reduce losses resulting from overdrafts, we expect that banks will tighten their new account opening rules (e.g., with greater reliance on ChexSystems and other banking history reports). These tighter rules will result in more account closures and turn downs, increasing the market for prepaid debit issuers.
Another regulatory development (although late in 2008, we’ll still count it as happening in 2009) was the confirmation that certain stored value accounts (including many prepaid debit card accounts) qualified for FDIC insurance. The FDIC issued a new version of General Counsel Opinion No. 8 confirming that Stored value deposits are insured by the FDIC (this announcement actually came in 2008, but it was late in ’08, so we’ll count it as a 2009 development).
We see both of these regulatory developments as promoting further growth of the prepaid market.
#4: Here Come the Prepaid Debit iPhone Apps
Fourth on our list of the top prepaid developments of 2009 is the introduction of the first prepaid debit card iPhone applications. Our favorite iPhone app of the year is the Starbucks Card Mobile application, which lets you check your Starbucks prepaid card balance, register your card, enjoy rewards, reload your card and even pay for drinks in selected stores (by scanning a bar code representation of your card number). Other iPhone apps released this year including apps to manage your gift card balances, and an app from Obopay to send and receive money.
We expect that 2010 will see many more of these iPhone (and other mobile device) apps. Who is going to be the first to launch a network-branded prepaid card iPhone app?
#5: More Features = Better Bank Replacement
Our fifth (and final) prepaid development of 2009 is the continued addition of features to prepaid debit card accounts. As these products add features, the need for a “traditional” bank account diminishes. In 2009, we saw features like:
- lines of credit added to the NetSpend and AccountNow cards.
- The launch of a lending product for prepaid cards (by the First Bank of Delaware).
- Savings accounts tied to prepaid debit cards.
- The addition of “virtual” cards linked to prepaid accounts to make online shopping safer and more convenient.
These are just a few of the features and product enhancements added to prepaid debit cards in 2009 (there were dozens of others). We expect continued innovation and advances in 2010.
All in all, we’d say 2009 was a great year for prepaid cards.