The Power Of The Prepaid

Takeaways from the NBPCA’s conference.

 
 

Last week, the Network Branded Prepaid Card Association hosted its Power of Prepaid conference, a three-day event in Washington DC centered upon discussions of legislation, regulation, compliance, and innovation in the prepaid card space.

A search through Callahan & Associates’ Peer-to-Peer analytics shows that, at fourth quarter 2015, 862 credit unions offered some form of prepaid debit card, or about 14% of the entire industry. Even so, the conference provided food for thought for credit union’s in or thinking about getting into this line of business.

In 2012, the CFPB issued an Advance Notice of Proposed Rulemaking for general purpose reloadable prepaid cards (GPR cards). Four years later, the final rule is expected to arrive in June.  

“Consumers are increasingly relying on prepaid products to make purchases and access funds, but they are not guaranteed the same protections or disclosures as traditional bank accounts,” said CFPB Director Richard Cordray in 2014. “Our proposal would close the loopholes in this market and ensure prepaid consumers are protected whether they are swiping a card, scanning their smartphone, or sending a payment.”

The November 2014 CFPB proposal would include new protections for prepaid customers, such as error resolution rights and fraud and lost-card protection. Card providers are also subjected to "Know-Before-You-Owe" disclosure requirements, including the posting of account agreements on websites. In addition, credit products related to a prepaid account would be subject to rules governing credit cards under Regulation Z, which includes the ability-to-repay requirements. Consumers would have to consent to an overdraft service first and be given at least 21 days to repay debt.

The reaction among those in attendance was mixed. In one of the first panels, Jeremy Kuiper, managing director of The Bancorp, a private label banking and technology solution provider, expressed general concern over the far-reaching implications of this rule, as well as the sheer number “of moving pieces with it,” he says.

The moderator of the same panel, Marilyn Bochicchio, chief executive and founder of Hidden Brain, called the rule “prescriptive.” But others, like Brad Hanson, president of Meta Payment Systems, advocate a wait-and-see approach until the language for the final rule is released.

“Our industry is resilient,” he says. “We’re able to deal with challenges when they come up.”

In addition to conversations centered on the CFPB’s prepaid rule as well as its leadership authority, there was a panel discussion on the motivations and demographics of prepaid card users.

A Pew report presented on the panel found that GPR prepaid card usage has more than doubled from 2012 to 2014, with now roughly 23 million adults using GPR prepaid cards monthly. Of those who use them monthly, 27% do not have a checking account. Unbanked prepaid cardholders are:

  • More likely to be renters
  • Less likely to be married
  • More likely to be unemployed
  • More likely to earn less than $50,000 annually
  • More likely to be African-American
  • More likely to be between 30 to 49 years old
  • Less likely to have a college or postgraduate degree
  • More likely to be female

A far as age and income are concerned:

  Unbanked Banked All Prepaid Cardholders U.S. Population*
Ages 18-29 30% 28% 29% 22%
Ages 30-49 54% 38% 42% 35%
Ages 50-64 15% 25% 22% 25%
Ages 65+ 1% 9% 7% 18%

 

  Unbanked Banked All Prepaid Cardholders U.S. Population*
Income less tahn $15,000 32% 12% 18% 13%
$15,000 to $24,999 18% 17% 17% 11%
$25,000 to $49,999 34% 28% 29% 24%
$50,000 to $74,999 13% 16% 15% 18%
$75,000 to $99,999 3% 8% 7% 12%
$100,000+ 0% 19% 14% 22%

*U.S. population data come from 2011-2013 American Community Survey three-year estimates.

What’s perhaps surprising about this data are the percentages of banked individuals who use GPR prepaid cards, as well as the percentage of users with income greater than $100,000. Historically, this is a product that has been considered an alternative for those without a checking account — though the data show it is still that as well. Increasingly, however, GPR prepaid card users are treating these cards less like an alternative and more like one piece of a larger financial relationship.

Consumers are increasingly turning to GPR prepaid cards for money management, says Susan Weinstock, director of the Consumer Banking Project for The Pew Charitable Trusts. It’s become a tool for budgeting and saving, and some consumers are even using them to make purchases online.

“Prepaid cards feel safer for people,” said fellow panel member Susan Herbst-Murphy, consumer credit and payments industry expert from the Payment Cards Center of the Federal Reserve Bank of Philadelphia.

Additional highlights from the conference included a panel on GPR prepaid card loyalty programs. One speaker, Ben Jackson, director of prepaid advisory service at the Mercator Advisory Group, presented this information on both the median active card life and purchase volume for different GPR cards:

  Median Active Card Life (In Days) Median Total Purchase Volume
Web GPR Prepaid Card 184 $471.43
Retail GPR Prepaid Card 63 $118.90
Financial Institution GPR Prepaid Card 189 $272.47
Payroll GPR Prepaid Card 132 $492.32

From the information presented at the conference, it’s clear that GPR prepaid cards have carved out and grown a consumer-base. And there’s surely room for the credit unions that offer or have considered offering the product to create greater value and convenience for their members.

 
 

May 4, 2016


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