The Rise of Prepaid Cards

At present, the prepaid payment card industry in Australia remains predominately the domain of gift cards, travel cards, assorted general purpose products for disbursements as well as spending cards for youth and migrants. But as the world continues to explore alternatives to traditional banking methods, the prepaid card industry is set to explode into a US$3.1 trillion market by 2020.

Mark Korogiannis is the Head of Prepaid Products at Indue and explains that while prepaid cards have experienced sustained growth in Australia over the years, there is plenty of cause to believe this will change in the near future.

Prepaid cards in Australia

Around the world, prepaid cards are seen as flexible tools that solve any number of payment challenges especially in markets where people have little or limited access to affordable and versatile banking options.

“We have seen examples of this in the US and some areas of Europe. In Australia, we’re fortunate enough to have ubiquitous access to a robust banking system which is typically affordable and feature rich,” Mr Korogiannis said.

So, for now, prepaid cards in Australia remain dominated by gift cards, general purpose spend cards and as an option for consumers without access, or the desire to adopt, traditional payment cards like credit cards.

“They are also an effective tool for handling payroll, insurance and benefits disbursements as well as a mechanism for rewards and incentives,” Mr Korogiannis said.

But in isolation they are not an effective way for Australian businesses to generate revenue, Mr Korogiannis explains.

“In other markets, program managers have more favourable vectors of revenue generation to help a prepaid product’s business case stack up, for example through interchange and interest on deposits,” he said.

“Now both of those quantums in Australia are very, very low, so you cannot support a prepaid card program in Australia if all you rely on are those two revenue streams. You need to supplement business cases with other revenue sources such as product fees and justify these fees through solving a customer problem or providing a service beyond just the payment vehicle.”

How fintech will drive the prepaid revolution

There are two main reasons why the prepaid card sector is set to rise in Australia; the first being they provide great tools for innovation in the fintech space.

Traditional banking methods, credit and debit cards, offer many features but are not very agile with significant barriers to entry for new programs. So for innovators looking to challenge the payments market, prepaid cards are seen as an effective option.

“There is a lot of noise around prepaid at the moment, and that is really being driven from fintech innovation players,” Mr Korogiannis said. “They are actually quite drawn to prepaid cards as a mechanism to bring their products to market.

“It is often a lot easier to innovate using prepaid than by potentially modifying a core banking platform or a credit or debit card system.

“That’s where you find a lot of opportunity to provide cardholders with some newer features and functionalities associated with prepaid that perhaps the banks can’t replicate very quickly or don’t have the appetite to provide.”

The New Payments Platform to speed up the prepaid process

The second shift comes from the banks themselves, with the New Payments Platform (NPP) drawing closer to becoming a reality.

This fast, versatile, data-rich payments system will pave the way for payments in real-time, which Mr Korogiannis says could be a strong compliment to the prepaid card market.

“We anticipate that when the New Payments Platform (NPP) rolls out,” he said, “that the exchange of funds between individuals will be close to immediate. As a result we anticipate the opportunity to leverage some of the services of the NPP to support innovative applications for prepaid products.

“For example, you could perform an instantaneous load on the product via the NPP eliminating some of the challenges around instantaneous top ups of reloadable prepaid cards.

“If I can top the card up almost instantaneously, the fact that I can only have $5000 or $1000 on it at a time is less of an issue. So then it becomes more viable as a daily spend tool.”

The merging of prepaid cards and mobile wallets

Utilisation of mobile wallets and payment platforms like Apple Pay is still in its infancy relative to the provisioning of prepaid cards, Mr Korogiannis said.

“Mobilisation of payments and the virtualisation of form factors is likely to be the next frontier in terms of prepaid products that will increasingly migrate into wallets like Apple Pay and Google Pay.”

“I think it is fair to say that the initial roll out strategy focused on the provisioning of credit and debit cards to mobile wallets. But as issuers, schemes and program managers increasingly turn their attention to prepaid products, we will see more and more ‘mobile first’ prepaid card deployments taking off for sure.”

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