Prepaid card use grew more than 50% from 2012 to 2014, according to a Pew survey.
That growth is largely due to the convenience prepaid cards deliver unbanked and underserved consumers who benefit from electronic payments without having an account with a traditional financial institution, says Stacy Jensen, prepaid product manager at CPI Card Group.
Another growth factor: Increased adoption by millennials, who appreciate the convenience of prepaid cards and often use them as a budgeting tool, she says.
“Findings from a September 2014 Philadelphia Fed report, "Millennials With Money," identified millennials as making up 45% of overall prepaid card users, suggesting that the segment is an ideal target population,” Jensen says.
She recently discussed how prepaid cards may evolve in the future with Credit Union Magazine.
CU Mag: How have prepaid cards changed over the years?
Jensen: In the past, prepaid cards were predominantly physical and single-use. That has changed quite a bit over the years, from the emergence of reloadable cards to how open-loop digital—or virtual—gift cards are being embraced today.
The reusability of prepaid cards has especially changed the way they are used, having equipped consumers with greater versatility in managing their transactions across digital and mobile payment platforms in addition to conventional formats.
CU Mag: What’s a virtual prepaid card?
Jensen: A virtual prepaid card, sometimes referred to as a digital gift card, is the online equivalent of a physical gift card, allowing users to make purchases through e-commerce sites on the internet.
The digital gift cards that most people are familiar with come from specific retailers and are uniquely set up with each retailer’s payment process.
Open-loop digital gift cards are the natural evolution of virtual prepaid cards, delivering flexibility and consumer convenience to consumers. Open-loop digital cards can be used anywhere and involve a payment network such as Visa, MasterCard, American Express, or Discover.
They are attractive because they capitalize on the rise of mobile and e-commerce trends.
CU Mag: How will prepaid cards evolve in the future?
Jensen: Although it may not be widespread yet, consumer adoption of mobile payment methods such as Apple Pay®, Samsung Pay® and Android Pay® continues to grow.
Prepaid cards, much like all other payment methods, will have to adapt as the use of mobile wallets grows to offer easily integrated payment convenience to consumers.
Additionally, security concerns will continue to grow, requiring prepaid cards to bring a proactive approach to protecting consumers and securing card data.
In particular, the industry is anticipating that EMV [Europay, MasterCard, Visa] implementation in prepaid will pick up as the transition on the credit and debit side continues to progress and as solutions such as contactless dual-interface cards become commonplace.
Following that transition, emerging options such as tokenization, which can help prevent counterfeiting and online card fraud, can be expected to shape the next wave of prepaid cards.
Prepaid cards are also proving advantageous for a variety of new applications. For example, many transit organizations across the U.S. are investigating open-loop prepaid cards as a method for payment. This approach would afford consumers significant flexibility while capitalizing on the security and reloadable features of the cards.
CU Mag: What revenue opportunities do prepaid cards offer CUs?
Jensen: People want options—something that especially comes into play during the holiday season when gift cards are purchased in large volumes.
We’re finding that increasing numbers of consumers who purchase gift cards online want the option to buy physical or digital gift cards. And as credit unions adapt to increasingly tech-savvy consumers, the ability to offer such variety of physical and digital options can create revenue growth opportunities in general and particularly over the holidays.
CU Mag: What are some prepaid card best practices CUs should employ?
Jensen: A critical and timely area of focus for best practices is security. Prepaid card fraud continues to increase, with magnetic-stripe prepaid cards being ripe targets for fraudsters.
Additionally, the threat of data breaches that plague organizations on a seemingly regular basis looms over prepaid cards and the information they hold.
Although the prepaid industry is experiencing a dilemma over whether to embrace the migration to EMV, these issues present a strong case for why credit unions should invest in EMV for the prepaid cards they offer customers.