Expect Prepaid to Grow, but With Fewer Cards, Mercator Says

EXCLUSIVE- Is the prepaid card market saturated? Not quite, based on insights Sue Brown, director of prepaid debit advisory service at Mercator Advisory Group shared with Bank Innovation.

“In 2018, we will likely see fewer cards, but an increase in dollar loads,” Brown told Bank Innovation.

According to a recent Mercator report authored by Brown, released this week this week, closed-loop prepaid loads in the U.S. are predicted to grow at a 2% compound annual growth rate, reaching $346 billion by 2020. And, according to another Mercator report on open-loop cards, that number will grow 5% through 2020 to $352.6 billion. (Both reports are behind a paywall).

Close-loop cards are prepaid cards that can be used at designated locations, whereas open-loop cards such as prepaid Visa or Mastercards can be used anywhere.

The reason there will be fewer cards is due to a number of factors, such as the consolidation of players, and an improving economy (which means reductions in unemployment cards, food assistance cards), and regulations.

But the appeal of prepaid cards will remain strong. As is well known, prepaid cards are popular among a diverse group of people, especially the credit invisible (plug in millennials here).

Another appeal, according to Brown, is the features and rewards they offer.

“Strangely, prepaid cards have long had a bunch of the features that fintechs are now offering customers as something new and cool,” Brown said.

For example, Brown said, there are prepaid cards that have long had funds remittance transfer options and international transfer features. There are a lot of prepaid card with geo-coded capabilities that allow users to instantly make use of rewards and offers.

“The whole person to person thing with Zelle and the ability to transfer money on the same network: well, Green Dot has been offering that on its network with no fees for a while now,” she added.

One area that Brown expects prepaid cards to grow is the small business space.

A perfect example of this is Bento, she said.

Founded in 2014, Bento for Business provides expense management solutions as well as  prepaid cards to SMEs. Bento Prepaid Commercial is powered by MasterCard. More recently, it teamed up with Brink’s Company to launch a new Travel & Expense Debit Card. The card is powered by MasterCard and issued by The Bancorp Bank.

Factors that will likely impact the prepaid industry in 2018, according to Brown, are no doubt regulations, but also the changing nature of virtual wallets.

“It’ll be interesting to see how the dynamic plays out, especially now that Apple is going face to face with Zelle and Venmo,” Brown said. “But then there’s Walmart Pay, that claims to have better penetration than Apple, so we’ll see what happens there.”

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